The Economist takes to task with a scalpel Congressional opponents of extending unemployment benefits.

There are two main reasons why Republicans oppose extending benefits: because the country cannot afford it, and because benefits, they believe, have given the unemployed an incentive to stay out of work. Neither reason is well founded.

The bill’s price tag, at $34 billion, is small—equal to just 2.5% of this year’s deficit forecast. With the American economy still convalescent, weak demand remains a bigger threat to recovery than indebtedness. Meanwhile, federal stimulus spending is on the wane and will become a net drag on output in the second half of this year. A bit more borrowing will help cushion the withdrawal.

Unemployment benefits may also be the government’s thriftiest option. When they exhaust unemployment assistance, many workers apply for Social Security Disability Insurance (SSDI)—a programme from which they are unlikely to return to the labour force. The lifetime cost of disability benefits is significant. By recent estimates, a shift of just 200,000 unemployed workers to SSDI could entail an increase in government lifetime costs of up to $24 billion. If unemployment benefits keep those people in the labour force, the savings could be substantial.

Nor have long-term benefits played much of a role in keeping unemployment high, as Republicans claim. A recent study of their effect, by economists at the San Francisco Federal Reserve Bank, pegged their contribution at just 0.4 percentage points of the close-to-10% jobless rate.

The main driver of joblessness remains the difficulty of finding work. A year into recovery, there are still nearly five workers for every new job opening. Such intense competition reduces the odds that a given worker will be hired and increases the length of time he will expect to be out of a job. Extended jobless payments will not be available everywhere, but only in states where the unemployment rate remains over 8%. That in itself will help with the problem of malingerers.

But if the extended assistance is not in itself problematic, it is nonetheless a reminder that something is deeply amiss in American labour markets. A year into recovery, job growth has been halting and alarmingly slow. In the year that followed the end of the 1981-82 recession, when the unemployment rate last exceeded 10%, 3.6m jobs were added. In June of this year, by contrast, employment remained below the level at the estimated end of the recession, one year before.

The length of the downturn (the longest since the Depression) and the weakness of the recovery have combined to generate an unprecedented rise in the rate of long-term unemployment. Nearly half of the country’s unemployed workers have been off the job for 27 weeks or more, and the average duration of unemployment has risen to over 35 weeks (see chart). In the best of circumstances, long-term unemployed workers struggle to find new jobs. Given the slow present pace of recovery, America risks the creation of a class of the structurally unemployed.

America’s present labour market policies cannot deal with this. A simple system of unemployment benefits served the country fairly well in the past. A flexible, resilient jobs market quickly absorbed idle labour, preventing the sustained detachment from the labour force that afflicted European economies in the 1970s and 1980s. But the system has been overwhelmed by current unemployment, and is ill-equipped for the job of putting the long-term unemployed back to work. To avoid repeating the European experience, America will need to adjust its strategy.

Finding an effective approach will be a challenge. Insufficient demand and slow job creation remain big problems. But new data also show that job openings are not supporting the expected level of new hires. Structural barriers to full employment may be to blame. Many displaced workers have obsolete skills. Others are locked in moribund job markets because their houses are unsellable, worth less than the mortgage loans they must repay.

The record of programmes designed to put the long-term unemployed back to work is also somewhat mixed. Job search and matching assistance would typically be the quickest way to cut the number of jobless, but not when the economy is as weak as it is now. Retraining workers, particularly in technical fields, can be effective, but the benefits accrue slowly over time. Job-finding bonuses may pep up motivation among the long-term unemployed, and could encourage them to move to places with more jobs.

Sadly, no quick fix is available. But the failure to change tack may prove costly, leading to slower growth and larger fiscal burdens. When Congress takes up the question of benefits again in November, it should bear this in mind: a failure to deal promptly with long-term unemployment will ensure that unemployment becomes a long-term problem.

Well, there is a micro-economic fix:

Tyler Cowen points out some other differences.

In recent times, Germany has shown signs of regaining a pre-eminent economic position. Policy makers have returned to long-run planning, and during the last decade have liberalized their labor markets, introduced greater wage flexibility and recently passed a constitutional amendment for a nearly balanced budget by 2016, meaning that the structural deficit should not exceed 0.35 percent of gross domestic product.

Amid the sluggish economies of much of Europe, Germany has booming exports and is nearing full capacity utilization. And many of its workers are postponing vacations to produce, and earn, more. The unemployment rate in Germany is 7.5 percent — below that of the United States — and falling.

Far from embracing this social democratic model, American Keynesians have criticized it for relying too heavily on exports and not enough on spending and debt. Yet it is not just the decline in the euro’s value that supports the German resurgence.

Most of the other euro-zone economies are not having comparable success because they did not make the appropriate investments and reforms. Moreover, the euro is still stronger than its average value since 2001, which suggests that the recent German success is not attributable only to a falling currency.

In any case, the Germans are exporting much quality machinery and engineering (not just glitzy autos), which can help other nations recover. It is an odd state of affairs when the relatively productive nations are asked to change successful policies because of an economic downturn.

The German government is also making credible long-term commitments to reduce its debt. Germany’s ratio of debt to G.D.P. has been hovering in the unhealthy range of more than 70 percent, and the country has one of the lowest birth rates in the developed world, which raises the question of how to pay for future pensions.

Yet many investors consider German bonds a haven, in part because the government has a reputation for addressing fiscal issues promptly and responsibly. It is working to cut government spending, although not in crucial long-term areas of research and education.

Germany is likely to continue having a higher relative level of government spending than the United States. But the German civil service has a stronger hand in writing legislation — a role that limits the sort of waste and short-term thinking that Congress injects into American law. It is also well understood in German political discourse that tax cuts need to be paid for.

The German economy is far from perfect. In addition to high taxes and a low birth rate, there are potential solvency problems in German banks, and these institutions lack transparency. Furthermore, poorer countries may need a looser monetary policy from the European Central Bank than Germany wishes to support.

Nonetheless, it’s a common German attitude that adding debt, whether private or public, will not solve those problems. In fact, debt can provide the illusion of relief and thus postpone their resolution. Increased spending is a quick fix for what are very often more fundamental difficulties.

Here’s a kind of micro-economics-based conservatism I could vote for.

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