Market drift. The markets kind of drifted this week. But they drifted the way you drift off to sleep when you’re trying to stay away—with fits and starts. We saw a 100 point jump in the Dow on Tuesday, and a 100 point drop on Thursday, but at the end of the day Thursday, the Dow was within just a few points of where it opened on Tuesday, despite all the gyrations.
Why the gyrations? The unemployment number played a role in this week’s dynamic.Because of the holiday, the monthly unemployment number, which we normally get on the first Friday of the month, was delayed until this week. That single indicator has become a market driver. In its absence, the markets tend to startle at shadows. When the unemployment number came out, it was underwhelming. The rate dropped to 6.7 percent, which is a pretty big decrease from the previous month’s 7 percent. But new job creation all but dried up—to 74,000 jobs—well below expectations.
Unemployment extensions. Let’s talk a bit more about unemployment: Congress debated this week extending long-term benefits for the unemployed. Sen. Jack Reed, D-R.I., sponsored the bill, and he said that “week after week” 70,000 “lose support” while Congress “talks and talks and talks.” I have to respectfully disagree. To begin with, that’s simply not true. Many of those people, when faced with the certain prospect of an end to benefits, actually find real jobs. That seems almost miraculous to someone like Reed, whose comment suggests the federal government is the only source of support for these people. But in the world outside the Beltway, motivation and economic incentives actually make a difference.
But what about the rest? But what about people who live in parts of the country with no jobs, or those who don’t have the right skills? That’s a great question, and we should both have compassion and provide real help to people in these situations. But paying them to stay where they are and let their skills and contacts continue to erode is not the right answer to the problem. Look at it this way, if extending unemployment benefits from six months to 10 months is good, why not six months to 12 months, or 18 months, or 2 years? Everyone knows that extending benefits indefinitely is bad.
What is the optimal length? But no one knows for sure the optimal length. A growing body of data suggests when people stay on unemployment for longer than six months, their future employment and income prospects get worse, not better. The American Enterprise Institute has suggested travel vouchers for the long-term unemployed, so they can move to jobs, rather than extensions. One thing is for sure: We don’t help the unemployed or the economy when we compensate the long-term unemployed to stay unemployed.