Guest Post: Unemployment Insurance Schemes And The Dependency Of Welfare

Tyler Durden's picture

Submitted by James Miller of the Ludwig von Mises Institute of Canada

Unemployment Insurance Schemes And The Dependency Of Welfare

In the Garden of Eden there is no scarcity.  Food, clothing, and shelter in are abundance.  Resources merely fall from the heavens upon command.  It is economic paradise precisely because economics does not exist.  The universal laws that hold in the world of scarce goods vanquish in the land of the plenty.

The vision of Eden is the politician’s main source of employment.  That is, promising to lead the suffering masses toward utopia by government decree makes for great electoral results.  The voting fodder ignorant of economics falls in line to cast a ballot to grant themselves other people’s money.  But of course many voters don’t see it this way.  Their vision of the state is that of Eden.  They see the bureaucrats and enforcers capable of tapping an infinite pot of wealth to pass along prosperity to those subservient enough to put them in office.  This in turn has lead to the establishment of the welfare state and its plethora of entitlement programs.

For those who see the modern day welfare state as corrosive to the productive capacity of any given country, no where is this theory more evident than the scheme of unemployment insurance.  In a recent National Post article, the entitlement attitude was on full display:

Jenna Somerton views her layoff from a job at Algonquin College in June of 2010 as a blessing in disguise: She lived on employment insurance benefits for eight months, took stock and decided what she really wanted to do with her life.

Of course, she admits to taking advantage of her EI cheques at the beginning, after hunting for a job with no luck.

“I was thinking ‘Free money, the government owes me, I paid for school … I deserve this,” the 27-year-old Ottawa resident says now.

She soon got serious, using the subsidized income to hatch plans to start her own web development business. Some of her friends, she said, have not been so diligent.

“I’ve known lots of people on EI and I know a lot of them just stayed on EI and as soon as it ran out they started freaking out and then they started looking for jobs…. [The government] makes it so easy.”

In Ms. Somerton’s view, it is the government that owes her and she is rightly deserving of the “free” money.  Her error is unfortunately not unique.  The notion of the government not restricted by the amount of resources it is able to squander from the private sector is hardly touched on in what passes for informed opinion.  The reading of the editorial section in today’s highly regarded newspapers often contains numerous recommendations on what the state can and should provide.  What is never eluded to is the real cost of government expenditures.  While it is a simple task to rattle off the dollar cost of a program, to truly gauge the price of the state, one must look at what may have been foregone to provide for the payment of taxes.

The proper understanding of government is that it is parasitical in nature.  It can only spend what it first forcefully takes.  Because the political class is beholden to how much theft it can get away with before sparking an enraged uprising, it also invents new schemes to not be reliant on tax collection alone.  This includes borrowing and accumulating debt; which is nothing more than the promise of future taxes.  And there is inflation which benefits the first receiver of new money, that is the state, to spend freely before prices adjust economy wide.

Whatever the devious method, each comes at cost to the taxpayer.  Again, the nominal price of taxation by itself is easy to calculate.  What is often neglected is what the pilfered funds could have been used for if left in the necessarily more prudent non-public sector.  It was recently came to light how the great technological innovator Apple Inc. sets up branches in cities with low corporate tax rates in order to lower its tax bill.  This is of course a great thing as Apple, constrained in income by how much it receives from consumers, is a better steward of scarce resources then the state.  Apple’s tax avoidance is obvious.  The further technological innovations financed by money the government bandits don’t help themselves to is not readily apparent.

The general public is blind to this state of affairs.  Many have been conditioned through years of public schooling to see the state as Eden.  The short term benefits of government transfer payments override any conceivable long term gains of genuine wealth creation in the private sphere.

Decades of the predominant welfare state have not only created a reliable voting constituency dependent on handouts, it has perpetuated the Santa Clause-like image of the state.  What isn’t considered is the overall social degeneration that is a byproduct of the so-called “social safety net.”  As noted economist Thomas Sowell explains:

While liberals may think of the 1960s as the beginning of many “progressive” trends in American society, cold hard facts tell a very different story. The 1960s marked the end of many beneficial trends that had been going on for years — and a complete reversal of those trends as programs, policies, and ideologies of the liberals took hold.

Teenage pregnancy had been going down for years. So had venereal disease. Rates of infection for syphilis in 1960 was half of what it had been in 1950. There were similar trends in crime. The total number of murders in the United States in 1960 was lower than in 1950, 1940, or 1930 — even though the population was growing and two new states had been added. The murder rate, in proportion to population, in 1960 was half of what it had been in 1934.

Every one of these beneficial trends sharply reversed after liberal notions gained ascendancy during in the 1960s. By 1974, the murder rate had doubled. Even liberal icon Sargent Shriver, head of the agency directing the “war on poverty,” admitted that “venereal disease has skyrocketed” even though “we have had more clinics, more pills, and more sex education than ever in history.”

As for black economic advances, the most dramatic reduction in poverty among blacks occurred between 1940 and 1960, when the black poverty rate was cut almost in half, without any major government programs of the Great Society kind that began in the 1960s.

Why be productive and take of yourself when someone else picks up the tab?  This isn’t a cold hearted question but a basic recognition that in most cases, leisure and immediate pleasure are preferred to delayed satisfaction.

Back to unemployment insurance, no matter how much it is denied by entitlement apologists, there is no escaping the truth that if someone is paid not to work, they will generally not work.  As Murray Rothbard writes in his magnum opus Man, Economy, and State:

For almost all actors, leisure is a consumer’s good, to be weighed in the balance against the prospect of acquiring other consumer’s goods, including possible satisfaction from the effort itself.

People will always be economizing beings who make choices between how they spend their time and where they dedicate their labor.  The National Post article makes mention of this consideration among those on the dole as small business owners…

have found themselves competing with the EI system for workers who are weighing opportunity costs: Would I toil in a hard labour job for $10 an hour or not go to work for roughly the same amount of cash?

This reluctance to work was documented in a 2009 survey which found many businesses unable to hire those on the unemployment rolls:

A CFIB survey published in September, 2009, found 22% of small businesses owners had trouble hiring people who are on EI, as workers said they would rather continue collecting benefits than work in the more hands-on jobs. Another 16% said that in the past year, they had had an employee ask to be laid off so he or she could collect EI benefits (these rates were higher in Newfoundland and Prince Edward Island).

This is all a consequence of the welfare state which has institutionalized poverty instead of relieving it.  The real beneficiaries of entitlement programs are not the recipients but those who maintain their positions as gatekeepers to the money.  The saddening dependency of others and the government’s monopoly over coercive tax collection is what provides them a steady stream of income.

As long as the public still operates under the fallacious assumption that the state is costless, they will continue to vote themselves into destitution.  Living standards will decline as productivity gains begin to taper off.  A generation of the entitled will soon find themselves deserving of nothing because the real wealth producers will have long since abandoned their efforts to serve others.

Host bodies only ever have so much blood to give.

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zorba THE GREEK's picture

Soon, those on welfare will outnumber taxpayers and we will see only Socialist

being elected to political office. At least, until it all comes tumbling down.

brewing's picture

grand plan, 99 weeks of unemployment followed by going on disability for chronic back pain from laying on the couch all day watching E!...

crawldaddy's picture

go live on 14k a year genius and get back to me how well this plan is working for you.



Joe The Plumber's picture

Plus subsidized housing plus subsidized insurance and a little work here and there in the cash economy. Oh and dont forget the foodstamps

For the peoPle i know who value free time more than material possessions they are loving it

midtowng's picture

I'd bet money that you don't actually know anyone doing it and loving it.

Joe The Plumber's picture

I work with hundreds of them in a medicaid clinic. I spend all day long with disability types three days a week

And now I am an expert in government bennies. It is useful to know how to efficiently work the system cuz u never know

Dr. Sandi's picture

I never knew there was a "disability type."


I did, however, know there was a plumber type. I've met quite a few and they're all slovenly assholes.

Joe The Plumber's picture

The disability type

They never get better cuz they would lose bennies. They always have a reason why ur suggestions wont work or they tried it before and it didnt work. They always emphasize how terrible their kids are and how severely emotionally disturbed they are. They say those things to me right in front of their children. They can never think of anyrhing nice to say about their own kid for fear he may not qualify for a disability check

Yohimbo's picture

I cant wait to shoot these zombies when they are clawing at my door.

Harlequin001's picture

You know, since I'm still working I was thinking about adopting a few hundred thousand unemployed families.

Oh, I already have...

Gavrikon's picture

Cool.  I see we have approximately 6-8 Prog Trolls on the site.  Thank God theat they are well and truly outnumbered here.  No wonder I come to ZH for a dose of sanity, especially after hitting Marketwatch and CNBC.

Augustus's picture


I suspect the plumbers consider you the perfect prick.  Hope they charge accordingly.

Xkwisetly Paneful's picture

This is not complicated to see, oil and gas is paying mega bucks for labor in some parts of the country while in a period of high national unemployment.  It's nonsensical, just about the entire development of the country is one where people wanting to  get ahead moved to whereever prosperity happened to be.

beachdude's picture

Dr. Sandi, who isn't feeling to good about themselves today, hmmm?

adr's picture

Ever take a stroll through East Cleveland, thousands of people living off government benefits and loving it. Massive corporations are dumb enough to put stores near by, and the cops are too lazy to stop lifting. Free stuff all day long, and they expect it for free. Shoplifting isn't a crime to the ghetto type. It is unfair they don't get it for free. Whitey owes it to me, they say.

The only complaint they have is when another ghetto mama gets a new $200k project townhome before them.

Open you eyes, the new American Dream is sitting on your ass getting everything for free.

I bet you actually live off less than $15k a year out of your salary once all your bills are paid. Ghetto trash has more disposable income than 90% of the working middle class.

XF's picture

I'd have your money

BooMushroom's picture

I never ate better than during the three months that I qualified for food stamps.  I bought storable staples, too, that lasted more than six months later.

johnnynaps's picture

I ripped down $26k a year on unenjoyment. Great time! But, I looked at my stint as a big Fuck you to the state. I was happy not contributing hard earned dollars to the crony corruption! And, that materialistic assumption is spot on.

Henry Chinaski's picture

The government does not "owe" me.  It is exactly the other way around and I would be happy to call it even.  Stop

benefits, drop taxes and roll.

goldfish1's picture

it is the government that owes her and she is rightly deserving of the “free” money. Her error is unfortunately not unique.

The government does not "owe" me.  It is exactly the other way around

I can't get behind these statements...the whole friggin game is corrupt from top to bottom and somehow the ones at the bottom are the ones castigated for using the system to exist. Come know better. The unemployment rate is 20% why? Because there are no real jobs. The corporations have bought the congress and state govt and implemeted NAFTA. Jobs that paid a living wage went to China for a fraction of the labor cost. The corporations pocketed the difference. Period.

Welfare is the Corporate govt's crumbs to the people so that the rape of the the rest of the middle and upper middle class can continue unabated. Our country...yes the country that every citizen belongs systematically being stolen. Govt has been usurped by the 1% of the 1%.

Dickin around complaining 'bout welfare and unemployment money is useless to the cure.

BooMushroom's picture

And if the poor people had received the 30% of their pay that was withheld in taxes, and were able to save it?

If the businesses had the 30% they had to pay in taxes available to save, or to spend to maintain their business during this slowdown?


The point is, that the money for the welfare and the unemployment does not spring from the head of Zeus fully formed.  It has to be taken from someone who most likely would have put it to better use.

Gavrikon's picture

Even better, after you have pulled in whatever you and your employer have paid in unemployment insurance, you should look into opening your own business doing whatever "under the table," something which is virtually impossible here in Germany.  Stave the beast!

cougar_w's picture

I read recently in the newspaper (sorry don't have the link) that people are going on disability for stress brough on by ... 99 weeks of unemployment.

I had a guy working in my backyard a while back who was on disability after his UE ran out.

He was jackhammering out cement for me.

Young guy really strong great attitude worked hard and I paid him well and fed him in the bargain. I'll probably have him back. But he needed the money under the table to protect his "disability" payment. He said so and wasn't shy about it, and I didn't argue and could not have cared less.

One data point. Not much. But that's what I've seen.

Chuck Walla's picture

I read recently in the newspaper (sorry don't have the link) that people are going on disability for stress brough on by ... 99 weeks of unemployment.


The 99 weeks are over. Its 79 weeks now, Obama's U/E scam has tripped guidelines that reduce the number of weeks that are in that bill granting the 99 weeks.

LetThemEatRand's picture

Hey, thanks for all the italics and bold.  As you suspect, what you say really isn't interesting on its own, so that helps.

ZeroAvatar's picture

I had breakfast last week with an acquaintance who lives in town in s small trailer park.  His wife, he said, hired a lawyer

from (out of town)? and she had JUST got approved for disability.  I know this guy has no real job, and he and his wife

have problems, some drug use, 1 or 2 children.


  I began to explain to him how the gov't can't continue to borrow money to pay for people's entitlements, his wife

included, and he mumble something about how China 'owns us' and then his eyes glazed over and he stared silently

off into the distance.....I could tell he'd stopped listening.

cougar_w's picture

It really shouldn't trouble us that it's 79 weeks or 99 weeks. It may as well be 1,000 weeks.

Because the truth is, any number of weeks later, it's not going to work out.

The jobs went over the ocean and beyond the border to places like Mexico and China. The jobs are not coming back, ever. In lieu of jobs we got credit cards and 12% annual interest. The easy debt that then got us iPads and college degrees is going to haunt us all for a long time. The government and business colluded to set all this up. Nobody worried beyond the next quarterly reporting, or beyond the next election. It would all work itself out some day, some way.

But some day never came. And it's not going to either.

How did it come to this? I'm not entirely sure. I could make guesses, but it really doesn't matter anymore.

It really doesn't. Matter.

It might matter if you are wondering who to hang from a lamp post, but that's all.

Nothing new will await these people at the end of 99 weeks or 1,000 weeks. There is nothing coming their way. Not for ever and ever. Not for them and not for their kids and not for anyone ever. Only less will come, and want, and suffering, and regret. And they will start to decay like the rotting houses and cities around them, to return slowly to the earth.

To disappear.

People. Will disappear. 99 weeks and then unmade.

Gavrikon's picture

Yes, there ARE exceptions.  Especially this piece of shit.

poor fella's picture

I agree, but still buy American.

Since we don't make shit anymore, one can save quite a bit of money; although, I was at REI and a cot didn't scan. We got another box and she said, "it's 100 bucks! do you still want it?!?" yep.

And next time I'll get that metal cooler for 100 bucks.

So sick of throwaway products.

Gavrikon's picture

I buy American when I can.  Fender American Deluxe Strat, Blue Diamond Gussett Jeans.  Whatever . . .

LetThemEatRand's picture

bullshit.  You don't know how many children?  Nice story.  When you have no facts, make them up!

engineertheeconomy's picture

I wouldn't listen to your shit either.

Witchsmeller Pursuivant's picture

NOthing says "top quality argument" like a random, idolated, personal experience anecdote. 

LetThemEatRand's picture

Especially where the anecdote is complete made up.

Central Bankster's picture

You two are fucking clueless.  My best friend rehabs foreclosed properties and rents them.  Half his tenants are section 8.  He could tell you a 100 different stories in the 10 years he's been doing it.   The bottom line is that society is giving perverse incentives to the least capable people who also happen to be incentivized to reproduce more ignorant leeches.

LetThemEatRand's picture

So your fuck friend makes money off the government and bitches about it and you repeat his bullshit?

How much profit did your government teat sucking friend make last year, ass?

beachdude's picture

Hey let, what keeps you from just offing yourself? You're obviously in great misery. Also, how do you stop others from doing it for you?

Just wondering. Head cases like you have always fascinated me... how some choose to be like this.

Sabibaby's picture

Or... was he jackhammering you? Being that you're a Cougar and all...



I had a guy working in my backyard a while back who was on disability after his UE ran out.

He was jackhammering out cement for me.

Young guy really strong great attitude worked hard and I paid him well and fed him in the bargain. I'll probably have him back. But he needed the money under the table to protect his "disability" payment. He said so and wasn't shy about it, and I didn't argue and could not have cared less.


brewing's picture

"Anyone who can walk to the welfare office, can walk to work"

-Al Capp

GeorgeHayduke's picture

Right...because there are soooooo many jobs for people right now. Do you guys have any clue whatsoever? Or do you just prefer feeble attempts at humor? Good thing most of you aren't trying to make a living as a comedy writer.

brewing's picture

yes, i do.  unemployment is 4% where i live.  lots of jobs...

Vlad Tepid's picture

Do you live on an oil rig or something?

WorkingClassHero's picture

Stop bitching and go get an engineering degree.  I have one and have never had a problem finding a job.  All the engineers I graduated with have jobs as well.  Surprise!  Educated people are still in demand in the workplace.  You majored in communications didn't you?

Kobe Beef's picture

Exactly. There are never going to be jobs for adult populations reading at an elementary school level. Unless you count pressing license plates, or sitting on ass down at the local HUD or DMV as jobs.

HungrySeagull's picture

It can be done.

Debt freedom and austerity is key.

Oh, and living in low cost States compared to 14K a year rental or 20K a year house payments... See where I am going?

BigDuke6's picture

Dont all you people here posting have jobs to go to?

HungrySeagull's picture


Finished several decades and retired medically.

I take care of my Spouse.

Freddie's picture

LOL!  Lots of Hope & Change scum still junking here on ZH.  They love their is*amic.