Saturday, July 24, 2010

Incentivize Good Behaviour

Unemployment benefits were extended this week when Democrats finally got enough votes to overcome Republican objections. The Republican's primary objection was that the roughly 30 billion dollars the extension would cost was not paid for. It would just be added to the debt. While that objection is factually correct, I believe their objections were actually based on political rather than balance sheet calculations.

I was particularly intrigued by another objection from some Republicans that extending unemployment benefits actually did more harm than good. They reasoned that many people were unemployed because it was easier and better to just stay home and collect the unemployment benefits. Cutting off the benefits would give these lazy people an incentive to get off the couch and get a job.

As I've said before, Republicans like simple ideas. Remember "Drill, Baby, Drill"? How about "Benefits Enable Indolence" or "Incentivize Work, Not Laziness"? No, too many syllables.

After I thought about this a while I decided maybe they were on to something. Some people probably do prefer unemployment benefits over a pay check.

The economy is still very sluggish. I've heard it said many times that the engine of growth is small business and they are just not creating many new jobs. Only when small business is creating jobs will unemployment come down and the economy really pick up. How do we incentivize small businesses to create new jobs?

Then the other day I heard a pundit say that we need to extend the Bush tax cuts to the very rich because many small business people are in this rich group and we don't want to hurt them. That's when the light bulb went off.

Small business is not creating new jobs because they have gotten lazy. They did very well under the Bush administration. If we don't extend their tax cuts, their income will go down. Just like the lazy unemployed, this decrease in income may be just what small business needs to get them off the couch and incentivize them to start growing their businesses. Small businesses that grow will recoup their lost income and create jobs for the few unemployed who prefer pay checks over unemployment checks. That in turn will fire up the economy.

I'm looking forward to seeing some Republican support for incentivizing small business growth by not extending the Bush tax cuts to the richest Americans. Finally something we can agree on.

Then again, maybe not. If Republicans and I are right and all we need are the right incentives for small businesses, then the economy will fire up and unemployment will go down. With the economy under control, President Obama and Democrats are more likely to get elected. Republicans are not going to like that.

So now we need to figure out an incentive for Republicans to help grow this economy.

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