Unemployment benefits and speed limits

10 June, 2013 at 19:53 | Posted in Economics | Leave a comment

One way to think about this is to say that unemployment benefits may, perhaps, reduce the economy’s speed limit, if we think of speed as inversely related to unemployment. And this suggests an analogy.speed_limitImagine that you’re driving along a stretch of highway where the legal speed limit is 55 miles an hour. Unfortunately, however, you’re caught in a traffic jam, making an average of just 15 miles an hour. And the guy next to you says, “I blame those bureaucrats at the highway authority — if only they would raise the speed limit to 65, we’d be going 10 miles an hour faster.”

Dumb, right? Well, so is the claim that unemployment benefits are causing today’s high unemployment.

Paul Krugman

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