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Saving the Economy Through More Jobless Benefits, Food Stamps

Are jobless benefits and food stamps the only hope for keeping the economy afloat? Motoko Rich: "Unless hiring picks up sharply to compensate, economists fear that the lost income will further crimp consumer spending and act as a drag on a recovery that is still quite fragile."

Monday's front-page story by Motoko Rich, 'Economy Faces a Jolt as Benefit Checks Run Out,' portrayed massive government spending on unemployment benefits and food stamps as an economic plus, not a potential drain.

An extraordinary amount of personal income is coming directly from the government.

Close to $2 of every $10 that went into Americans' wallets last year were payments like jobless benefits, food stamps, Social Security and disability, according to an analysis by Moody's Analytics. In states hit hard by the downturn, like Arizona, Florida, Michigan and Ohio, residents derived even more of their income from the government.

By the end of this year, however, many of those dollars are going to disappear, with the expiration of extended benefits intended to help people cope with the lingering effects of the recession. Moody's Analytics estimates $37 billion will be drained from the nation's pocketbooks this year.

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Unless hiring picks up sharply to compensate, economists fear that the lost income will further crimp consumer spending and act as a drag on a recovery that is still quite fragile. Among the other supports that are slipping away are federal aid to the states, the Federal Reserve's program to pump money into the economy and the payroll tax cut, scheduled to expire at the end of the year.

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Approved by Congress last December, the final extension of jobless benefits - for a maximum of 99 weeks for each unemployed person - is scheduled to conclude at the end of this year. A handful of states, like Wisconsin and Arizona, have already cut off weeks 80 through 99 for their residents. Meanwhile, more of the long-term unemployed are bumping up against the 99-week limit.

The Times has pushed warnings on unemployment benefits before, with news reports attacking Florida and Michigan for setting modest limits on continued funding of unemployment benefits. At least Rich briefly documented the free-market view that benefits can reduce incentives to find jobs, albeit in paragraphs 21-24 of the 25-paragraph story.

Some business groups argue that extending unemployment benefits has had deleterious effects on employers and potential workers.

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Some economic studies show that people who collect unemployment benefits are less likely to look for or accept work until their benefits are close to running out.

'Unemployment insurance extends the typical amount of time that people will spend off the job and not looking for work,' said Chris Edwards, an economist at the Cato Institute, a libertarian organization.