Terrific Bridge article on how hard it is for way to many out-of-work Michiganders to get unemployment insurance. The article’s title says it all: Michigan unemployment system designed to slow payments working all too well.

Bridge writes:

A big source of the problem, according to experts: The $52 million Michigan Integrated Data Automated System, known as MiDAS, a computer system designed to save money by flagging fraud, taking human review out of the unemployment claims process and using algorithms to identify “non-monetary issues” that end up delaying or invalidating claims.

“MiDAS was programmed to assume people were guilty, and because of that programming, when it’s needed, people aren’t getting their benefits,” said Tony Paris, an attorney for the Sugar Law Center in Detroit that has sued Michigan over its unemployment system.

… When Michigan set out to overhaul its unemployment insurance system a decade ago, its top priority wasn’t ensuring timely benefits for residents  or building capacity to handle huge claims in the event of a recession — let alone a pandemic. 

It was to “reduce the costs of operations” by weeding out fraud and streamlining the claims process, according to a 2010 request for bids issued in the waning days of former Gov. Jennifer Granholm’s administration. 

The Michigan unemployment insurance application process is designed, first and foremost, to catch those who don’t “deserve” public benefits. So we end up with an application process that takes way too long to help people who need benefits to pay the bills now. Not to mention has long and confusing applications that are difficult for many to complete so that it, almost certainly, keeps benefits from far more who are eligible than screens out those who aren’t.

And its not just unemployment insurance that is designed to make it hard to get safety net benefits. This is a structural problem that requires a complete redesign of all of Michigan’s safety net programs.

This catch the so-called undeserving and/or the fraudsters first approach to safety net design of course has real life consequences. It means far too many Michiganders out of work through no fault of their own or who need safety net benefits to supplement their low-wage work can’t afford the basics: food, housing, health care, child care, transportation and so much more.

Today’s economic reality––not to mention the lesson we should have learned from the Great Recession––should make clear to all of us that a vast majority of those struggling economically and without any safety net to deal with emergencies are hard working Michiganders. Who, like us, get up everyday and work hard to earn a living. That the prime reason for so many struggling is not irresponsible adults coddled by a too-generous public safety net, but rather an economy, even when it was booming, has too few jobs that pay family-sustaining wages and provides health coverage and paid leave.

Neel Kashkari, president and chief executive of the Federal Reserve Bank of Minneapolis, summed up best what our approach should be to the current economic crisis when he wrote:

Err on the side of helping as many workers and businesses as possible rather than on prudence. This is not the time to worry about moral hazard or whether people are incentivized not to work. When the covid-19 crisis is behind us, if our biggest complaint is that some workers and small businesses got help when they didn’t really need it, that would be a wonderful outcome for our country.

The Bridge article is more evidence, as we have explored previously that Michigan need to go to a no red tape cash-based safety net. It is far past time that Michigan both expand safety net benefits––we have been going in the opposite direction for more than a decade––and make it far easier to apply and receive those benefits. As Kashkari concludes: that would be a wonderful outcome for our state.

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In a terrific Washington Post op ed Neel Kashkari lays out Great Recession lessons that should guide us in dealing with our current pandemic-driven economic collapse.

Kashkari is president and chief executive of the Federal Reserve Bank of Minneapolis and oversaw the Troubled Asset Relief Program during the Great Recession for Presidents Bush and Obama.

Kashkari’s Great Recession lessons summary:

I oversaw TARP during the George W. Bush and Barack Obama
administrations, and my experience underscores that if there is a principle policymakers need to keep in mind going forward, it’s this: Err on the side of helping as many workers and businesses as possible rather than on prudence. This is not the time to worry about moral hazard or whether people are incentivized not to work. When the covid-19 crisis is behind us, if our biggest complaint is that some workers and small businesses got help when they didn’t really need it, that would be a wonderful outcome for our country.

Exactly! We provided too little aid and what we did provide came with way too many strings attached. Kashkari writes:

Policymakers should learn from perhaps the biggest mistake we made in 2008: We targeted our programs too narrowly, and they ended up being less effective than the country needed. Being prudent stewards of taxpayer resources is, of course, always important, but when a crisis is raging, the speed and scale of interventions are paramount. Congress and the Bush and Obama administrations enacted multiple programs to help homeowners avoid foreclosures. None of them was highly effective because they were all targeted to homeowners who needed only a little help. Americans were angry at the thought of their “irresponsible” neighbors getting a bailout. By applying numerous criteria to make sure only “deserving” families received help, we narrowed and slowed the programs dramatically, resulting in a deeper housing correction, with more foreclosures than had we flooded borrowers with assistance. The American people ultimately paid more because of our attempts to save them money.

What does this mean today? Think of firefighters putting out a fire. If their primary aim is to conserve water, they increase the odds of losing control of the fire.

The $2 trillion legislation includes many provisions to help both businesses large and small and the millions of Americans who are losing their jobs. As implementation begins, officials will be tempted to develop complex rules to decide who will qualify. For example, if each of the thousands of struggling small businesses needs to be individually vetted, the program is likely to be too slow to meaningfully help the economy. While the U.S. economy can bounce back from a crisis fairly quickly, it took more than 10 years after the 2008 crisis to rebuild the labor market. We can’t let that happen again. Let’s learn from history and douse the raging fire — before it becomes uncontrollable.

Unfortunately, our initial response in both Washington and Lansing, looks like we did not learn Kashkari’s Great Recession lessons. Although substantial, the aid has been too little and too time limited to deal with the hardships that workers and small business owners are experiencing now and for years to come. And the aid clearly comes with way too much red tape.

The economic harm of the pandemic-driven lockdown is going to last far longer than the currently available aid. And to make matters worse, even if the available aid was designed right, it is not very effective because households and small business can’t get the aid.

As we explored in a previous post what way too many Michigan workers and small businesses are going through today to get safety net benefits make clear that we need to go to no red tape cash benefits.

The main reason for how difficult it is to get much needed benefits is that the system is designed to catch those who don’t “deserve” public benefits. So we end up with an application process that takes way too long to help people who need benefits to pay the bills now. Not to mention has long and confusing applications that are difficult for many to complete so that it, almost certainly, keeps benefits from far more who are eligible than screens out those who aren’t.

Today’s economic reality should make clear to all of us that a vast majority of those struggling economically and without any safety net to deal with emergencies are hard working Michiganders. Who, like us, get up everyday and work hard to earn a living. That the prime reason for so many struggling is not irresponsible adults coddled by a too-generous public safety net, but rather an economy, even when it was booming, has too few jobs that pay family-sustaining wages and provides health coverage and paid leave.

As Kashkari wrote what we need now from policymakers in both Washington and Lansing is to “Err on the side of helping as many workers and businesses as possible rather than on prudence.”

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“Almost everywhere I go, businesses tell me they can’t find workers. I always ask them the same question: ‘Are you raising wages?’ Usually, the answer is ‘no.’ When you want more of something but won’t pay for it, that’s called ‘whining,’” he told the ninth Regional Economic Indicators Forum (REIF), founded and co-sponsored by National Bank of Commerce. “Until you’re paying more, I know you’re not serious.”

Exactly! As we explored previously we all learned in our introductory economics class the way markets balance supply and demand is through price. Price goes up when there is more supply than demand, which draws more supply which eliminates the imbalance. You don’t need government.

Kashkari went on to urge employers to spend more on training, hire more ex offenders, do less drug testing and recruit more immigrants. He is arguing that employers are the answer to the problem they are these days complaining about the most. Business North continues:

Education is “enormously important,” Kashkari said, but so is on-the-job training. “Hey – if you need to train them yourself, then you need to train them yourself.” He also advised reducing some other requirements. “You know what? Maybe for this job we don’t have to do a drug test. Maybe for this job, we can look at people who have made mistakes and had a criminal record before,” he said.

… “The idea that we bring students here to get a great education here, then send them home, is insanity. That’s crazy. Second, if businesses really are short of workers, and here is a skilled worker and the business has the ability to sponsor them for immigration (but doesn’t) … then they’re not serious about workforce shortages. It’s really easy for businesses to say ‘I want skilled workers, and I want them cheap.’ If you want skilled workers, then you must be willing to pay for them – and if that means sponsoring someone to go through immigration, so be it. If that means paying enough to get them, so be it,” he said.

Seems like employers have developed a sense of entitlement. Government should provide them with the employees they need when they need them and with the skills that are needed. And, of course, that should be done with them paying little or no taxes. As we saw in my last post wages have been stagnate for almost forty years. And for those without a four-year degree––where employers claim they are having the hardest time attracting enough workers––they have been declining. This is not how markets work. The solution to the so-called skills shortage rests primarily with employers, not government. As Kashkari says its time for employers to stop whining and compete for the talent they need.

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