Current crisis makes strong case for real unemployment insurance

By Kevin Price

Millions of Americans have been on unemployment benefits for up to two years as we are told that the poverty levels have reached a high we have not seen since the mid 1990s. It affirms the old adage that the "more you tax something, the less you get of it and the more you subsidize something, the more you get of it." We are taxing wealth creation at levels we have not seen in years and subsidizing poverty at a pace we have not seen since President Bill Clinton declared it was "time to end welfare as we know it."

America's social spending programs are bankrupt and millions of Americans will soon follow suit, financially, as they stay locked in subsidized poverty. Now more than ever we need to reform our unemployment insurance by making it real insurance.

In the real work, if I drive like a maniac and have many accidents and tickets, my insurance premiums go up. If I drink and smoke, my life and health insurance premiums are higher. The idea is simple, there should be linkage between behavior and the cost of insurance. If those who were receiving benefits knew that their costs for unemployment insurance would go up once they had a job based on how they managed their benefits, they would behave in a very different manner.

Those who support free market solutions to things like Social Security will find unemployment a much easier thing to tackle. After all, the number of people who will ever need unemployment insurance is considerably less than those who will need Social Security. Therefore it is "safer" to implement in this arena, than in something like Social Security. In other words, it would be perceived as a "minor experiment," rather than a radical shift in policy.

Unlike traditional unemployment insurance that pays people while they look for work, a true insurance could be used in far more practical and innovative ways. For example, a private policy could have substantial flexibility in plan design, allowing individuals to store up money for the purpose of creating a business at the event of unemployment. This is something many would find attractive and would easily build political support. With unemployment at the highest level in three decades, an approach like this would resonate with millions of hopeless Americans..

An approach like this would be particularly beneficial for the huge number of Baby Boomers approaching retirement age (and many being vulnerable to being laid off), yet not having sufficient savings. These maturing Americans would love to have a "tool" like this to protect them. This would create a huge amount of political support and momentum.

The benefits of a private policy would be numerous:

* People would be able to design plans to meet their specific needs. For example, the cost of the plan would be lower based on the weeks it take for it to go to effect. The plans could have the option of being paid out weekly, bi-weekly, or monthly. They could be used for looking for employment or creating a business.

* People would have an incentive to get back to work quicker (or to create a business), in order to keep their rates as low as possible. Over usage would lead to higher rates, similar to the way other insurance is determined. The benefits to the economy would be obvious.

* It would contribute to a growing economy as revenues moved from government bureaucracies to private enterprise, both in premiums (which insurance companies would use for investments) and in the creation of new businesses because of the policy designs.

Despair is rampant and the strains on government due to social spending are at a high we have not seen in decades if ever. Americans are seeking answers that make sense both fiscally and when it comes to recognizing human behavior. They want their financial futures to be in their hands and not the government's. Privatizing insurance is a great step in restoring individual responsibility and economic vitality.

© Kevin Price