By John Hood
Raleigh, NC – We will probably never know how much of our money was squandered during the pandemic by reckless politicians. But here are two damning numbers to start with: $400 billion and $855,000 per job year.
The first is a reasonable estimate of unemployment-insurance payments either improperly paid or stolen by fraudulent claimants. As you may remember, one early congressional response to the onset of COVID-19 was to add a bonus of $600 a week to UI checks and to make it easier for people to claim those benefits.
Essentially, politicians turned UI into an honor system. Of course, dishonorable people pounced.
A few days ago, the U.S. Department of Labor’s inspector general announced that at “the low end” $191 billion was paid to people who didn’t qualify but that missing data and delayed reporting prevented a full accounting. Matt Weidinger, an American Enterprise Institute scholar and former staffer at the U.S. House Ways and Means Committee, puts the total amount of improper UI payments at closer to $400 billion, or 40 percent of the total. “Significant shares were likely stolen by overseas criminal gangs, including in China and Russia,” Weidinger observes, and their schemes often began by stealing identities.
That’s what happened to me. I teach part-time at Duke University. A couple of years ago, university officials contacted me to ask why I, an adjunct faculty member, had filed an unemployment-insurance claim. I assured them I’d done no such thing. I submitted paperwork to Duke and reported the incident to law enforcement. Alas, it is my understanding that at least some UI payments were paid to my identity thief, anyway.
Now for the other number: $855,000 per job year. That’s the estimate AEI scholar Stan Veuger and University of California-San Diego economist Jeffrey Clemens put on the amount of COVID-era federal aid distributed to states and localities to prevent government layoffs divided by the number of positions that could reasonably be construed as “saved” per year by that aid.
As I’ve argued many times before, the federal government’s multi-trillion-dollar fiscal response to the pandemic was panicky and excessive. North Carolina was among the jurisdictions that received far more (borrowed) federal cash than was needed to cover revenues lost or new expenditures truly necessitated by the disease itself and the economic consequences of COVID-era shutdowns.
The best defense of all this is that politicians were mistaken but acting in good faith, that hindsight is 20-20. It’s a poor defense. Critics warned at the time that expanding the eligibility and amounts of UI benefits would have adverse consequences, both wasting money and slowing reemployment, and that states and localities didn’t need the massive sums Congress was about to throw at them. But many politicians had long sought to expand unemployment insurance and the federal government’s role in funding state and local governments. They capitalized on the crisis — with other people’s capital.
The only way to prevent this from happening again is to erect legal guardrails. Veuger and Clemens suggest, for example, that Congress should either institute preset formulas instead of a discretionary process for granting aid or that federal grant programs should be converted to loans that states and localities must repay.
Such steps are worth taking but we need to be thinking even bigger. With unemployment insurance, for example, we ought to devolve the program more comprehensively to state governments, forbid any extended benefits funded by Washington, and make it more expensive for states to borrow federal funds when their UI trust funds run out. That will encourage state policymakers to police fraud more aggressively and keep their benefits in line with fiscal realities.
More generally, we need to get the federal government’s finances under control. There should be a constitutional requirement that its operating budget be balanced, and that it borrow only to fund physical capital such as federal buildings and military assets.
Let’s do something. The next crisis will again test the willpower of politicians. They’ll fail again.