Dan Calabrese

The Associated Press described it glowingly as “rare bipartisan agreement over the seriousness of the jobless situation.” But there is nothing rare about what Congress did yesterday. When unemployment is high, Washington spends.

Don't know much about economy.

You probably know that there is supposedly a 13-week limit on unemployment benefits. You may or may not know that the limit is largely meaningless, because Congress extends it any time Congress wants to, regardless of which party is in control.

And as we saw from yesterday’s 403-12 vote in the House, it doesn’t matter which party runs the show anyway. Few members of Congress are willing to oppose an extension of unemployment benefits when unemployment is, for all intents and purposes, 10 freaking percent.

But yesterday’s vote is a quintessential example of how Congress and the Obama Administration are doing nothing to make the situation better, and a lot to make it worse.

Yesterday’s $24 billion spendfest does two things: A) It extends unemployment benefits another 13 weeks. The price tag for that is $2.4 billion – chump change by Washington standards, which is of course the kind of thinking that leads us to deficits north of $1 trillion. And they’re already declaring that they’re going to do it again in another 13 weeks. B) It extends the $8,000 homebuyer tax credit, which the National Association of Realtors estimates has resulted in 350,000 people buying home who would not otherwise have done so. That one costs $21 billion.

So what could be wrong with this? Jobless people getting $300 a week to buy groceries? That glut of homes finally starting to sell? This is what we want, right?

No.

First of all, with respect to unemployment, the solution for unemployment is that people find work – whether that means they get hired by someone else or they create their own entrepreneurial opportunities. In either case, the ability of the business sector to spend cash on products and services is crucial to people’s ability to do this. Guess how Congress “paid for” the extension of these two generous offerings. They did it by “delaying” a tax break for multinational companies that pay foreign taxes.

Who could object to that? Multinational companies have a lot of nerve expecting a tax break when people are out of work, right?

Wrong. The reason they’re supposed to get the tax break in the first place is that they’re essentially being double-taxed on their income. It’s not so much a tax break as it is a correction of an unfair glitch in the system. The result of that correction would be to free up capital these companies can invest in whatever allows them to grow the businesses, which in many cases would include either hiring new people, bringing back people who were laid off or contracting for services offered by independent contractors.

Instead of freeing up this capital, Congress took it away and sent out unemployment checks. The double-taxation is part of how Congress contributed to the problem in the first place. Yesterday, Congress decided to delay the solution to the problem it created.

With respect to the homebuyer tax credit, how did we find ourselves with a financial market meltdown in the first place? It happened because Congress put the muscle on banks to lend money to people who really had no business buying homes, and wouldn’t have the ability to make their mortgage payments. Now, Congress is incentivizing people to buy homes with tax credits.

See a pattern? You’ve still got an awful lot of people making home purchases – not because they decided it was a rational choice of their own volition – but because Congress pushed them to do so. Either way, you’ve still got home purchases that would not happen if the market were left alone to function on its own. Congress did this because, during the housing boom, developers built too many houses and now there’s a glut of them. That’s too bad, but you don’t make the situation better by creating artificial incentives for people to start making purchases. In many cases, the people who bought houses just to get the tax credit are going to end up in foreclosure because it was not an otherwise smart decision.

The economy collapsed at the end of last year because the federal government messed around in the market, incentivizing too many people to do things they would not ordinarily do, and backing up many of these ill-advised purchases with federal guarantees. Now they’re doing it again, and to pay for it, they’re taking money away from the private-sector companies who could be providing these people with the kind of income that would actually make a home purchase a rational decision.

The structural insanity in the nation’s economy only gets worse when Congress does stupid things like this. The fact that they did so in a bipartisan fashion only demonstrates that hardly anyone in Washington really understand economics, or understands the mistakes that led us to this point in the first place.

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