The Washington Post had a front page article reporting on the shortfalls facing state unemployment insurance funds as the unemployment rate remains in or near double-digit levels. At one point it tells readers that: "the troubles the state programs face can be traced to a failure during the economic boom to properly prepare for a downturn." This is not true. The state unemployment insurance (UI) programs were fully prepared for a normal downturn. They just were not prepared for the worst downturn since the Great Depression. It would be difficult to imagine states raising UI taxes in preparation for a downturn that was far more severe than any major economist predicted. The problem was the incompetent economic management by Federal Reserve Board chairs Greenspan and Bernanke, not the conduct of the states. It is also peculiar to call the years preceding the crash a "boom." The country had respectable growth in the years 2004-2007, but it was not a boom by any measure. [Correction -- this is in the "never mind" category of SNL fame. Gary Burtless points out to me that the state insurance funds were badly underfunded going into this downturn by any standard. While it is reasonable that they did not build up enough reserves to deal with the extraordinary downturn we are now seeing, the vast majority of states did not have sufficient reserves to even deal with a run of the mill recession. This was irresponsible as the article rightly claims. This information is contained in the article in a quote from Wayne Vroman at the Urban Institute, so this was just a case of sloppy reading on my part. The article does a good job in presenting the issue.]
--Dean Baker
