Saturday, August 13, 2011

Unemployment and Stimulation

Jay Carney, speaking for the president, repeated the adage that unemployment benefits serve not only as a stimulus to the economy, but are one of the most effective stimulus measures we have. When asked the other day how unemployment benefits create jobs he got sort of snotty with the questioner and said that, “I would expect a reporter from the Wall Street Journal would know this as part of the entrance exam."

I think if I was the reporter in question I would have suggested to him that he do something to himself that is unprintable, obscene and physiologically impossible. Carney went on, "There are few other ways that can directly put money into the economy than applying unemployment insurance."

Well, unemployment insurance doesn’t put money into the economy at all, because it is a program run by states which first takes money out of the economy in the form of taxes and then returns it in the form of benefits. It is cash neutral as to the economy. He is actually talking about unemployment benefits, which are benefits paid from funds not collected from employers in the form of taxes. He continued,

"It is one of the most direct ways to infuse money directly into the economy because people who are unemployed and obviously aren't running a paycheck are going to spend the money that they get. They're not going to save it, they're going to spend it.”

My first inclination is to get all sarcastic and say that if unemployment is so simulative, we should create a lot more unemployed people so that we could pay out a lot more unemployment benefits and we could have the economy booming in no time, but I’m not going to do that.

“Every place that, that money is spent has added business and that creates growth and income for businesses that leads them to decisions about jobs, more hiring.”

I’m going to have to call bullshit on that, because I suspect they are going to pay their mortgages and/or rent, and I don’t see that creating any sort of hiring spree by banks and landlords. They’re going to pay credit card bills and home equity debt, and I have my doubts about the wave of hiring that that will create. They’re going to buy gasoline and groceries, and I’ll admit that might create a few jobs for grocery clerks, but the gas purchases are mostly going to be self service.

He went on to say that extending existing unemployment benefits could create up to one million jobs which is, in my opinion, bizarre. Even if one assumes that unemployment is as simulative as he claims it is, upon what study or statistical analysis is he basing his estimate of one million jobs? Yeah, I didn’t think so. He pulled that number out of a part of his body that we don’t want to think about.

Further, how does he think that extending something that we have been doing for the past three years is suddenly going to take off and start creating new jobs now, if it has not been doing so for the past three years?
I think it’s related to magic ponies.

After his glowing projection that the unemployment benefits would add one million jobs and that the payroll tax cut extension, which has done essentially nothing so far, will add $750 billion to the economy next year, he then for some reason decided to discuss the possibility that a natural disaster could harm not only the US economy but the global economy too.

I guess he didn’t want us to think he was unreasonably optimistic.

Update: Don't get me wrong, I think we should extend unemployment benefits. It serves a need. I just think that calling it an economic stimulus is nonsensical and harmful. We need economic stimulus as well, and pretending to do it instead of actually doing it does not work.

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