Jeff Young
GT40s Supporter
I would suggest my answer (and that of Paul Krugman, a Nobel winning economist) is the more sophisticated of the two, but bet that as it may.......
1. I absolutely agree spending needs to be curtailed. But it's not spending on unemployment benefits that is causing the problem.
2. You analysis of the stimulus effect of the multiplier is just flat wrong. Spending above baseline? The baseline for an unemployed person is ZERO. Unemployment benefits get spent immediatley on necessities, goods and services that jobs are either preserved or created to produce.
I do agree that this is not a means to an end in and of itself. Obviously, this is a band aid to keep the economy going, and people off the streets, until the economy rights itself.
You should spend a few minutes watching the Krugman video. It will help.
1. I absolutely agree spending needs to be curtailed. But it's not spending on unemployment benefits that is causing the problem.
2. You analysis of the stimulus effect of the multiplier is just flat wrong. Spending above baseline? The baseline for an unemployed person is ZERO. Unemployment benefits get spent immediatley on necessities, goods and services that jobs are either preserved or created to produce.
I do agree that this is not a means to an end in and of itself. Obviously, this is a band aid to keep the economy going, and people off the streets, until the economy rights itself.
You should spend a few minutes watching the Krugman video. It will help.
Jeff, your answer while simplistic, misses the point. The administration's efforts are neither scalable nor sustainable.
The government doesn't create wealth, it only redistributes it. Unfortunately they are funding their efforts by simply printing more money. Look at where your economic theories are applied on a grand scale Greece??? California??? New York?? Your solutions suggest that the national economy can somehow prosper with spending and no cost cutting. Let's just print money, hand it out and the " multiplier effect" will allow everyone to prosper. You forget one BIG THING... THERE IS NO VALUE ADDED!!!!!!
The value add is what creates the multiplier.
A friend named Tom White recently wrote this:
"The fatal flaw in Pelosi’s reasoning is the incorrect belief that unemployment checks stimulate. While she is correct that the money is quickly spent, which is the basic and necessary requirement of any government effort to stimulate the economy with free money, she also states the money “is needed for families to survive, and it is spent”. That much is true, however, a stimulus must be over and above the minimum spending required for survival. Otherwise it is merely basic sustenance, not stimulus.
A stimulus, by definition, creates spending above the baseline. An economy in decline, as we now have, requires stimulation over and above the baseline.
Any family surviving on unemployment is spending less than when employed. There is no discretionary spending, only basic survival. There are no visits to restaurants, no home beautification projects to keep jobs at Home Depot, no extras. Period.
Unemployment Insurance is Insurance
Unemployment insurance is insurance. The purpose of insurance is to indemnify, or make whole. The objective of any type of insurance is never to leave you “better off”, but to leave you the same. Unemployment Insurance fails miserably at indemnification. It will not even come close to replacing your income, let alone benefits. You will always be far worse off. (And this is a prime example of why government “single payer” health care is a BAD idea.)
If your auto insurance company decided to replace your brand new BMW, which you totaled, with a 1995 BMW, you are not indemnified. You are screwed.
But this is exactly how government provided unemployment insurance works. Except in most cases the BMW is replaced with an old bicycle.
The net effect of unemployment spending when compared to “employed” spending is a vast decrease in money flowing out.
What we see with so many people trying to make ends meet on unemployment is a sharp upswing in foreclosures, more people living without insurance (of any kind), and businesses are seeing a drop in sales.
No one is actually seeing a recovery where it counts – in their pocketbooks."
And yes, she's an idiot...