Comment by kenjackson | Hacker News Reader

Comment by kenjackson | Hacker News Reader

One thing I didn't hear noted is that unemployment is also considered a low friction way of getting money back into th economy. Those people on unemployment usually spend the money (not save), and there tends to be less protest in doing this than other forms of welfare.

Additionally, I think there is a belief that to really move the needle we're going to need to really get business back to hiring. I don't think the deamnd in the job market is low end programming -- you can find tons of students graduating from Phoenix U and Devry for that. It's the "hit the ground running" expert talent. Someone who can come in and immediately start building iPhone and Android apps (even web talent seems to have much more supply than demand).

For some of these people 99 weeks may be sufficient to get them up to speed for such a task, but I do think it will be difficult. First they have to find good training, which in itself will be tough if they aren't web or tech savvy. I just don't think someone who can edit a picture is going to be hired in this market climate.

Except the money for unemployment is confiscated from working people's paychecks, so it's a net wash on the economy at best, less the sizable bureaucratic overhead.

But the money taken from working people's paychecks are more likely to not be as stimulative (although you could argue that it effects morale which then indirectly has impact).

Giving money to people in unemployment is probably 90% of the way to giving money right to small business. Which in turn will pay their employees.

There seems to be very little reason not to do it except for the two psychological effects we alluded to earlier:

1) My paycheck is now lower by .2%... I'm going to spend less.

2) Unemployment isn't so bad. I can slack off, because I wouldn't mind a 99 week vacation. (or other similar sentiments).

I'm not sure either is happening in measurable numbers to offset the gain had by the extra money pumped into the economy.

In this case, it came from issuing new government bonds, which has effects as well, but not quite the same ones. Taxes were not raised to pay for unemployment benefits; in fact, in the short-term political calculus, extending benefits led to lower taxes (the unemployment extension was part of the bipartisan compromise on extending the Bush tax cuts).

Future taxes will likely pay for it in some form, but not current ones, which is one reason it has a stimulative effect. It's also what most economists recommend in many parts of the political spectrum (countercyclic fiscal policy).

If I got an extra $100 or so on my paycheck, it would have very little economic utility. It would just be added to my pile of savings.

But if you take that $100 from me and give it to an unemployed person, they are going to spend 100% of that, guaranteed.

Moreover, I'm not following you on the "less the sizable bureaucratic overhead" comment. You make it seem as if the gov't takes $100 from me, burns $10 in the White House Furnace, and gives $90 to the unemployed person.

On the contrary, every dollar of "bureaucratic overhead" is income for somebody -- a government contractor, supplier or employee. I've never understood why people act like the money the government spends just vanishes from the economy. Yes, a small, small fraction of it goes overseas. But it's so small it cannot be described as "sizable."

If I got an extra $100 or so on my paycheck, it would have very little economic utility. It would just be added to my pile of savings.

Nonsense. That's great that you'd save the $100, but even if you do that it still has economic utility, presuming you're putting it into a bank account. It then gets lent out to businesses or reinvested into the economy. The bank isn't sitting on a giant pile of money.

The bank isn't sitting on a giant pile of money.

I thought banks were sitting on giant piles of money (thanks to the Fed), hence the low interest rates?

In a sense, yes, but that's mainly on the books and it depends on which interest rate you're referring to. You're right, much of the bailout money was used to cushion the capital accounts of these institutions. However, banks are businesses too and at the moment happen to be making tremendous profits, much of it due to the spreads they're getting on the low lending rate from the Feds.

Except that we're not having a capital shortage, we're having a demand shortage. There's plenty of money to be lent out, but there's no demand for it. So it really is the case that that money being spent is better than that money being saved.

I didn't say it had NO economic utility. I said it had very little. And it doesn't. Not compared to what it would if I'd actually be spending it.

http://en.wikipedia.org/wiki/Broken_window_fallacy

Short version: Money spent for unproductive reasons doesn't add to net wealth.

The broken window fallacy considers the case in which both the transferer and the transferee spend all of the money. A large part of encoderer's point was that he was unlikely to spend as much of the money as the transferee. Saving helps nobody right now.

If the solution to a lagging economy is to have more money be spent, give it all to hardened drug addicts. They'll quickly spend whatever we hand out.

Or here's a better scheme. How good do you want the economy to be this year? GDP of $100 trillion? Great, I can make that happen. Have the government print a $100 trillion bill and give it to me. (Or hand-written is fine.) I'll use it to buy a $100 trillion candy bar from my friend over there, then he'll burn it. Boom, $100+ trillion GDP, zero inflation, recession over. We'll all buy yachts!

The point is that moving money around does not inherently create prosperity. It can help if the act causes resources to be used more efficiently, but figuring out how to do that is incredibly hard. Politicians (or anyone really) trying to do it at a national level are like monkeys at the controls of a nuclear reactor. They're vastly out of their collective league. Theoretically they could make the situation better, but don't count on it.

'at best' is an incomplete picture. Redistributing wealth is zero or negative-sum, yes, but utility is not linear in wealth. It's logarithmic or less (wealth diminishing marginal utility).

To be opposed to redistribution despite the obvious fact that it would create utility, one has to bring in additional concepts. For example, one might take some sort of ethical stand on redistribution being Pareto-inefficient. Or one might argue that the additional growth from inequality will eventually outweigh the disutility of respecting wealth inequality. (Either of these might not apply during depressed economic periods.)

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