Extending unemployment benefits | Hacker News Reader

Extending unemployment benefits

blogs.law.harvard.edu

2 pointssarvesh5 comments

Why does it make the U.S. more competitive and vibrant if we tax working Americans to give money to non-working Americans?

Because recipients of unemployment insurance are likely to spend the money right away. That's how stimulus works: The government must spend money on things, fast and furious, so that the manufacturers of the things will experience enough demand that they will keep their own factories open.

Otherwise you get the classic deflationary spiral of (e.g.) the 1930s.

For more explanation than I could possibly provide (dammit, I really should have taken an econ class...) here's Bruce Bartlett at Forbes:

http://www.forbes.com/opinions/2008/12/04/depression-deflati...

"Banks, businesses and households are all hoarding cash, not spending except for essentials. This is bringing on the deflation that is crippling the economy.

"The problem today is that velocity is falling faster than the Fed can pump up the money supply by buying financial assets, and very low market interest rates mean there has been little net increase in liquidity as a result of the actions the Fed has taken thus far.

"What Keynes figured out is that when conditions such as these exist, the federal government must step in to raise spending in the economy and thereby increase velocity. This means running a budget deficit, but that is only part of the solution. As noted earlier, spending just to buy financial assets does very little good.

"We also know from the experience with tax rebates in 1974, 2001 and 2008 that this doesn't do any good, either. People mostly save the money or pay down debts. Thus, rebates just become another form of exchanging assets that add little to spending (and hence velocity).

"Keynes argued that the only thing that will really work is if the federal government uses its resources to purchase goods and services. It must buy 'stuff' -- concrete, computers, paper, glass, steel -- anything as long as it is tangible. In other words, the government must spend the way households do, by buying things."

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One easy way for the government to spend like a household is to hand money to desperate households and have them spend it. The fact that this also helps newly unemployed people from growing hungry is just a nice side effect.

Doesn't it make someone to hold off on looking for job? Which in turn would mean that they are not contributing towards creating anything. Wouldn't that in turn slow down the economy even more? If you don't create anything useful you just end up not having anything to trade for.

There "spending money on things" and there's creating long-term value. E.g. if a government builds roads, dams, space shuttles, nuclear power stations, aircraft carriers etc other large pieces of infrastructure then the entire economy reaps the reward many times over in the future, in addition to the jobs etc created in the actual building of the things. But giving people who could be working on projects like this money to do nothing instead is economically very short sighted indeed. Remember time is a sunk asset. Once it's gone, it's gone. That's what's being wasted here, people's time.

Federal government spending increased 47% under the Hoover administration and grew further under the Roosevelt administration that had initially criticized Hoover's spending. This fits under the paradox "If something isn't working, do it more." I feel like depressions are very misunderstood phenomena, partly because there hasn't been a big one of late.

Federal government spending increased 47% under the Hoover administration and grew further under the Roosevelt administration (who had initially criticized Hoover's spending). This fits under the paradox "If something isn't working, do it more." I feel like depressions are very misunderstood phenomena, partly because there hasn't been a big one of late.

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