Pelosi: unemployment checks best way create

[jbrace]

http://www.foxnews.com/politics/2010/07/01/pelosi-unemployment-checks-best-way-create-jobs/

I posted this one my facebook and someone responded with this:

(An economics primer)

An acquaintance recently expressed his speechlessness at the claim, ostensibly by Speaker Nancy Pelosi, that sending out unemployment checks is the best way to create jobs.

He asked for someone to talk about how on Earth that can be possible.

Okie dokie. I responded:

The government, having a powerful ability to shock the economic markets, supply people with unemployment checks. People with money, buy potable goods and consumer products. That spending, expands demand, providing that always met incentive for supply to shift and meet it. In order to shift that supply curve, you need more goods, manufactured, transported, distributed, and retailed. In order to do that, you need to expand your labor force.

John Maynard Keynes is fascinating. In 1936 he observed that private sector decisions can lead to inefficient macroeconomic outcomes ('we want our money, even if it sets back the national economy, which we don't care about.') As a result, the Keynesian school advocates active policy responses from the public sector...usually along two main avenues:

a) monetary policy actions by a central bank and
b) fiscal policy actions by the government

both of these aim to stabilize the private sector over a sputtering business cycle...allowing it to, for lack of phrase, "re-boot".

Incidentally, Keynes is acclaimed by many, of all economic perspectives, with saving the very credibility of capitalism...by providing a way by which it may be made more stable and consistent, and by which the harsh effects of free-market downturns may be mitigated.

This is the perspective that holds that...writing unemployment checks and pumping them to the consumer...is the best way to create jobs.

From the ground up, instead of from the top down. Is it all bunk? I dunno. But the Austrian school had their way from 1995-2008...and that was pretty f*** up.


http://en.wikipedia.org/wiki/Keynesian_economics
Updated 11 minutes ago · Comment · Like · Report Note

[malkusm]

Uh, wait, what? The Austrian school hasn't had their way since the Fed has existed. Keynes is an extreme enemy of free-market capitalism for, among other things, his insistence that government spending is equivalent to private-sector spending (or, in other words, that it doesn't matter where money is spent, as long as the money is spent). Keynesian monetary policy is bad precisely BECAUSE it doesn't allow the business cycle to "re-boot" - it tries to smooth over the busts.

Are you being serious?

EDIT: I can't tell if your friend posted the majority of that, or if you did. Are you asking for a response to this? I'm very confused.

[jbrace]

A friend of mine responded with that and I'm at work right now and need to respond to it!

[Acala]

The government, having a powerful ability to shock the economic markets, supply people with unemployment checks. People with money, buy potable goods and consumer products. That spending, expands demand, providing that always met incentive for supply to shift and meet it. In order to shift that supply curve, you need more goods, manufactured, transported, distributed, and retailed. In order to do that, you need to expand your labor force.

John Maynard Keynes is fascinating. In 1936 he observed that private sector decisions can lead to inefficient macroeconomic outcomes ('we want our money, even if it sets back the national economy, which we don't care about.') As a result, the Keynesian school advocates active policy responses from the public sector...usually along two main avenues:

a) monetary policy actions by a central bank and
b) fiscal policy actions by the government

both of these aim to stabilize the private sector over a sputtering business cycle...allowing it to, for lack of phrase, "re-boot".

Incidentally, Keynes is acclaimed by many, of all economic perspectives, with saving the very credibility of capitalism...by providing a way by which it may be made more stable and consistent, and by which the harsh effects of free-market downturns may be mitigated.

This is the perspective that holds that...writing unemployment checks and pumping them to the consumer...is the best way to create jobs.

From the ground up, instead of from the top down. Is it all bunk? I dunno. But the Austrian school had their way from 1995-2008...and that was pretty f*** up.


http://en.wikipedia.org/wiki/Keynesian_economics
Updated 11 minutes ago · Comment · Like · Report Note

As usual, Bastiat's broken window fallacy debunks the whole silly proposition. The unemployment check was paid for by extracting that money PLUS administrative overhead, from the taxpayers who then are unable to spend it. The only wrinkle in that scenario results from government borrowing money instead of paying for it with taxes. And that borrowing is going to be the death of the US dollar and our economic prosperity. Other than that it is great plan!

Oh, and in which country did the Austrians have their way from 1995-2008? Sure wasn't the USA.

Guy's a dope

[dannno]

As usual, Bastiat's broken window fallacy debunks the whole silly proposition. The unemployment check was paid for by extracting that money PLUS administrative overhead, from the taxpayers who then are unable to spend it. The only wrinkle in that scenario results from government borrowing money instead of paying for it with taxes. And that borrowing is going to be the death of the US dollar and our economic prosperity. Other than that it is great plan!

Oh, and in which country did the Austrians have their way from 1995-2008? Sure wasn't the USA.

Guy's a dope

Here, here..

Your friend completely forgets that the unemployment checks are coming FROM a productive element in society and going to a non-productive element. This encourages non-productivity in the economy, it doesn't encourage productivity at all.

[jbrace]

Thanks for the air-support guys!

[Guitarzan]

Your friend, and Keynes, and Pelosi, are only recognizing what is immediately seen on one group of people, and not contemplating what is not seen for the entire public.

The money has to come from somewhere. It's either taken from the people in the form of taxation, or borrowed and must be paid back, or printed.

If it's taken from the people via taxation, one has to realize that any signifigant "demand" created by the spending of unemployment benefits was lost first by the people who now don't have that money to spend. It's simply a redistribution of wealth. We have gained nothing.

If it's borrowed, it must be paid back someday. It will most likely be paid back via taxation, which will take capital out of the economy, and will affect the economy by lowering production and investment, which will lower employment, and any immediate increase in employment will be lost. We have gained nothing.

If the money is printed, or the borrowed sum is paid back via inflation, well now we have prices going up for everyone, which means that demand will decrease, which means that production decreases, which means higher unemployment and a lower standard of living for everyone. We have gained nothing.



Can't escape the laws of economics.

[malkusm]

Ok then, I'll do my best!


The government, having a powerful ability to shock the economic markets, supply people with unemployment checks. People with money, buy potable goods and consumer products. That spending, expands demand, providing that always met incentive for supply to shift and meet it. In order to shift that supply curve, you need more goods, manufactured, transported, distributed, and retailed. In order to do that, you need to expand your labor force.

There's a reason that even Keynesian economists don't count transfer payments (unemployment benefits) as part of the GDP. They produce nothing; and they actually transfer wealth from productive, skilled members of society (who are taxed) to unemployed members of society, who are mostly unemployed because they are less skilled. Generally speaking, the first employees who are laid off in an economic downturn are those who are at the margin - in other words, the workers who benefitted the firm the least.


John Maynard Keynes is fascinating. In 1936 he observed that private sector decisions can lead to inefficient macroeconomic outcomes ('we want our money, even if it sets back the national economy, which we don't care about.') As a result, the Keynesian school advocates active policy responses from the public sector...usually along two main avenues:

a) monetary policy actions by a central bank and
b) fiscal policy actions by the government

both of these aim to stabilize the private sector over a sputtering business cycle...allowing it to, for lack of phrase, "re-boot".


Monetary policy actions from a central bank do exactly the opposite of allowing the business cycle to "re-boot." In a recession, Keynes advocated a central banking policy of lower interest rates, which encourages spending, consumption, and borrowing to prevent the "bust" from being as severe as it should be. The "bust" serves to purge the bad investments from the economy; when the central bank pursues these manipulative policies, it sends false signals to investors in the marketplace which creates asset bubbles. The 1% Fed Funds rate after the 2000 "dot-com" bubble creates an asset bubble in real estate, which subsequently lead to an even bigger bust than before. It has prolonged the agony by creating more bad investments, rather than allowing the market interest rates to prevail and the business cycle to occur unimpeded.

Keynesian theory also advocates increased government spending as the "fiscal policy" element of its prescription to a recession. The thought process is that increased government spending will replace the loss of consumption that has occurred due to the downturn. Unfortunately, it is questionable at best to assume that government spending spurs the economy in the same way that private investment or spending does. The government produces nothing, and the money it spends is either taken through taxation, or is created via deficits and inflation, which do much more harm to the economy and the average consumer than the spending does good.


Incidentally, Keynes is acclaimed by many, of all economic perspectives, with saving the very credibility of capitalism...by providing a way by which it may be made more stable and consistent, and by which the harsh effects of free-market downturns may be mitigated.

The Austrians and the Chicago School economists (Friedman et al) do not share this sentiment. True capitalism, as far as the Austrians are concerned, means the absence of a central bank which alters the interest rates from their free market equilibrium; the absence of protective trade policies; and the absence of a government "monopoly" on currency. Keynes supported all of these things, which doesn't say much for him as a capitalist.


This is the perspective that holds that...writing unemployment checks and pumping them to the consumer...is the best way to create jobs.

From the ground up, instead of from the top down. Is it all bunk? I dunno. But the Austrian school had their way from 1995-2008...and that was pretty f*** up.

The Austrians haven't had their way since 1913, since they don't believe that central banking has a legitimate role in a free economy at all. Republicans were in power, but most Republicans are also Keynesians, if they know anything about economics at all. Keynesians have really run the show since the policies of Hoover and FDR during the Great Depression, and especially since the breakdown of the Bretton Woods gold standard agreement in 1971. The last major crisis where the Austrian economists had influence over policy was the Depression of 1920-21. The reason you've never heard of it is because, although it was very sharp, it lasted only 18 months. The market recovered much more quickly in the absence of government regulation because the bad investments were allowed to be liquidated, and legitimate businesses and enterpreneurs who made sound financial decisions quickly capitalized and replaced them.

[jkr]

as long as we have:
an "army" to fight to get oil
coal miners willing to risk cave-ins
and the ability to import food AND distribte it to ALL the people since we dont grow $hit...
cause our fishing just took a hit (bubagump!)

she may be right

[Golding]

Find a university that actually has an economics program that isn't, by majority of classes, dictated by the Keynesian model. It's very hard to come by. In any other field, a variety of theories are assessed. It's almost ludicrous that a science involved largely in retrospective hand-waving can't seem to educate more than one model that can arguably fit reality. No one but Keynesians have had their way for decades.

That's why I tend to laugh at news reports (or rather, those who cite them as some sort of evidence) that some grand number of "top economists" argue in favor or against something. Said top economists have only immersed their understanding to one pervasive model, which increasingly seems not to fit as time goes on. In addition to that, you can always find an economist willing to make some sort of argument one way or another, since a degree in economics tends to be one of the easier ones to earn (my college had over 1000 econ graduates, whereas by comparison there were less than 10 chemistry graduates). When an economist says anything, it should never be news. And if it ever is news, its citation in the midst of a debate ought to be ridiculed.

[malkusm]

Find a university that actually has an economics program that isn't, by majority of classes, dictated by the Keynesian model. It's very hard to come by. In any other field, a variety of theories are assessed. It's almost ludicrous that a science involved largely in retrospective hand-waving can't seem to educate more than one model that can arguably fit reality. No one but Keynesians have had their way for decades.

Yeah, unfortunately this guy is just parroting the info he learned in a couple undergrad courses on economics at a university.

[manuel]

After the jobs report tomorrow morning, ask him one question. WHERE THE HELL ARE THE JOBS THEY CLAIMED SHOULD HAVE BEEN CREATED???!?!?!!?

The fake number the government puts out is nearly 10% unemployment rate...they've handed out tons of unemployment checks already, where are the jobs then???

[Koz]

It's actually 100% false.

I spoke with a client the other day and she was laid off about six months ago. Her plan (not by my design) was to stay unemployed and just collect checks until her Social Security kicks in a couple years down the road. You know, because a lot of her friends have been unemployed for a year or so and they have just been hanging out. She was ticked off that Congress didn't extend the program, so now she might have to go back to work.

In her entire life she has saved $20,000.

Anyway, she thought she might get some sympathy from me. I just said "Well, let me know if you need to withdraw your funds."

I'm glad I don't pay federal income tax.

So, in conclusion, if they stop the payments the unemployment rates will actually go down because these people will have to get jobs to pay bills. The nerve of the government making these people get jobs.

[roho76]

The only problem with the Keynesian vs. Austrian method is we think they are trying to help the poor and are just confused about how to do it. This is a big misconception. The only reason these fucking retards like Pelosi, and Obama, and the rest of the Liberals care about Keynes is his method is the fastest way to bring about the destruction of the fabric of America and your friend has bought into it because he can't stop watching American Idol long enough to care about educating himself about real life and the way things actually work. Common sense is not so common anymore. These people are the mental lingerer's in life. They will only figure it out after it's too late. They are brainwashed and think health care grows on trees and your time is better spent elsewhere.

[AlexMerced]

As usual, Bastiat's broken window fallacy debunks the whole silly proposition. The unemployment check was paid for by extracting that money PLUS administrative overhead, from the taxpayers who then are unable to spend it. The only wrinkle in that scenario results from government borrowing money instead of paying for it with taxes. And that borrowing is going to be the death of the US dollar and our economic prosperity. Other than that it is great plan!

Oh, and in which country did the Austrians have their way from 1995-2008? Sure wasn't the USA.

Guy's a dope

Have your friend read this... http://libertyisnow.blogspot.com/2010/06/regulating-enterprise.html ... and that should get him to shut up

[AlexMerced]

YouTube - Unemployment Insurance - Does it Stimulate the Economy (http://www.youtube.com/watch?v=iipvn_GJu2U)

[jbrace]

Adam Dixon Not too necessarily disagree with your entire argument, Mr. Brace, but I do think the following section is a bit speculative:

"... Generally speaking, the first employees who are laid off in an economic downturn are those who are at the margin - in other words, the workers who benefitted the firm the least."

I'll grant you your "generally speaking," but I do not think that the employees that were let go during this great recession would necessarily fit within the category you described. While working as a recruiter from mid to late 2009 all the way through first quarter 2010, I got a first hand glimpse at the candidate market, and the quality of the unemployed person really depended on the quality of the HR departments of the companies they were fired from. What I mean is, say we have 5 employees at a company with a great hiring department, and they are ranked for argument's sake on a percentage scale of something like 98, 95, 91,90, and 90. These are all A students, so to speak, but the company must cut their workforce, so, sure, they cut from the bottom. However, these "bottom" workers are far from the margin. They perhaps just don't have the same level of experience right now, but they will one day. They are actually quite marketable, and often come with recommendations from their former firms. Some employers have bad policies where they must fire the person with the least tenure first, which doesn't always eliminate the worker with the least value to the company. Sure, I came across a lot of the excised fat the bigger corporations shed, but, and I mean this seriously, just as often I came across valuable employees.

So, anyway, speculative at best. I'd actually rather like to see some data on this. I've noticed some job postings that seem to come out and say they won't hire people who are unemployed--likely borrowing the same sentiment you expressed here. Seems a poor recruiting policy from my experience, as it's never a waste of time to make a phone call and check. Talent comes from odd places.

^^ lol only thing he could respond to after the rebuttle.

[noxagol]

Ask him what happens when all those unemployed people don't go to work because they are being taken care of with the unemployment checks and have no reason to work. Also ask what happens to the demand when the checks stop coming in.

[wd4freedom]

too much