Here is something for economic illiterates to consider:
The Congressional Budget Office (CBO) reported last month that, while the emergency UI [unemployment insurance] program would cost $25.7 billion for another year, it would create 200,000 jobs and add 0.2 percent to gross domestic product.
Now, why would paying people (essentially) not to work wind up creating 200,000 jobs?
The reason is pretty simple. You would be creating $25.7 billion of increased demand in the economy. People who are receiving unemployment insurance are strapped, and they use the money to pay their rent or mortgage, to buy groceries, and to put clothes on the children’s backs. When they spend money, it creates sales and profits, which creates jobs. If they don’t spend that money, those jobs don’t get created and we wind up paying for their poverty in other ways, like depressed real estate prices, food stamps, welfare payments, unpaid bills, and higher health care costs.
So, yes, you can create 200,000 jobs this year simply by paying some people for not working. Or, you can not create 200,000 jobs this year by refusing to give them assistance, and the end result will be a reduction of 0.2 percent to gross domestic product.
Supposedly, John Boehner is willing to consider extending unemployment insurance, but only if it is paid for. But, remember, the whole reason it works is because it increases aggregate demand, which means that paying for it with budget cuts in other areas is completely self-defeating. The only way you can pay for the benefits without destroying your purpose is to spread out the payment over a number of years. So, for example, you could pay for the $25.7 billion cost over ten years and still get a good return on your investment. Paying for it in this year’s budget would largely eliminate the upside, leaving only the disincentive for some people to look as aggressively for work as they might otherwise.
But, look at me. I’m trying to talk reason to a dining room table.
