The Economics of the Left: Unemployment Benefits create jobs

Jobseekers in Florida

There are all kinds of mere logic to point out the lunacy of the oft repeated slogan that unemployment benefits create jobs.  It is an argument which has been made by many smart people who follow Keynesian dumb logic. 

Obama is out stumping to extend unemployment benefits.  Don't get me wrong, if someone has paid into the insurance pool, they should be able to get something out if they find themselves unemployed.  But it does create disincentives.  Obama's attacks sound very politically motivated.  He knows that  as high as 20% of the economy is unemployed or underemployed.  That is a block of predominately males that Obama has had a hard time attracting.  He is using it to cast the Republicans as bogey men, via AP:
On Monday, he sought to cast his Republican opponents as hypocritical for having voted for extensions of unemployment benefits when his Republican predecessor, President George W. Bush, was in the White House, but not now. He accused Republican leaders of subscribing to what he called a misguided notion that providing unemployment aid to people lowers their incentive to look hard for a job.

"That attitude, I think, reflects a lack of faith in the American people," Obama said.
But it's not just political actors, but bright economists who say that unemployment insurance is a job creator.  Alan "Cash for Clunkers" blinder, is a liberal, economist who was previously at the Federal Reserve who was a leading proponent of the Cash for Clunkers scam.  He penned an op ed which laid out their case, via WSJ:

...not all dollars are created equal. To take a very relevant example, consider three different ways to add a dollar to the budget deficit: increase unemployment benefits by $1, give a $1 tax cut to someone earning $50,000 a year, or give a $1 tax cut to someone earning $5 million a year.

While the immediate impacts on the budget are identical, the near-term spending impacts are not. The unemployed worker struggling to make ends meet will likely spend the entire dollar right away. The $50,000 earner probably will spend the lion's share of it, saving just a bit—that's what most Americans do. But the $5,000,000 earner probably will save most of the new-found dollar.

The impacts on economy-wide demand will therefore be quite different. Paying more in unemployment benefits offers the most spending "bang" for the budgetary "buck."

Opponents of more generous unemployment insurance often raise another objection: that longer-lasting benefits dull the incentive to seek work, which in turn drives up unemployment. Economic research suggests they are right, though one shouldn't exaggerate the magnitudes. Furthermore, the work disincentives are only part of the story. Remember, we provide unemployment insurance for humanitarian reasons (to aid the afflicted) and to support the economy (by maintaining spending).
Why is consumption the end game?  What if people need to save more, or pay off some credit cards because economically that makes sense for them?  To try to micromanage the economy in this way is a fools game

Liberal politicians love Alan Blinder (and Krugman too).  They use him to support their stimulus, bailout, discredited Keynesian philosophy.  Watch Nancy Pelosi explain how unemployment insurance creates jobs. 

To me it is amazing how we have the economic Philosopher Kings all saying something that the man on the street knows is bogus.


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