[quote author=rsc2a]
- Well, for one, the unemployment benefit extensions were beyond ridiculous and don't help the economy at all. [/quote]
So let's take these one at a time. I may not finish all of them in one sitting; I have some errands to do.
Here are the facts:
1. the American economy derives 70% of its growth from consumer spending - the reason this is important is because it gives guidance as to how to stimulate a sluggish economy. In other words, a 5% improvement in the 70% growth area will result in a larger overall improvement in the economy, than a 5% growth in the 30% area will. That's just natural; 5% of a big pie is more than 5% of a small pie.
http://useconomy.about.com/od/grossdomesticproduct/f/GDP_Components.htm
2. unemployed individuals pretty much life hand-to-mouth - people on unemployment are, by definition, making less on unemployment than they were on their jobs. This holds true even for minimum wage jobs. So with less money coming in, the unemployment benefits will be spent on vital essentials. This means that unemployment benefits go directly into the local economy, for things like rent, groceries, gas, clothing, etc. as opposed to being stashed in savings accounts or invested in foreign stocks and bonds;
3. money from unemployment benefits is a significant boost to local economies - whether you're talking about city, county, state, etc. This is a phenomenon known as the multiplier effect; for every $1 injected into the local economy, what is the net result experienced across the total economy? In other words, the amount of extra groceries that the local grocery store buys, the additional stock clerks it has to hire to handle the customers, the additional inventory ordered by the drugstore, the additional expansion in retail space rented out to make enough room for a local clothing store, etc.
4. of all the items considered for stimulus, increased aid to the unemployed has the highest payoff - you can look on this as a kind of metric of ROI (return on investment), except in this case we're measuring the return on tax dollars invested, with the goal of stimulating the economy out of a recession. Figures from the CBO show the results ranging from a low of 0.70 per $1.00 spent, to a high of $1.90 per dollar spent.
http://www.cbo.gov/publication/41813 There is variation on the actual amount, because it depends on the geographic location, the items involved, etc. Mark Zandi, of Moody's Economy.com, in Congressional testimony indicated that the ROI for unemployment benefits was $1.61 in return for every $1 invested. He further estimated that the only item with a higher return on investment was an expansion of food stamp programs, with an ROI of $1.73.
http://www.timesunion.com/default/article/Recovery-means-investing-not-cutting-905131.php#ixzz1O3eTLBWw
Mark Zandi, an economist at Moody's Analytics who was a principal adviser to John McCain's presidential campaign, argues that reducing spending during a deep recession is bad economics. Zandi estimates that every dollar spent on unemployment assistance generates $1.61 worth of activity, $1 on infrastructure yields $1.57, and $1 in assistance to states to prevent layoffs yields $1.41.
5. the idea that unemployment benefits discourage job-seeking in a depressed economy can be easily disproven - during the current recession, there were 15 million jobs lost. At the peak, there were 1.5 million jobs going unfilled (i.e., want ads for positions that weren't being filled). If we had a magic wand and could match up job hunters to these positions instantly, guess what? We'd have zero open jobs left, but we'd still have 13.5 million people looking for work (15 million workers - 1.5 million jobs = 13.5 million workers left). Of course it doesn't work that way. A job opening may not be in the same location as the unemployed person to fill it; a radiation technician in Atlanta, GA can't always just pull up stakes and move to the job opening in Detroit. This is referred to as economic friction.
