Economic question about unemployment benefits

[loosecannon]

How many of those Harvard economists are rich?

How many of them have even created a product or service that someone else wanted to willingly purchase?

That was sarcasm right? Cuz few things offer better ROI than a Harvard econ degree, waterboy.

I would ask you if you think before you post, but I doubt you ever think at all.

 

[Toro]

Hi all, I just have a quick question.

A lot of people have been saying that unemployment benefits help stimulate the economy. Mark Zandi, Chief Economist of Moody's, has gone on record as saying that $1.00 spent on food stamps actually adds $1.73 to GDP. As far as I can tell from what I've read, the claim that unemployment benefits and food stamps adds to the GDP is uncontroversial.

My question is where does that extra wealth come from? How does government spending, targeted toward the unemployed, actually create this extra $0.73?

Thanks in advance.

I see that this thread has devolved into the usual partisan bickering, so I will explain the economics of your question.

The reason why unemployment benefits stimulate the economy is because of something called the "multiplier effect."

The multiplier effect is a basic tenant of economics. When you buy something, money is transferred between you and the seller. The seller will then take your money and spend at least part of it on something else. That something else is bought from another person, who then takes that money and spends at least part of it on something else, and so on. So the original $1 that was spent circulates through the economy. According to Zandi, $1 in unemployment benefits circulates up to $1.73 in the economy.

This is fairly high, and the reason for this is because the unemployed must spend. The unemployed don't save. If they don't spend it, they starve. The affects of transferring funds to a poor person are greater on the economy than to a rich person in the short-term because the rich person is more likely to save at least a portion of the funds. Saving is good for the economy over the long-term, but during a recession - or the short-term - less spending is generally bad.

The problem with unemployment insurance is that if the benefits become permanent, or are too high, it discourages people from working. Policies which discourage people from working are damaging to the economy in the long-term because it disincentivizes people to work and their skills erode. Eroding skills depletes the capital stock, and lowers long-term growth.

So, in other words, unemployment benefits are good in the short-term, but if they become a way of life, it is bad, and it almost certainly erodes all the benefits of the near-term multiplier effect.

 

[william the wie]

That was a semi-legitimate question but the question should have been asked about economists who work at Moody's since that is where the data in the OP comes from and the answer is fairly rich actually.

 

[Toro]

That was a semi-legitimate question but the question should have been asked about economists who work at Moody's since that is where the data in the OP comes from and the answer is fairly rich actually.

Zandi started Economy.com, which was purchased by Moody's. I believe it is still a wholly-owned subsidiary of Moody's and thus a separate entity.

 

[Flopper]

Hi all, I just have a quick question.

A lot of people have been saying that unemployment benefits help stimulate the economy. Mark Zandi, Chief Economist of Moody's, has gone on record as saying that $1.00 spent on food stamps actually adds $1.73 to GDP. As far as I can tell from what I've read, the claim that unemployment benefits and food stamps adds to the GDP is uncontroversial.

My question is where does that extra wealth come from? How does government spending, targeted toward the unemployed, actually create this extra $0.73?

Thanks in advance.

It doesn't. Economic history shows that every dollar of government spending results in far less than a dollar of economic activity. Food stamps just accelerate some consumption via transfer payments and lessen future spending.

Do you really think the poor save save their food stamps and welfare checks? Of course not. They spend them immediately creating a demand for goods and service.

Other stimulus such as tax cuts and interest rate reductions are better because they stimulate investments which build new and expanded businesses. This creates new jobs that are more permanent than jobs created to fill temporary demand due to government spending.

However, we cut taxes to bone during the Bush years and created large deficits leaving no room for additional tax cuts. Interest rates were lowered to near zero at the beginning of the recession leaving little room for additional cuts. The only option option left to simulate grow is increased government spending.

 

[william the wie]

Hi all, I just have a quick question.

A lot of people have been saying that unemployment benefits help stimulate the economy. Mark Zandi, Chief Economist of Moody's, has gone on record as saying that $1.00 spent on food stamps actually adds $1.73 to GDP. As far as I can tell from what I've read, the claim that unemployment benefits and food stamps adds to the GDP is uncontroversial.

My question is where does that extra wealth come from? How does government spending, targeted toward the unemployed, actually create this extra $0.73?

Thanks in advance.

I see that this thread has devolved into the usual partisan bickering, so I will explain the economics of your question.

The reason why unemployment benefits stimulate the economy is because of something called the "multiplier effect."

The multiplier effect is a basic tenant of economics. When you buy something, money is transferred between you and the seller. The seller will then take your money and spend at least part of it on something else. That something else is bought from another person, who then takes that money and spends at least part of it on something else, and so on. So the original $1 that was spent circulates through the economy. According to Zandi, $1 in unemployment benefits circulates up to $1.73 in the economy.

This is fairly high, and the reason for this is because the unemployed must spend. The unemployed don't save. If they don't spend it, they starve. The affects of transferring funds to a poor person are greater on the economy than rich person in the short-term because the rich person is more likely to save at least a portion of the funds. Saving is good for the economy over the long-term, but during a recession - or the short-term - less spending is generally bad.

The problem with unemployment insurance is that if the benefits become permanent, or are too high, it discourages people from working. Policies which discourage people from working are damaging to the economy in the long-term because it disincentivizes people to work and their skills erode. Eroding skills depletes the capital stock, and lowers long-term growth.

So, in other words, unemployment benefits are good in the short-term, but if they become a way of life, it is bad, and it almost certainly erodes all the benefits of the near-term multiplier effect.

Sorry to be pedantic Toro but leaving out steps and terms leads to pissing matches that bore the crap out of me. Someone will point out that the multiplier effect kicks in after the money reaches the banking system. The term that will be quoted back as a BS rebuttal will be velocity even though what is being referred to is velocity X multiplier over the time period in question and is usually shortened to multiplier. I hope this short circuits the usual crapola reflex. Love your jags sig.

 

[Toro]

Sorry to be pedantic Toro but leaving out steps and terms leads to pissing matches that bore the crap out of me. Someone will point out that the multiplier effect kicks in after the money reaches the banking system. The term that will be quoted back as a BS rebuttal will be velocity even though what is being referred to is velocity X multiplier over the time period in question and is usually shortened to multiplier. I hope this short circuits the usual crapola reflex. Love your jags sig.

Yeah, I know. But that gets a little too technical for someone who says they don't know much about economics, as the OP did.

 

[Oddball]

Hi all, I just have a quick question.

A lot of people have been saying that unemployment benefits help stimulate the economy. Mark Zandi, Chief Economist of Moody's, has gone on record as saying that $1.00 spent on food stamps actually adds $1.73 to GDP. As far as I can tell from what I've read, the claim that unemployment benefits and food stamps adds to the GDP is uncontroversial.

My question is where does that extra wealth come from? How does government spending, targeted toward the unemployed, actually create this extra $0.73?

Thanks in advance.

It doesn't. Economic history shows that every dollar of government spending results in far less than a dollar of economic activity. Food stamps just accelerate some consumption via transfer payments and lessen future spending.

Do you really think the poor save save their food stamps and welfare checks? Of course not. They spend them immediately creating a demand for goods and service.

Other stimulus such as tax cuts and interest rate reductions are better because they stimulate investments which build new and expanded businesses. This creates new jobs that are more permanent than jobs created to fill temporary demand due to government spending.

However, we cut taxes to bone during the Bush years and created large deficits leaving no room for additional tax cuts. Interest rates were lowered to near zero at the beginning of the recession leaving little room for additional cuts. The only option option left to simulate grow is increased government spending.

Where does the money come from in the first place, Lucky the daggummed Leprechaun?


BOOOOOOOOOOOOOSH! is irrelevant.

 

[william the wie]

Sorry to be pedantic Toro but leaving out steps and terms leads to pissing matches that bore the crap out of me. Someone will point out that the multiplier effect kicks in after the money reaches the banking system. The term that will be quoted back as a BS rebuttal will be velocity even though what is being referred to is velocity X multiplier over the time period in question and is usually shortened to multiplier. I hope this short circuits the usual crapola reflex. Love your jags sig.

Yeah, I know. But that gets a little too technical for someone who says they don't know much about economics, as the OP did.

Preaching to the Choir and thanks for the heads up on Zandi, I don't follow the ratings agencies but the name rang a bell that didn't go with the firm and I did know the general facts about their compensation. I was guesstimating a high 7/low 8 figures but buyout sounds like I was at least one digit low on my range.

 

[loosecannon]

the multiplier effect kicks in after the money reaches the banking system.

is this even true? What sets food stamps apart from other kinds of stimulus is that the money spent on food doesn't reach the bank first, money saved reaches the bank first. Money spent on food reaches the grocery store, the distributor, the food producer, the truck driver, forklift operator all environs rich with hand to mouth spenders who spend and pass that money along to other hand to mouth spenders who spend rather than saving.

The term that will be quoted back as a BS rebuttal will be velocity even though what is being referred to is velocity X multiplier over the time period in question and is usually shortened to multiplier. I hope this short circuits the usual crapola reflex. Love your jags sig.

Velocity is fine as a term. It represents the speed with which a single dollar performs transactions. Adding complexity to the term is counter productive.

What is most hillarious is that the velocity with which food stamps revenues are spent secondarily is exactly what causes food stamps to be the best stimulus achieving the highest multiplier ratio.

A point somehow lost on folks trying to add layers of destructive complexity upon a fairly simple effect.

 

[loosecannon]

It doesn't. Economic history shows that every dollar of government spending results in far less than a dollar of economic activity. Food stamps just accelerate some consumption via transfer payments and lessen future spending.

Do you really think the poor save save their food stamps and welfare checks? Of course not. They spend them immediately creating a demand for goods and service.

Other stimulus such as tax cuts and interest rate reductions are better because they stimulate investments which build new and expanded businesses. This creates new jobs that are more permanent than jobs created to fill temporary demand due to government spending.

However, we cut taxes to bone during the Bush years and created large deficits leaving no room for additional tax cuts. Interest rates were lowered to near zero at the beginning of the recession leaving little room for additional cuts. The only option option left to simulate grow is increased government spending.

Where does the money come from in the first place, Lucky the daggummed Leprechaun?


BOOOOOOOOOOOOOSH! is irrelevant.

You have a good point to contribute but your delivery is making you look like a fool and worse yet clouding the integrity of the point you want to make.

 

[william the wie]

Since we are within spitting distance of the Bond bear I don't see adding to the deficit as a possible solution set. Between state insolvencies, putbacks on loans, writedowns, legal fees from the foreclosure mess and no doubt other things I am unaware of it seems possible that the Fed could liquidate the entire national debt through QE and still come up short on banking liquidity.

Counterwise with Ron Paul being unleashed to pursue the Fed the practical debt ceiling might be much lower than expected. Are we debating a real possibility.

 

[loosecannon]

and you are addressing who and what?

 

[william the wie]

and you are addressing who and what?

everybody and whether increasing welfare payments is even feasible.

 

[Terral]

Hi Doc:

Hi all, I just have a quick question.

A lot of people have been saying that unemployment benefits help stimulate the economy. Mark Zandi, Chief Economist of Moody's, has gone on record as saying that $1.00 spent on food stamps actually adds $1.73 to GDP. As far as I can tell from what I've read, the claim that unemployment benefits and food stamps adds to the GDP is uncontroversial.

My question is where does that extra wealth come from? How does government spending, targeted toward the unemployed, actually create this extra $0.73?

Thanks in advance.

First of all, remember that the National Debt is more than 100 Trillion dollars and heading for 200 Trillion dollars, which means the USA is broke and running on nothing more than FED dollars created out of thin air. The FED is currently buying about 80 percent of the U.S. Treasury Bills that finances all of this unemployment/food stamp spending that must be paid back by our posterity; if the system does not collapse first.

The .73 cents is a mythological number that assumes the original dollar is never paid back, but is simply added to the out-of-control National Debt. You should realize that the actual GDP numbers are negative, but the largest banks take FED dollars and speculate in the stock markets that are run by computers making money by playing microscopic spreads at lightning speed. In reality, the U.S. Economy is imploding and any positive growth numbers are manufactured by the lying government to instill a false sense of confidence.

Think about it: If Obama really wanted to create a single job for a real American, he would begin by going after U.S. 'Employers' who hire Illegal Alien Foreign Nationals. However, he is looking for some way to hand out Illegal Amnesty as a reward to anyone willing to come through the back door and displace more American Workers from identities and JOBS; which is killing the local Consumer/Tax Bases and destroying America right before our very eyes.

House prices will continue to implode along with the real economy, while a worthless dollar will see commodity/food prices go through the roof. Let us do the math for 40 million Americans on food stamps at 200 dollars per month:

40,000,000 X 200 = 8,000,000,000 or eight billion dollars per month. We multiply that by 12 for a yearly total of $96,000,000,000, or 96 billion dollars, which we can round off to 100 Billion. While that money 'does' go into the economy to become a stimulus for the short term, someone must pay back that money with interest over the long term. Extending Unemployment Benefits costs about 60 Billion Dollars, while Job-killer Obama figures more ways to displace American Workers from JOBS; which reduces the number of Americans paying taxes to support all of this spending.

Obama is driving the U.S. Economy over the cliff and both Houses of Congress are his accomplices ...

GL,

Terral