Smasharoo wrote:
Robert Reich is close to functionally retarded. Also comically tiny, but that's unrelated. His argument is correct for other reasons, primarily that you absolutely CAN spend yourself out of this particular set of economic circumstances, but his phrasing along the lines of "giving people money makes more jobs" isn't terribly helpful. I'd pay to see him joust Nicolas Sarkozy on pigs, though.
His argument is retarded as well, and while better phrasing might make it appear less so and make it easier to convince people to go along with said retarded idea, it does not actually make the fundamental idea a good one.
You can't make something out of nothing. Extending unemployment benefits is the economic equivalent of stealing from Peter to pay Paul. It doesn't work. He effectively relabels a broad problem affecting employment in a very narrow way so as to support his position, but that's not really fair (or correct). Employers are not hiring enough people, not strictly because people aren't buying enough goods to justify it, but because it's not financially beneficial for them to do so. While lack of purchasing is one element of this, it's only one. Higher costs to employ is another. Basically every single thing that affects the ratio of "profits per employee versus cost per employee" affects those hiring decisions (which includes things like increased taxes, and increased costs via Obamcare, just to name a couple super relevant causes).
He's chosen to zero in on the least rational cause, and propose the most ridiculous solution possible. The problem with extending unemployment as a means of keeping money flowing into purchasing is that it obviously isn't working now, so it's unreasonable to assume continuing to do so will change anything. Every dollar that flows into an unemployed persons hand has to be taxed out of the economy first, and is a dollar that would have been used to either employ that person or purchase the same dollar amount of goods in the market that the person might buy with the unemployment dollars. It's insane to think that by shifting the means by which the money arrives in the buyers hands that it will change the overall economic picture. It wont. It is, as I stated earlier, robbing Peter to pay Paul. It accomplishes nothing positive.
It does, however, create a negative. See, the problem with extending unemployment is that it creates an opportunity cost against employment itself. Assuming we're looking strictly at the set of people who could work but currently can't find employment, then the problem isn't that they can't find *any* work, but that they can't find work that pays sufficiently to be worth taking. But "worth taking" is relative. If you're getting X dollars in unemployment benefits, you aren't going to take a job that pays X dollars. You likely wont take a job that pays some amount of dollars more than X either. You'll only take a job that pays enough more than X so as to justify the difference between spending time working and not spending time working. So the problem is that by paying X dollars in unemployment to this group, we're actually eliminating X*Y amount of labor from the market (with Y being some percentage of X that represents the opportunity cost of expending the effort of working versus not working). We're effectively reducing the total dollars in the economy, which in turn could have been used to purchase the very goods and services that Mr. Reich claims is needed to get the economy up and running (and to pay for the jobs themselves).
Put another way, unemployment is a straight negative. We pay X dollars, but get zero productive output added to the economy. Jobs are "free" in that for every X dollars we pay to the workers, we get X*Y productive value back. Anything that shifts people from unemployment to employment will help the economy recover and ultimately help the workers in the long run *even* if initially they take a dollar revenue hit as a result.
Yes. we get X dollars back in the form of purchasing from the unemployed, but we get that with the employed too. The difference is that the employed are adding to the productive output of the economy, while the unemployed are not. Reich's argument ignores the production angle. Sure. Someone has to buy stuff, but someone has to make the stuff we buy too. Both sides are required for a healthy growing economy, but folks like Reich tend to forget that and focus only on demand. And yeah, that's a pretty retarded way of looking at things. Demand with no increased supply simply means increased cost in direct proportion to the increased demand, thus making zero economic gains. You can
never increase the dollars available to hire people via increased purchasing dollars handed out to consumers who are not working. I just don't know how much more clearly that can be stated. It's something that should be inherently obvious, but it's amazing how many people just completely fail to grasp the concept.
Edited, Dec 11th 2013 5:20pm by gbaji