“Great minds think alike. So do drunken carnies with corn dog sticks and the chance to shank you.” – unknown
White House press secretary Jay Carney trotted out a wonderful bit of Keynesian nonsense this week when pressed about extending unemployment benefits. The full video is here:
The question, posed by Laura Meckler of the Wall Street Journal: “I understand why extending unemployment insurance provides relief to people who need it, but how does that create jobs?”
Carney’s response: “It is one of the most direct ways to infuse money directly into the economy because people who are unemployed and obviously aren’t running a paycheck are going to spend the money that they get. They’re not going to save it, they’re going to spend it. And with unemployment insurance, that way, the money goes directly back into the economy, dollar for dollar virtually.”
Forget about dollars for just a second. Forget about any form of coinage or money or credit. There are two things in the economy to consider: production and consumption. Of course, the second is merely a byproduct of the first. That is, what is produced is consumed. Farmers grow corn and people eat it. Builders build houses and people live in them (whether renting or buying). Janitors clean bathrooms and they are clean – they are consumed (or consumption is started) almost immediately.
We usually measure economic “goodness” in Gross Domestic Product (GDP). Despite the fact that government statistics are unreliable and flawed, the measure is still a measure of production.
We use money for two things. First, it is a medium of exchange. It’s hard to always trade bushels of corn for houses, so we use money as the middle man. Next, we use it as a store of value. If I have produced more than I intend to consume today, I can allow someone else to consume my excess production and store that production in the form of money, which I will use tomorrow to consume. In both ways money serves to add fluidity and efficiency to the market … and nothing more.
The Keynesian notion that spending helps drive the economy is to say that consumption will spur production. This is exactly backwards. “The only reason people aren’t producing is because people refuse to consume.” Really? They usually put it in more sophisticated terms – “the economy is struggling because of insufficient demand.” Ummm, no.
Demand is infinite, all the time. People want everything – they just may not want it for a certain cost. The Keynesians then hold that the economy suffers because the free market has determined a different price point than the one that existed yesterday. The entire philosophy is fundamentally disdainful of freedom. It holds that free people choosing to produce or consume in accordance with their desires “get it wrong” and must be cajoled into producing or consuming different things and in different quantities.
And what sense does it make, in regards to unemployment benefits? We will take production from one and allow it to be consumed by another who did not produce it. This, will in turn induce the producers to produce more … WHAT!? How exactly does taking production from one induce him to produce more? What incentive does he have if he will not be allowed to consume what he produces? The answer is simple – none.
(It’s not unlike the TARP bailout, where money was taken from taxpayers, given to banks, in order to get banks to lend back to taxpayers. How exactly does this help the taxpayers?)
Does giving money from one to another cause short-term changes in the economy? Of course. Does it possibly induce greater “activity” and perhaps even a few more jobs at the front end? Probably. Does it produce anything that is long term or efficient? No. Does it produce anything other than a false signal to the market, a distortion, or a mis-allocation of resources? No. They simply sow the seeds of the next collapse.
Argue for unemployment benefits on moral grounds all you want, but to argue for them on economic grounds is silly.