
Extending unemployment benefits - sarvesh
http://blogs.law.harvard.edu/philg/2008/12/14/extending-unemployment-benefits/
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mechanical_fish
_Why does it make the U.S. more competitive and vibrant if we tax working
Americans to give money to non-working Americans?_

Because recipients of unemployment insurance are likely to spend the money
right away. That's how stimulus works: The government must _spend money_ on
_things_ , fast and furious, so that the manufacturers of the things will
experience enough demand that they will keep their own factories open.

Otherwise you get the classic deflationary spiral of (e.g.) the 1930s.

For more explanation than I could possibly provide (dammit, I really _should_
have taken an econ class...) here's Bruce Bartlett at _Forbes_ :

[http://www.forbes.com/opinions/2008/12/04/depression-
deflati...](http://www.forbes.com/opinions/2008/12/04/depression-deflation-
velocity-oped-cx_bb_1205bartlett.html)

"Banks, businesses and households are all hoarding cash, not spending except
for essentials. This is bringing on the deflation that is crippling the
economy.

"The problem today is that velocity is falling faster than the Fed can pump up
the money supply by buying financial assets, and very low market interest
rates mean there has been little net increase in liquidity as a result of the
actions the Fed has taken thus far.

"What Keynes figured out is that when conditions such as these exist, the
federal government must step in to raise spending in the economy and thereby
increase velocity. This means running a budget deficit, but that is only part
of the solution. As noted earlier, spending just to buy financial assets does
very little good.

"We also know from the experience with tax rebates in 1974, 2001 and 2008 that
this doesn't do any good, either. People mostly save the money or pay down
debts. Thus, rebates just become another form of exchanging assets that add
little to spending (and hence velocity).

"Keynes argued that the only thing that will really work is if the federal
government uses its resources to purchase goods and services. It must buy
'stuff' -- concrete, computers, paper, glass, steel -- anything as long as it
is tangible. In other words, the government must spend the way households do,
by buying things."

\---

One easy way for the government to spend like a household is to hand money to
desperate households and have them spend it. The fact that this also helps
newly unemployed people from growing hungry is just a nice side effect.

~~~
helveticaman
Federal government spending increased 47% under the Hoover administration and
grew further under the Roosevelt administration (who had initially criticized
Hoover's spending). This fits under the paradox "If something isn't working,
do it more." I feel like depressions are very misunderstood phenomena, partly
because there hasn't been a big one of late.

