Friday, August 19, 2011

The Clearest Article on Economics That You'll Read All Month

In addition to good information it has some down-home folksy tales:
I have two teenage sons. One worked all summer and the other sat on his duff. To stimulate the economy, the White House wants to take more money from the son who works and give it to the one who doesn't work. I can say with 100% certainty as a parent that in the Moore household this will lead to less work.

Economic bimboism is rampant in Washington. The Center for American Progress held a forum earlier this summer arguing that raising the minimum wage would create more jobs. For this to be true, you have to believe that the more it costs a business to hire a worker, the more workers companies will want to hire.

A few months ago Mr. Obama blamed high unemployment on businesses becoming "more efficient with a lot fewer workers," and he mentioned ATMs and airport kiosks. The Luddites are back raging against the machine. If Mr. Obama really wants to get to full employment, why not ban farm equipment?

19 comments:

KauaiMark said...

"...bimbo-ism"
heh, heh, heh

PestoDave said...

I have two teenage sons. At the beginning of the summer they both had jobs. One was laid off. He wanted to look for another job, but didn't have money for the bus to go on interviews or buy the necessary tools for his construction job. He applied for unemployment, received his unemployment check, bought a bicycle for transportation, tools for his construction job and work clothes. He went on an interview and impressed the interviewer with how well prepared he was. The bike shop, the hardware store and clothing store all profited. He was hired and the construction company had a needed employee.

maxutils said...

Clearest, if either a) you're really stupid, or b) you willingly choose to be ignorant of and/or ignore facts, or c) both a and b.

I agree with the INTENT of the author . . .money should not be transferred directly from those who choose to work to those who don't. Really. But, the author is completely misinterpreting what the law allows

First, everyone gets the same standard deduction from their taxes, whether they work or not. It is structured so that you cannot profit from it. If your income is zero, the government calls it a wash, not cutting you a check.

Second, you can only receive unemployment if you have a) been employed, b) lost your job for reasons other than justifiable termination or quitting, and c) you are actively looking for work or training. In other words, it must not be your fault. In addition, it is a small fraction of your check, and was paid for via deductions through FICA while you were working. It IS unemployment 'insurance'.

And . . .three, it makes sense. If a whole bunch of people lose their jobs (see: Great Depression, The), they will stop spending, causing more businesses to fail. If they have 'insurance' protecting them from this loss,they can continue to spend, preventing others from losing their jobs.

Other programs, like WIC or food stamps are different, and we could have a separate discussion. Likewise, aid to those here illegally. Likewise, perhaps the incentives to go back to work aren't strong enough. But dude on couch gets nothing, and Obama hasn't said otherwise. So, you , my dear are an idiot. And, I really try not to name-call, but in this case it is appropriate.

Darren said...

I think the two of you tear down a weak straw man. No one is saying that unemployment insurance isn't a good idea--I myself have paid into it and drawn from it more than once. But to say that it "stimulates the economy" is stupid.

socalmike said...

From the article, and this, I think, is the money quote:
"What the White House is telling us is that the more unemployed people we can pay for not working, the more people will work."

Max, where does the 'insurance' that you mention come from? It comes from the people who DO work, right? So if there are fewer people working, THERE'S LESS MONEY FOR 'INSURANCE'. The only way to increase that money is to either borrow or increase taxes.

I really am surprised that there are people who don't understand this BASIC rule of economics.

maxutils said...

It doesn't stimulate it . . . it prevents it supports it by mitigating the effects of rising unemployment on the economy by lessening the amount of consumer spending which is lost due to rising unemployment. Suppose 100,000 people lose their jobs one month, nation wide, with an average income of $36,000.
(low, but convienent) I'll assume that they were spending all of their money (which is not far off). That immediatelyy removes $3,000,000 from the economy, monthly. since the multipler effect is approximately 5, it is effectively $15,000,000/mo, or $180,000,000 annually.and, that's for one month's job loss. Slide the jobseekers some cash, and that figure is cut by whatever % of their ppay checks the workers get. And -- those workers paid in to the system for this privilege.

Darren said...

Max, I *do* understand the idea of unemployment insurance. But to call it "stimulus" as the term is understood today is as ridiculous as saying the replacing of broken windows is good for the economy so we should go out and break windows. Or even better, let's hope a few more towns get leveled by tornadoes or floods so we can "stimulate" the economy by rebuilding them.

Anonymous said...

Darren you are apparently unable to understand economics very. Stimulus is a relative term. Tell me where stimulus begins. The money received from UI stimulated the economy more that $0. It creates effective demand. That is all Maxutils is saying. It is really something strange to see a math teacher argue with this. You are a math teacher aren't you?
pestodave

maxutils said...

socal mike . . .you're right. INCLUDING the people who were working until they lost there jobs. Everyone pays in to the system to protect themselves in the event they get laid off . . .The aren't paying while they're unemployed, but they were when they were working. By the same token, you buy homeowner's insurance because losing your house to fire would be devastating. But your premium is only affordable because the majority of people who pay in never have need to use it. If you want to argue that there are flaws in determining who gets it,and/or for how long, fine. But my economics is sound.

Darren said...

Pestodave, I *am* a math teacher. Attack me personally again and I'll start guessing what you are.

If you think having so many unemployed is "stimulative", then you no doubt support this president's policies. Hell, let's just have more of 'em and we can "stimulate" the economy out of this recession with unemployment insurance!

No one's saying UI is a bad social idea, but to claim it's "stimulative", that it will help the economy grow, is foolish indeed.

maxutils said...

Darren, 'stimulate' doesn't necessarily mean 'grow'. I see what you're getting at, but it's really a semantic argument. Obviously, UI won't help the economy grow. On the other hand, it does infuse consumer spending in to the economy that would otherwise not be there. To my way of thinking, that's a stimulus that *doesn't* promote growth. I think we're just quibbling.

Darren said...

No,we're not quibbling. We both know what is meant by the common usage of the word "stimulus".

Left Coast Ref said...

How much of the "infusion" from unemployment checks is actually spent on items that grow the economy? I know if I had no regular flow of income other than the gov't check, I wouldn't be spending it on non-essentials. I would pay my mortgage, my bills and buy groceries. Those things don't really GROW the economy. Insurance is great from the social aspect. To stimulate is to cause something to happen that hadn't been happening before. So the question becomes, what happens once the insurance money available runs out? When those people who paid into it at low cost values don't find jobs to replenish the supply? Oh yeah, the rest of us start paying more into it, so we have less in our take-home pay to spend on non-essentials. I won't follow this possible logical conclusion fearing some of those on the Left may say it is a "slippery slope". But remember, facts and logic/reason is not a slippery slope.

maxutils said...

Alternately, what would happen if unemplyment insurance weren't available? Obviously, you spend it on the essentials . . . and I SAID it wouldn't promote growth. Did you actually read my comment? If you don't have it, though, mortgages go unpaid, food doesn't get bought, lenders suffer. None of these are good for the economy. Neither is unemployment, but not having UI is worse. And, my definition of stimulus would be to encourage or provoke something in to action that otherwise would not occur; or, to excite in to action. UI does that. Tell me, what is your definition?

PestoDave said...

Darren, that is not fair. maxutils called you stupid and ignorant and you didn't threaten him. Any way, contrary to what you believe, putting money into anyone's hands for them to spend is stimulative. It just is. You and the ref may not like UI, and you can refuse to collect If you wish. However the fact remains that the money people receive on UI stimulates the economy. It just does. It is a fact.

Darren said...

And the sky is green.

You and Max are free to have your own definitions of "stimulus" if you like, but I'll go with the generally-accepted "grows the economy" definition. If that's *not* what it means, why pump 3/4 of a trillion into the economy in the porkulus package for all those "shovel-ready" projects?

maxutils said...

pesto dave . . . i did no such thing to Darren. My attack was on the person Darren quoted . . . I regularly try to prod Darren in to taking economics courses, so he can further hone his NORMALLY accuurate skills, but he his far from 'ignorant'. Darren, that is NOT the commonly used definition of 'stimulus', except in the realm of political wonkdom. But, it helps me understand your point. We disagree merely on choice of words.

Darren said...

Since we're talking about political people making political decisions, it's the definition that's apt for what I'm discussing.

maxutils said...

You're not wrong, but I choose to believe that we can use the ACTUAL meanings of words. You may say, "I'm a dreamer . . ."