"I understand why extending unemployment insurance provides relief to people who need it, but how does that create jobs," Wall Street Journal's Laura Meckler asked Jay Carney at Wednesday's WH briefing.So there you have it. The unemployed create jobs. If only we had millions more unemployed we could create millions more jobs simply by given the unemployed more money.
Carney responded: "Oh, uh, it is by, uh, I would expect a reporter from the Wall Street Journal would know this as part of the entrance exam."
"There are few other ways that can directly put money into the economy than applying unemployment insurance," Carney said.
Carney answers the question: "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."
"Every place that, that money is spent has added business and that creates growth and income for businesses that leads them to decisions about jobs, more hiring. So, there are few other ways that can directly put money into the economy than applying unemployment insurance, Carney said.
I suppose we could triple unemployment benefits and create three times as many jobs on the theory that the unemployed would still spend every penny of three times as much money.
We could be even more creative and extend unemployment benefits to infinity thereby creating an infinite number of jobs. However, creation of an infinite number of jobs would sound unrealistic as a news headline, even for a liberal media, if only barely. So let's just do this for three more years at three times the benefits.
I have the headline ready: "Obama to create 9 million jobs by giving the unemployed three times as much money if they agree to spend it."
Addendum:
A couple of people argued spending will create jobs but asked "how many?" Certainly 1 million seems ridiculous.
More to the heart of the matter, to paraphrase a response from "Fedwatcher", such activities will create jobs but not efficiently or permanently.
Therein is the crux of the matter. Certainly if the government gave $20,000 to everyone who was unemployed we would see a burst of activity, followed by another crash. Throwing money around does not create lasting jobs, only another heroin high.
Worse yet, in response to stimulus, businesses may invest more in productive capacity only to find out as the stimulus wore off, they really didn't need it. Heaven help any business that borrows money on such false signals.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.
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