Can federal unemployment checks really grow our economy over $50 billion dollars a year?

The US economy is losing up to a billion dollars a week because of the “fiscally irresponsible” decision to end long-term unemployment benefits, a Harvard economist said on Friday.

Professor Lawrence Katz based his assessment on official forecasts of the impact to the economy of 1.3 million jobless Americans losing benefits. Read more –

He later told the Guardian that the calculation was based on the “multiplier effect” of cancelling the benefits program, which had been forecast by the Congressional Budget Office (CBO). Applying the CBO’s estimated multiplier effect to the $400m per week being lost in benefits, Katz said, translated into a cost to the economy of between $600m and $1bn.

If Keynesian economists ever hope to get any respect, they are going to have to sell their premise much better. No matter what ‘multiplier’ you dream up, multiplying it by zero still equals zero. Simply put, economic ‘activity’ doesn’t equate to economic growth. One can spend that unemployment check dollar an infinite amount of times and its value in terms of economic output is still one dollar. Less when you factor in that it was printed or borrowed and costs interest to boot.

Economic growth must contain increased productivity and/or wealth. Otherwise it isn’t growth, merely activity which describes the ‘busy work’ our government employees conduct at taxpayer expense.

The plight of the unemployed, particularly the long-term that qualify for the federal government extensions at the heart of this debate, is a moral issue as much as an issue of practicality. Erosion of skills, motivation to search for a job, ancillary issues such as foreclosures and bankruptcies, etc., are all valid concerns as a result of a loss of an income source such as unemployment. You just can’t sell it as a product of economic growth. You may say it is a way to stop the bleeding and making things worse, but that brings the moral question into the debate.

Which is the ultimate bearer of the cost of transfer payments that must be borrowed are future generations with no say in the matter. Keynesian economists have no formula in which to interject morality into their equations. Even the morality issue is moot as far as formulas are concerned. Circulating a dollar throughout an economy simply cannot result in growth. Growth is required to ever increase productivity to expand the wealth base to be able to pay back that dollar along with its accumulated interest.

The bottom line is that Keynesian spending can only ever serve as a band-aid to stave off facing reality. That comes at a cost. A cost is a debt and all debts are always paid. It may be the borrower, it may be the lender or it may be a third-party but someone will pay it. Guaranteed.

The argument as to whether using taxpayer dollars to fund non-productive activity during economic downturns is preferable to simply allowing people to fend for themselves is a complex one. Attempting to integrate ethical issues into economic policy is imperfect at best and immeasurable as well.

One thing we can ascertain for sure. Policies that truly grow an economy are best and far more likely to result in maximizing employment and eliminating this debate altogether. Keynesian economics has never been about sound policy rather it just serves as a tool for proponents of big government and collectivism.