CBO: Unemployment benefits might, or might not, stimulate economy

The Senate Democrats succeeded in breaking a "Republican logjam" over the extension of unemployment insurance benefits, following a typically disingenuous lobbying effort by Democrats and the White House.  Two arguments were presented: one, the Republicans are hard-hearted and care nothing for the unfortunate people put out of work by the failed policies of the past.  Secondly, unemployment benefits create jobs, so the Republicans are anti-small business. 

The first argument is dishonest because Senate Republicans were not arguing against the extension of benefits, but only that they be funded by unspent Stimulus money, rather than further borrowing.

The second argument made a media stir when Nancy Pelosi argued on July 1st that unemployment spending "is one of the biggest stimuluses to our economy. Economists will tell you this money is spent quickly. It injects demand into the economy, and is job creating."

Pelosi was roundly criticized for her ignorance about basic economics.  This talking point however continues to be repeated by Democrats. 

David Axelrod recently wrote in an email to the President:

[Obama] has been fighting for expanded unemployment insurance because he understands that putting money in the pockets of the people who are most likely to spend it is a cost-effective way of boosting local economies and creating jobs.

Senator Max Baucus, Democrat of Montana, commented after the passage of the Senate bill:

This bill is about jobs because unemployment insurance goes to people who will spend it immediately.  That would increase economic demand. And that would help support our fragile economic recovery.''

These statements derive from a CBO report released in January 2010, which stated:

Households receiving unemployment benefits tend to spend the additional benefits quickly, making this option both timely and cost-effective in spurring economic activity and employment...  [This] policy [option] could dampen people's efforts to look for work, although that concern is less of a factor when employment opportunities are expected to be limited for some time.

The second sentence, an admission that Obama's recovery efforts aren't expected to have an effect anytime soon, is rarely cited by Democrats.

The CBO then cites the numbers that have placed the unemployment benefits option at the top of the table of policy options:

CBO estimates that the policies would raise output cumulatively between 2010 and 2015 by $0.70 to $1.90 per dollar of total budgetary cost.

A low of $0.70 and a high of $1.90 per dollar spent?  A dollar of output for a dollar spent would be the break-even point, so the $0.70 estimate means we lose 30 cents for every dollar we spend.

The CBO therefore claims, in addition to "dampen[ing] people's efforts to look for work," that taking money out of the economy and putting it back into unemployment benefits might increase economic output, or it might decrease it? 

Faint praise is too generous a description.



The Senate Democrats succeeded in breaking a "Republican logjam" over the extension of unemployment insurance benefits, following a typically disingenuous lobbying effort by Democrats and the White House.  Two arguments were presented: one, the Republicans are hard-hearted and care nothing for the unfortunate people put out of work by the failed policies of the past.  Secondly, unemployment benefits create jobs, so the Republicans are anti-small business. 

The first argument is dishonest because Senate Republicans were not arguing against the extension of benefits, but only that they be funded by unspent Stimulus money, rather than further borrowing.

The second argument made a media stir when Nancy Pelosi argued on July 1st that unemployment spending "is one of the biggest stimuluses to our economy. Economists will tell you this money is spent quickly. It injects demand into the economy, and is job creating."

Pelosi was roundly criticized for her ignorance about basic economics.  This talking point however continues to be repeated by Democrats. 

David Axelrod recently wrote in an email to the President:

[Obama] has been fighting for expanded unemployment insurance because he understands that putting money in the pockets of the people who are most likely to spend it is a cost-effective way of boosting local economies and creating jobs.

Senator Max Baucus, Democrat of Montana, commented after the passage of the Senate bill:

This bill is about jobs because unemployment insurance goes to people who will spend it immediately.  That would increase economic demand. And that would help support our fragile economic recovery.''

These statements derive from a CBO report released in January 2010, which stated:

Households receiving unemployment benefits tend to spend the additional benefits quickly, making this option both timely and cost-effective in spurring economic activity and employment...  [This] policy [option] could dampen people's efforts to look for work, although that concern is less of a factor when employment opportunities are expected to be limited for some time.

The second sentence, an admission that Obama's recovery efforts aren't expected to have an effect anytime soon, is rarely cited by Democrats.

The CBO then cites the numbers that have placed the unemployment benefits option at the top of the table of policy options:

CBO estimates that the policies would raise output cumulatively between 2010 and 2015 by $0.70 to $1.90 per dollar of total budgetary cost.

A low of $0.70 and a high of $1.90 per dollar spent?  A dollar of output for a dollar spent would be the break-even point, so the $0.70 estimate means we lose 30 cents for every dollar we spend.

The CBO therefore claims, in addition to "dampen[ing] people's efforts to look for work," that taking money out of the economy and putting it back into unemployment benefits might increase economic output, or it might decrease it? 

Faint praise is too generous a description.



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