10B001 Economic Twaddle by Elmo Zoneball, 12/3/2010    

Watching some talking head economic apologist for the administration on cable TV on Wednesday, I was struck by her use of the oft-repeated claim that unemployment payments have a "multiplier effect" of about 2:1 in terms of economic activity. IOW, the claim is that every additional dollar spent on unemployment -- literally payments to people without jobs so they can continue to exist without jobs -- produces something like $2 worth of total economic activity, by trickling through the rest of the economy when the unemployed spend their unemployment checks for rent, food, beer, hookers, cable TV, etc.

I have two observations:

1) this type of sleazy economic analysis is no different than that made famous in the Fallacy of the Broken Window -- by ignoring opportunity costs, it is always possible to create an analysis that perceives the illusion of economic good news even when the underlying economic reality is just the opposite. In the extant case, the analysis most likely only counts the expenditure side of the unemployment payments, and ignores the opportunity costs of extracting the money (either via taxes, or delayed via deficit expenditure) to pay the non-working for not working from those who are still earning a living. No attempt is made to balance the calculus of the benefits of expenditures by the unemployed with the inevitable reduction in expenditures by those who have to pay for it, either now, or later, and with interest.

2) Pushed to it illogical extreme, the callow mendacity of the analysis is revealed for all to see: if unemployment payments produce a net economic benefit, then it logically follows that if we increase unemployment benefits to $10,000 per month for every person claiming benefits, we can will our way to massive economic growth and wealth, all by the expedient of legislative fiat. Alternatively, one could keep benefit levels fixed, and just have most of the labor force stop working and collect unemployment, and in a matter of months all our economic woes would be solved by the incredible economic growth that would result from the magical 2:1 unemployment benefit multiplier. If it is economically beneficial to have 10% unemployment, then it follows that the economic benefits of 20%, 30%, or 50% unemployment must be even greater, and thus would be desirable. That ranks up there with "Freedom is slavery," "Poverty is Wealth," and "... of course I'll respect you in the morning" on the International scale of Bold-faced BS.

As bad as the "Broken Window/Unemployment Multiplier" analysis is, what disturbs me even more is the utter lack of this rebuttal being argued anywhere in the Main Stream Media. The analysis is so viscerally bogus and self-serving to those who are maintaining the drumbeat for temporally unlimited unemployment benefits that it astounds me that the people making it aren't laughed off the stage the moment they float it, or tarred, feathered, and run out of town on a rail shortly thereafter. This type of economic thinking is at least as dangerous as a Jihadist with a bomb, and arguably more so.

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