Your view: Food Stamps and Unemployment

Your Star said:

You're completely missing the economic reasoning behind this. It's giving these people an income, in which they otherwise wouldn't have an income.

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I'm not missing that at all. I get that and agree that for a very short period of time, people need help. What you don't seem to get is Pelosi and those who argue that spending $1 in unemployment nets $2 to the economy. By that reasoning, everyone should be on unemployment to boost the economy and that's laughable.

Your Star said:

They generally spend all of this income they receive, and it increases demand in the economy. If you already have an income, and you're spending money, you're contributing to demand in the economy, these unemployment, and food stamps are just giving more people means to contribute to the demand. If they didn't receive these, then demand would be lower. It's not that hard to understand.

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I don't care about the rationalization or supposed societal merits of the program. That's not what's being discussed. I'm looking directly at Government gives $1 and gets $2 in return by the simple act of giving $1. It's bunk. You spend $1 and $1 goes back into the economy. Period.

Ockham said:

I'm not missing that at all. I get that and agree that for a very short period of time, people need help. What you don't seem to get is Pelosi and those who argue that spending $1 in unemployment nets $2 to the economy. By that reasoning, everyone should be on unemployment to boost the economy and that's laughable.

I don't care about the rationalization or supposed societal merits of the program. That's not what's being discussed. I'm looking directly at Government gives $1 and gets $2 in return by the simple act of giving $1. It's bunk. You spend $1 and $1 goes back into the economy. Period.

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You do not understand economic activity

Lets say I give you $10, but you have to spend that $10 and not save it. You go and buy a widget for $10, so $10 has been spent. But now what happens to that $10, why it is used to pay wages, suppliers and so on down the line (some might save part of it). That $10 will have been spent multiple times over in the economy, the government taking a slice per transaction some people putting away a fraction as savings.

The $10 dollars will have created a fair bit of economic activity, but it may not have created wealth.

Lord Tammerlain said:

You do not understand economic activity

Lets say I give you $10, but you have to spend that $10 and not save it. You go and buy a widget for $10, so $10 has been spent. But now what happens to that $10, why it is used to pay wages, suppliers and so on down the line (some might save part of it). That $10 will have been spent multiple times over in the economy, the government taking a slice per transaction some people putting away a fraction as savings.

The $10 dollars will have created a fair bit of economic activity, but it may not have created wealth.

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That's fine I understand that. What I don't understand is the claims that say the $10 spent net's $20 dollars. Prove that the $10 spent creates $20 back into the economy.

Ockham said:

I'm not missing that at all. I get that and agree that for a very short period of time, people need help. What you don't seem to get is Pelosi and those who argue that spending $1 in unemployment nets $2 to the economy. By that reasoning, everyone should be on unemployment to boost the economy and that's laughable.

I don't care about the rationalization or supposed societal merits of the program. That's not what's being discussed. I'm looking directly at Government gives $1 and gets $2 in return by the simple act of giving $1. It's bunk. You spend $1 and $1 goes back into the economy. Period.

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If Tom owes Bob $10 who owes Sue $10 who owes Al $10 who owes Beth $10....

Give Tom $10 and $40 in debt has been repaid.

Ha! It's prolly another bank bailout.

Lord Tammerlain said:

And this is the disconnect

It is not a solution of course. It is a way to minimize the pain, instead of making the pain a massive shock to the system causing the entire system to be bed ridden for a short period of time, it allows for the system to function, albit at a reduced rate for an extended period of time

The choices being a massive collapse with untold suffering, that is relatively short lived

Or a moderate collapse with managable suffering that lasts for an extended period of time

In any case untill the debt is worked through, economic growth will be stunted

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and so the solution is to increase that debt? your way of "letting us down easily" is to make the problem worse.

and i would seriously question whether it even minimizes the pain. as i've been trying to work through with Your Star; the models that claim it does inevitably depend upon the notion that the Government just magically created that wealth rather than getting it from somewhere.

cpwill said:

and so the solution is to increase that debt? your way of "letting us down easily" is to make the problem worse.

and i would seriously question whether it even minimizes the pain. as i've been trying to work through with Your Star; the models that claim it does inevitably depend upon the notion that the Government just magically created that wealth rather than getting it from somewhere.

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It certainly can make the problem worse, or it can minimize the pain. Not every situation is the same, nor should the same solution be applied. Right now, it is not of much use as all sectors of the economy is deeply in debt. During periods of economic growth the government should seek to run a surplus, pay down debt etc. So that during economic slowdowns, it has the ability to either fund through savings a moderate stimulus or not become excessively indebted to so so.

Right now as the government is deeply in debt even before the crisis, it does not have that flexibility. So instead of providing stimulus during the 2000's as the government did, it should have cut spending and increased taxes to pay down debt, giving it the potential to moderate this downturn

increasing tax rates in a recession merely makes recovery for the prvate sector more difficult. it's also highly questionable to what extent higher tax rates would bring in higher revenues.



in fact, if anything, the opposite seems to be true, though not to a particularly large degree:



the wiser approach would have simply been to drastically cut spending past the point of deficit spending or tax increases. get government spending below that 18% of GDP so that we can pay down debt, and keep tax rates low so that the raw amount represented by 18% of GDP grows more rapidly.

pbrauer said:

Unemployment benefits/food-stamps immediately create more demand, more demand requires more workers. It's as they say "Not rocket science.'"

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It is also not good math as unemployment benefits and food stamps do not create more demand. The demand is there already. To think that people become hungry when the get food stamps is commendable but silly. The demand does not create more workers as the service industry is not really expanding and still meets the demands now.

MaggieD said:

I have absolutely no problem with unemployment or food stamps. They're a necessary safety net.

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What's wrong with private charity? We didn't have a huge mass of people starving in the streets in the 1800s.

Lord Tammerlain said:

People sometimes get caught up in the hype. The tech bubble was a bunch of hype on how some internet stocks were doubling or tripling in peoples investments in a very short period of time. People like that idea, they become obsessed with doing what their neighbor Joe did when he bought into Scamsareus.com and tripled his invesment in 5 months. In this obsession they stop performing rational analysis of the companies and state "it is different this time". The media often reinforces this obbession by bringing on cheerleaders saying it is different this time. This obbession fuels the growth in the stock market causing this believe that it is different this time to appear to be correct, causing even some rational people who know differently to join in as a means to gain quick profits. Then some stocks start to fail. The obbsession starts to fade, the companies start to go broke, and the whole system comes crashing down. Untill rationallity comes back into the market. In the ,time massive amounts of capital has been poorly allocated,

It is a pattern that repeats itself over time in many different countries in many different markets. A small scale one would be Beanie Babies.

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But why. Why don't people learn? Like I said, the irrational man explanation really is lacking. People generally are smart, so why do they get fooled? What causes people to get fooled?

hallam said:

It is also not good math as unemployment benefits and food stamps do not create more demand. The demand is there already. To think that people become hungry when the get food stamps is commendable but silly. The demand does not create more workers as the service industry is not really expanding and still meets the demands now.

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Thank you. Finally someone who understands that inflating demand is worthless since it does nothing to answer the production side of the economy.

phattonez said:

But why. Why don't people learn? Like I said, the irrational man explanation really is lacking. People generally are smart, so why do they get fooled? What causes people to get fooled?

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If you can come up with a better theory as to why people can behave irrationally at times while normally behaving rationally by all means.

Just remember that people do have emotions which can and do cloud ones judgement on many issues, not everything we do as human beings is based on cold rational thought

Lord Tammerlain said:

If you can come up with a better theory as to why people can behave irrationally at times while normally behaving rationally by all means.

Just remember that people do have emotions which can and do cloud ones judgement on many issues, not everything we do as human beings is based on cold rational thought

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I would have to disagree here. Almost all human behavior is based on emotion and assumptions. Rationality is the exception not the rule that gets clouded.

Ockham said:

On the House floor Pelosi then makes the claim that for every $1 spent on Unemployment, $2 goes back into the economy.

http://www.realclearpolitics.com/vi...osi_unemployment_benefits_creates_jobs.ht ml

So what Pelosi would have us believe is that the more Food Stamps and the more Unemployment, the better off our economy will be. The question is, do you believe that?

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Wow, what a straw man. She was saying more unemployment INSURANCE makes the economy better off, not more UNEMPLOYMENT. :roll:

To answer the question, yes, I agree with her...at least about unemployment insurance. Extending it should help the economy because it increases the purchasing power of those who would otherwise be unable to buy much of anything. This stimulates the economy. (And we won't even mention the fact that it makes the unemployed themselves better off, since I know most folks don't care about that.)

That doesn't mean that unemployment benefits need to be extended and expanded for all time, regardless of the state of the economy. I'm talking about a temporary extension, right now, in the midst of a period of extremely high unemployment. When unemployment comes back down, we can go back to the way things were...but with unemployment over 9%, it's difficult to seriously make the argument that more unemployment benefits will discourage people from working, when there are so many people who want to work but can't find a job.

As for food stamps...I really don't know. I haven't studied the issue enough to know how expanding them would affect the economy, but I would guess that at least a temporary expansion would be a net positive for the economy as well, for basically the same reasons as unemployment insurance would.

Lord Tammerlain said:

If you can come up with a better theory as to why people can behave irrationally at times while normally behaving rationally by all means.

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i don't see how they were acting that irrationally; they were responding to price signals, most especially the price of credit.

Lord Tammerlain said:

If you can come up with a better theory as to why people can behave irrationally at times while normally behaving rationally by all means.

Just remember that people do have emotions which can and do cloud ones judgement on many issues, not everything we do as human beings is based on cold rational thought

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Expectations of future demand were clouded because interest rates were under control by a central body and not set by the market.

hallam said:

I would have to disagree here. Almost all human behavior is based on emotion and assumptions. Rationality is the exception not the rule that gets clouded.

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So you throw money down a wishing well expecting it to grant your wish? This is a regular occurrence for you?

I feel that the reason for all this unemployment is a lack of communications between the CEOs and the people.
The trade imbalance was just left to fester for 20-40 years, allowing our money to take a one way trip to Mexico, China, Saudi-Arabia, etc.
Unemployment insurance must be improved, as it is now, it fixes nothing.
Business must communicate...as to what they need in labor..
Maybe we can learn from Germany.
And, this is not a "lefty/righty" thing either...
But, in the short term, probably more money needs to be spent in job training....better Vo-tech programs and instructors.

Kandahar said:

Wow, what a straw man. She was saying more unemployment INSURANCE makes the economy better off, not more UNEMPLOYMENT. :roll:

To answer the question, yes, I agree with her...at least about unemployment insurance. Extending it should help the economy because it increases the purchasing power of those who would otherwise be unable to buy much of anything. This stimulates the economy.

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All it would do is raise prices since you're sapping away investment potential and diverting it toward demand. More demand and the same production gets you what exactly?

(And we won't even mention the fact that it makes the unemployed themselves better off, since I know most folks don't care about that.)

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That's a mischaracterization if I ever heard it. Private charity can take care of people and they do it better. Again, where is the documentation of a huge mass of people starving in the 1800s?

That doesn't mean that unemployment benefits need to be extended and expanded for all time, regardless of the state of the economy. I'm talking about a temporary extension, right now, in the midst of a period of extremely high unemployment. When unemployment comes back down, we can go back to the way things were...but with unemployment over 9%, it's difficult to seriously make the argument that more unemployment benefits will discourage people from working, when there are so many people who want to work but can't find a job.

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I can easily make that argument. When people get money for doing nothing, it makes their demands for compensation for doing something higher. Remove those benefits and people would be more willing to work.

As for food stamps...I really don't know. I haven't studied the issue enough to know how expanding them would affect the economy, but I would guess that at least a temporary expansion would be a net positive for the economy as well, for basically the same reasons as unemployment insurance would.

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Because you're ignoring capital?

phattonez said:

But why. Why don't people learn? Like I said, the irrational man explanation really is lacking. People generally are smart, so why do they get fooled? What causes people to get fooled?

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There can be lots of reasons people behave irrationally. Dan Ariely covers some of the obvious examples in his book "Predictably Irrational." Some of the reasons when people are unwilling or unable to think rationally:

- Wishful thinking. People WANT to believe that "this time is different," and so they come up with justifications for why obvious bubbles are actually sustainable.

- The ownership bias. People generally overvalue what they already have. For example, when presented with the opportunity to sell something they own, people think about everything they're going to have to give up, instead of how much the underlying asset is actually worth.

- The comparison bias. If given a choice between A) a high-end, expensive product and B) a low-end, cheap product, people will buy whichever suits their needs better. But if they ALSO have the choice of buying C) an equally high-end, but slightly MORE expensive product, they are vastly more likely to choose A over B.

- Loss aversion. Potential losses loom much larger in the minds of most people than potential gains do. (This isn't necessarily irrational on a personal level, but from the perspective of financial markets it is.)

These are just a few of the cognitive biases in human psychology that distort the economy. I strongly disagree with the notion that "people generally are smart." They are smart in certain areas and stupid in others. People make many predictable, irrational mistakes which can distort the market.

phattonez said:

All it would do is raise prices since you're sapping away investment potential and diverting it toward demand. More demand and the same production gets you what exactly?

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It's not sapping capital; the Fed just spat $600 billion into the economy. More demand CAUSES more production, which in turn causes more people to be hired.

phattonez said:

I can easily make that argument. When people get money for doing nothing, it makes their demands for compensation for doing something higher. Remove those benefits and people would be more willing to work.

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But there is no epidemic of people being unwilling to work. There are vastly more unemployed people than there are jobs available, which is why unemployment is so high right now. So increasing people's desire to work doesn't actually do anything, if the jobs simply aren't there. Now if we had a SYSTEMIC unemployment rate approaching 9%, that would be a different matter. But it's only been in the last couple years since the recession that that's been a problem, which indicates to me that it's temporary.

phattonez said:

Because you're ignoring capital?

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Many businesses are currently awash with capital but are not investing it.

Kandahar said:

It's not sapping capital; the Fed just spat $600 billion into the economy. More demand CAUSES more production,

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how? through magic?

You should have allowed more than one option. Yes she is 100% wrong, yes she is playing politics, yes she should go play in a mine field. She is referencing the multiplier effect which is what happens when new funds are introduced to the economy through growth and stimulus of investment. Where she is wrong is in her idea that unemployment handouts are somehow growth or stimulus of investment.

cpwill said:

how? through magic?

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More demand = More people who want to buy your stuff = More people who want to give you money = More incentive to increase production before your competitors do = More production

Kandahar said:

More demand = More people who want to buy your stuff = More people who want to give you money = More incentive to increase production before your competitors do = More production

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yeah yeah yeah, but how are you going to increase that production before your competitors do? we've already taken the money out of the production side to give it to the demand side. if more people want my toys, but i can only make 1,000 toys a month, and the capital to expand my production has already gone into Bonds to be given to the people now using that same money to buy my toys.....


....then all that happens is i increase the price of my products; my production capability is shackled.