The new talking point from the Democrat Party, repeated by senators and spokesmen with the intensity of a religious edict, is that unemployment compensation is the best possible form of economic stimulus. The idea is that unemployed people will spend the money quickly, rather than socking it away in a savings account. This wave of spending will result in the formation of new jobs. From government cornucopia, to the wallet of an unemployed citizen, to the cash registers of happy merchants – it’s a simple formula for prosperity.
If it’s such a great formula, why not plug a few trillion dollars into it and buy our way into Paradise? There are about 15 million unemployed as of November, according to the Bureau of Labor Statistics. We could spend $2 trillion, and drop over a hundred grand on each and every one of them. We’d have an orgy of spending then!
Obviously, this strategy would stir up a lot of resentment among the employed. It would be annoying to limp home from a tough day on the job to see your unemployed neighbor waving his big government check and dancing for joy.
Another problem would be the question of where they money came from. For the program to be deficit-neutral, the government would have to tax $2 trillion away from The Evil Rich, whose minimum income level would necessarily drop far below the $200,000 per year currently specified by Democrat ideology. There would be a lot of political resistance to paying those taxes. On the other hand, deficit spending, or simply printing more money to hand out, would devalue the currency. It would increase the amount of money flowing through the economy, without increasing the amount of value.
The final objection one might raise to this stimulus plan is that it would include no control over where the unemployed spent the money. They might just blow it on fancy cars and Xbox software. What guarantee would there be of wise investments, and what would happen to all the businesses that grew to accept stimulus cash, once the money ran out?
In fact, all of these criticisms are actually the same problem with attempting stimulus through welfare payments. It never works, because it attempts to separate money from the underlying value it represents. The forcible reallocation of funds destroys value.
The kind of job that leads to positive economic growth is a long-term position, created in response to enduring demand. For an example of short-term stimulus, look at what happens during a big county fair. A lot of tents and temporary structures are quickly erected to collect a big pile of money, spent during a weekend or two, and a number of short-term, part-time jobs are created. All of this goes away when the fair ends. It couldn’t be sustained for longer than a few weekends. People wouldn’t keep showing up and throwing money into the amusements and snack concessions forever. It’s a temporary spike in demand, created by the artificial stimulus of advertising a relatively rare event.
The resentment people with jobs would feel, if they were taxed to provide a huge “stimulus” bonanza for the unemployed, wouldn’t just be a moral reaction. It would be an expression of a logical economic principle. Both the acts of earning and spending are significant. They are free exchanges between parties for mutual benefit, and that is what generates wealth. Turning the “earning” part into redistribution by force, based on political decree, reduces the free movement of money through the economy, and that leads inevitably to contraction… as water turns to ice when its molecules slow down.
The notion of stimulus through welfare is an attempt to create a perpetual-motion machine by shoving a wave of cash to the bottom of the economic scale – people who are, by definition, currently producing nothing of value, even though most of them desperately want to do so. The attempt to separate money from value always comes at the detriment of value. Pretending that millions of unemployed “deserve” billions they didn’t earn is a poisonous attempt to devalue the activity of the people who did earn it.
Socialist imagery of greedy fat-cats and the deserving unemployed is an attempt to make us forget about where the money comes from. It doesn’t matter any less when you don’t think about it. Taking it away from the people who earned it eventually rots away the value they produce through their labor and investments. Borrowing it from the future runs up a debt that will eventually crash the entire system, and leaves the next generation trapped beneath crippling debt, wiping out their economic freedom. Conjuring the money out of thin air is a lie that debases the value of our currency. None of those options can be sustained for long.