Thursday, February 23, 2012

Both Fox News and Limbaugh push misinformation on unemployment compensation

According to Rush Limbaugh:

There Is No Stimulative Effect Of Unemployment Benefits -- None Whatsoever.
From the August 30 edition of Premiere Radio Networks' The Rush Limbaugh Show

Limbaugh added:
[T]his regime, from Pelosi to any number of people, try to make the claim that unemployment benefits stimulate the economy. Jay Carney even said, "Oh yeah, I mean, it really works out there, you putting money in people's pockets that they're gonna go spend, they're not ganna save it. And so, yeah, it'll stimulate the economy."

Where does the money come from? You have to take it away from somebody before you give it to somebody else. It's a wash. There is no stimulative effect of unemployment benefits -- none whatsoever. Whether you borrow the money, or print it, or get it via taxes, you still have to take it from some place in the private sector to give it to somebody else in the private sector. It zeros out. And probably is a net negative because it also has the added benefit of promoting laziness, slothfulness. The longer you pay people not to do anything, the longer they'll not do anything. 
Premiere Radio Networks, The Rush Limbaugh Show, 8/30/11

First of fall, the Federal government doesn't not rob Peter to pay Paul. The federal government collects taxes and is obligated to spend these revenues before the fiscal year ends. What is the most effective way to spend the tax dollars:  that is the real question?

Mark Zandi of Moody's economics answered this question with a study. the results of which are shown in the following chart. His study identifies which tax programs have what some call a  "multiplexer effect."
People who have lost their jobs will spend most of the unemployment compensation  to pay bills and buy groceries. This money is quickly churned back into the economy. 

Tax cuts that benefit the affluent may be banked. Some wealthy Americans may purchase precious metals such as gold and place it in a safe deposit box or under their bed. The money is not rolled back into the economy.

Some tax cuts like the FICA payroll tax holiday are stimulative because these cuts benefit a broad segment of the population: middle class/working Americans,

Cuts that benefits small segments of the population such as the corporate tax cuts for C-corporations, the Bush tax cuts and accelerated deprecation have far less " bang for the federal buck."

Are you surprised that Fox News and Rush Limbaugh aren't enamored with the Zandi study? its basically debunks many of the foundations for supply side economics.

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