Sunday, November 21, 2010

Do you see it? I don't see it . . . Part 1

Barack Obama, in an interview with "60 Minutes" recorded 11/4/2010 said several important things - - but in my opinion this is not one of them:

(scroll down to #3) "unemployment insurance, most economists will tell you, is probably the single most important thing we can do to improve the economy.”

The President’s statement prompted me to look up some history about earlier recessions in America. I did not find what the President’s comment suggested I would. For example, I found that James Monroe did not implement any unemployment insurance during the Panic of 1819. Yet somehow the American economy recovered. Not only that, Monroe was re-elected the very next year, in 1820. And for example I found that many states enacted unemployment insurance during the Great Depression and Congress enacted Social Security. Yet that Depression lasted for a decade. So I have my doubts that unemployment insurance is truly as important as the President says – despite the President’s belief that most economists think so. Am I saying the insurance is not important? No. I’m just saying I doubt it's the single most important thing the President can do to improve the economy.

Apart from history, unemployment insurance is paid using so-called government funds. Government funds come from taxation of productive workers, which unemployment insurance diverts to people who are not working. That may well not be their fault. Nevertheless they are unproductive while not at work. The very act that the President suggests is the single most important thing that he can do, in fact siphons money out of the productive parts of the economy – that’s the only place he can get the money. (Yes, he can print more, but that produces inflation which is just a sneakier tax).

Even if a company has oodles of cash, why would it hire or invest knowing that higher tax rates reduce the odds of gaining income from additional hiring or investment? Oh hello, we DO have companies right now with oodles of cash that are not hiring or investing. We read almost daily that the illuminati wonder why that is. Maybe their wonderment arises from the failure of reality to obey their theories.

I just don't see a tax on productivity as the best way to stimulate productivity. Do most economists disagree with this? Really?

[Part 2 is here]
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