Art Laffer: Unemployment Benefits Are Not Stimulus

Amazingly good article by Art Laffer, who is a renowned economist, famous for the "Laffer Curve."

Here, he lays out a logical argument for why Democrats are backwards in much of their thinking on unemployment benefits. I love writers who use strong examples and logic to support their points, rather than relying on political rhetoric.

The point Laffer misses here is glaring though: that the US economy is not a zero-sum game. The amount of money in the economy grows and shrinks, as does supply and demand of virtually everything. His examples are a little over-simplified because of his reliance on a static money-supply and labor supply. The Democrat's argument is that taking from one person, and redistributing to another "stimulates" economic growth. Thereafter, the beneficiary of the redistribution invests his money and ultimately produces more, hence, lessening the need for redistribution.

However, Laffer's overall point remains exactly correct. There is no evidence that redistribution stimulates at all. In fact, the exact opposite is true: redistribution actually creates an incentive NOT to engage in economic activity (i.e. to work or invest). This is especially true when the benefits are reliably forthcoming.

On my regular blog, I have written two recent posts discussing this issue further. As I stated there, unemployment benefits are necessary to ease the transition between jobs. Such transitions are important to growth, and accommodating them is a good idea. However, it can easily get out of control, and it certainly is not "economic stimulus" as Nancy Pelosi recently argued.

See Laffer's article here.

See my own writings on this subject here and here.