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Saturday, September 10, 2011

Unemployment is good....

So I talked to this individual last night while I was waiting for a ride home from work (my girlfriend and I share an old beater), and we got to talking about unemployment.  Apparently it was this individual's view that unemployment insurance was good for the economy because when people didn't have jobs they still had money to spend on goods, which helped the companies and thereby stimulated the economy even when people were losing work. 

It is disheartening to see such evident misunderstanding of basic economic principles. 
Here is why this reasoning is faulty, at best.

First of all, people have to pay into unemployment when they do have jobs.  Part of the individuals argument was that people wouldn't save if we didn't force them to by law.  Whether or not that's true, let's grant it for the sake of the argument.  If people wouldn't save for the times when they don't have jobs, then it stands to reason that they would be spending that money in the economy.  Instead of the money they would be paying into unemployment, there would be money they were injecting back into the economy.  In addition, companies wouldn't have to pay out unemployment benefits either, meaning they could invest more in their corporation initially, or raise wages, or do any other number of useful things with that money.  So not only would the money from unemployment, if people wouldn't save on their own, be used BEFORE there was an economic crisis, the companies (whichever ones they are) would have more capital to work with BEFORE the economic crisis as well.  So, there would be twofold protection against joblessness, it would be cheaper to employ people, driving down the cost of goods, and people would have more money to spend initially, further stimulating the economy and preventing hardship in the frist place.

Prevention of problems is almost always better than elimination of symptoms. 

More to come on unemployment...

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