Keynesian Benefits?

I was recently reading this New York Times article.  The article was discussing unemployment benefit cutbacks for people who have already received 26 weeks of unemployment benefits.  That is, people who have been on unemployment for six and one half months. The main subject of the article was having her benefits cut back some forty-four dollars after six and a half months.

What really caught my attention was a particular sentence.  Ms. Cozart felt that the cutbacks were “really dumb and really mean, given that everybody knows that unemployment benefits stimulate the economy.”   The article seems to accept that statement as an obvious truth.  Is it?

I would think this would have been a great opportunity to investigate that allegation.  Ms. Cozart claims that she spends every dollar she gets from the government.  So the question that remains unanswered is what does it cost to get her one dollar of benefits?  If it costs the government one dollar and fifty cents to get her that one dollar then there is a net loss to the economy of fifty cents.  Not to mention every dollar she spends will have to be taxed to create the very benefits she uses.  If each dollar represents a fifty cent loss to the economy then her argument is dubious at best.  The New York Times fails to even consider this in their article.

If her thinking is erroneous, which the New York Times doesn’t seem to care about, then the errors she is making are compounded.  If she thinks her actions, taking unemployment benefits and spending them, are a net gain to the economy then her interest in getting off the government program is lessened.  We see this very type of disincentive with the other person in the article who decides against taking a minimum wage job because she takes home more money in unemployment benefits then she would with a minimum wage job.

The real point is that this article belongs in the opinion section of the paper.  A real news item would deal with where the money comes from, where it goes, the effects of those decisions, and possible policy alternatives.  This article is an attempt to make the reader feel bad for the person whose benefit is cut.  It does a disservice when it is pushed as news as opposed to opinion.

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