Article “Column on jobless put letter writers to work” reprints an excellent question from a reader: “Nathan, town unknown, rightly and thoughtfully questioned Congressional Budget Office data that show every $1 spent on unemployment benefits generates up to $1.90 in economic growth.”
WATCHDOG: Unfortunately, the columists did not answer the question. Economists refer to this as the “Multiplier Effect.” During times when everyone but one person was at work and with everything else being equal, adding a dollar in dole would have only a dollar’s impact on the economy, because it would not put anyone to work, but simply redirect their work.
However, when there is much unemployment, such as the current situation, the dollar is probably spent almost in whole by the unemployed recipient, the merchants receiving portions of that dollar will buy a dollar worth of more goods or hire a dollars worth of new employees, and that virtuous cycle will continue. It isn’t an infinite process, because not all of each dollar is will generate expansion. But it is not uncommon during rough times for a dollar spent by government to generate three or four dollars in economic benefits.
Of course the dollar borrowed by the government has to be eventually paid back. But with the economy stimulated, people are put back to work, and recovery commences. When prosperity returns, there is abundant money available to pay down debt. (Note the Clinton years when economists were worried about the impact of having no federal debt.) The multiplier effect is what John Maynard Keynes likened to “priming the pump.”
In defense of the letter writer and the columnist, looking “multiplielr effect” up on Google will lead to a number of mathematical explanations that would task a college math student.
