Unemployment Compensation and Economic Growth
We have often heard lately from former House Speaker Pelosi, Presidential spokesman Jay Carney, and even the Secretary of Agriculture Tom Vilsack, that subsidizing consumption is economically creative and will create economic growth. How can that be you ask, paying people not to work seems inherently unproductive? Dr. Milton Friedman once responded to a questioner who asked a related question concerning taxes; he was asked whether high tax rates don’t force producers to find more and better ways to produce goods and services and isn’t that the value of high tax rates, to “spread the wealth?”
This is what Friedman had to say:
In other words, if you increase consumption without increasing production, the American people are not, in fact, better off. When you pay people who don’t produce things people want to buy at an affordable price, you do not make the country better off. You may indeed make some individuals better off, and in a short run this may even be desirable, but in anything other than the very short run, this is a net negative for the country. Is this not crystal clear?
