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Sessions says create jobs, don't extend benefits; CBO says benefits create jobs

Pete Session says we need to create jobs, rejects UI extensions that would create jobs
Pete Session says we need to create jobs, rejects UI extensions that would create jobs

House Rules Committee Chairman Pete Sessions (R-Texas) recently called extending unemployment benefits "immoral." It's a strange word to use, since the cuts enacted in December 2013 have left 1.6 million people (and counting) penniless. This, we should suppose, is moral? His rationale is that Congress should be creating jobs so that unemployed people can get work. "I believe it is immoral for this country to have as a policy extending long-term unemployments [benefits] to people rather than us working on creation of jobs. A job is the most important attribute, I believe, in a free enterprise system."

One wonders why we must either create jobs or provide unemployment insurance. Job creation takes time, and unemployed people need money now, so it would seem that the "moral" thing to do is both create jobs and extend benefits.

Sessions' rhetoric is wrong-headed on an even more basic level, and the Congressional Budget Office has even told him exactly why. Back in December, before the benefits were cut, the CBO was asked to examine the consequences of keeping or extending unemployment insurance. Their response was unequivocal: Extending unemployment insurance creates jobs.

Read that again. Extending payments to unemployed people creates jobs. Here's how it works: Jobs are created when demand for goods or services rise. Jobs are lost when demand falls. Now, it's important to understand precisely what "demand" means in this context. Demand is not just the need or desire for something. It's the combination of desire and ability to buy. All the desire in the world and an empty wallet won't drive the economy even a little bit.

In America today, most people are poor or near poverty. In very simple terms, this means that most people don't have enough money to buy what they want to buy. Poor people, almost by definition, have to spend as little money as possible. In terms of economic growth, this is not a good thing. In a booming economy, lots of people have extra money to buy not only things they need, but also things they want. In a poor economy, people cut spending as much as possible to save what little they have (if they can save anything at all). Referring back to our basic principle of demand creating jobs, we see that cutting benefits actually hurts the economy by reducing already depressed demand. People cannot buy what they cannot afford to buy, so goods sit on shelves.

The Congressional Budget Office's report backs up this line of logic:

Recipients of the additional benefits would increase their spending on consumer goods and services. That increase in aggregate demand would encourage businesses to boost production and hire more workers than they otherwise would, particularly given the expected slack in the capital and labor markets.

It doesn't get much plainer than that, does it? Increase in demand leads to people getting hired for new positions. Unemployment insurance creates more demand. That's job creation. Sessions and his Republican allies are either ignorant of basic economics or lying about their rationale for cutting benefits.

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