uly was the final month of the historically disproportionate unemployment bonus of $600 per week. The termination or reduction of benefits will undoubtably make a difference in the lives of the people who were receiving them, but old-style Keynesians insist that the rest of us will be harmed too. They’re wrong.
Referring to the bonus sunset, Paul Krugman explained in August that “I’ve been doing the math, and it’s terrifying. . . . Their spending will fall by a lot . . . [and there is] a substantial ‘multiplier’ effect, as spending cuts lead to falling incomes, leading to further spending cuts.” GDP could fall 4 to 5 percent, and perhaps as much as ten percent, which is almost $200 billion less national spending a month.
Wednesday the Census Bureau’s advance retail-sales report provided our first extensive look at consumer spending in August, which is the first month with reduced benefits (reduced roughly $50 billion for the month). Did consumer spending drop by tens of billions, starting our economy on the promised path toward recession?
The red series in the chart below shows actual retail sales for each month of 2020. The virus itself caused off-the-chart drops this spring, followed by an on-the chart recovery soon thereafter. But in August, retail sales increased $3 billion above July, which is quite a normal monthly change.
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Referring to the bonus sunset, Paul Krugman explained in August that “I’ve been doing the math, and it’s terrifying. . . . Their spending will fall by a lot . . . [and there is] a substantial ‘multiplier’ effect, as spending cuts lead to falling incomes, leading to further spending cuts.” GDP could fall 4 to 5 percent, and perhaps as much as ten percent, which is almost $200 billion less national spending a month.
Wednesday the Census Bureau’s advance retail-sales report provided our first extensive look at consumer spending in August, which is the first month with reduced benefits (reduced roughly $50 billion for the month). Did consumer spending drop by tens of billions, starting our economy on the promised path toward recession?
The red series in the chart below shows actual retail sales for each month of 2020. The virus itself caused off-the-chart drops this spring, followed by an on-the chart recovery soon thereafter. But in August, retail sales increased $3 billion above July, which is quite a normal monthly change.
Data Dispel Keynesian Economics — Again | National Review
At best, redistribution from workers to the unemployed reallocates demand rather than increasing its total.
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