A Kentucky Senator held up the extension of unemployment benefits for hundreds of thousands of the unemployed. Why? He said he was worried about the public debt. He wants to reduce spending elsewhere. This makes no sense. When you have unemployed resources there is no real cost to public spending. No opportunity cost forgone. What is needed is an increase in spending, not substituting one expenditure for another.
When consumer demand is inadequate to use all resources, it is not the time to reduce some people's income. The barrier to full employment is the outmoded way we finance public spending with borrowing incurring interest payment obligations. Money is created when banks make loans, if commercial banks do not want to do because they are pessimistic about the economy, the government's own bank, the Federal Reserve, could loan the treasury enough to get nearer full employment. (For more, see some of my earlier posts.)
Sen. Bunning finally relented and voted for the bill, but he and no other politician is looking for a new means of finance.
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