...explain this to me:
"What Democrats believe is what textbook economics says: that when the economy is deeply depressed, extending unemployment benefits not only helps those in need, it also reduces unemployment. That’s because the economy’s problem right now is lack of sufficient demand, and cash-strapped unemployed workers are likely to spend their benefits. In fact, the Congressional Budget Office says that aid to the unemployed is one of the most effective forms of economic stimulus, as measured by jobs created per dollar of outlay."
-Paul Krugman, attacking the claim that extending unemployment benefits incentivizes unemployment in his blog.
"Public policy designed to help workers who lose their jobs can lead to structural unemployment as an unintended side effect. . . . In other countries, particularly in Europe, benefits are more generous and last longer. The drawback to this generosity is that it reduces a worker's incentive to quickly find a new job. Generous unemployment benefits in some European countries are widely believed to be one of the main causes of 'Eurosclerosis,' the persistent high unemployment that affects a number of European countries." -Paul Krugman, in his own economics textbook.
I know he replied, but it didn't really address the issues. Frankly, it didn't make sense:
"What’s limiting employment now is lack of demand for the things workers produce. Their incentives to seek work are, for now, irrelevant. That’s why comments by the likes of Sen. Kyl are so boneheaded — anyone who thinks that high unemployment in the first quarter of 2010 has anything to do with workers getting excessively generous benefits must not get out much." Krugman's reply
I know for a fact that there are people who could work, but won't due to the fact that they make more money sitting at home than with one of the available jobs. I have this knowledge for two reasons: 1) I have common sense; and 2) I personally know several people doing this right now.*
In a free market, there's essentially unlimited demand for just about anything, at some price. If you want more demand, make your product better or cheaper. If you can't make a profit at a price people are willing to pay, either become more efficient or give up. If there's no demand at any price, whatever you're selling is literally worthless by definition.
Keynesians (like Krugman) try to artificially increase demand with public spending and artificially low interest rates. In our case, both would be financed by greatly increasing the deficit. Paying back the money we already owe is essentially impossible, but they pretend it doesn't matter. As much as I hate Bernanke for his unprecedented money printing, Krugman seems just as unhappy with him for not inflating enough.
The artificially low interest rates punish those with the good sense to save their money. Your loans might be cheap, but savings accounts pay practically nothing. Artificially low interest rates force everyone to speculate on real estate or equities, just to keep up with inflation. This leads to things like the tech bubble, the housing bubble and the crashes which inevitably follow. This punishes practically everyone.
Don't tell me about Krugman's Nobel Prize in Economics - Henry Kissinger and Yasser Arafat won Nobel Peace Prizes. Although, to be fair, I have to admit that Krugman is just about as good at economics as they were at peace.
*Actually, this is a rational choice for people to make. I'd probably do myself, if in a similar situation. I'm not upset at people who do this. I'm upset at the people who allow it to happen.