Ken Hills (Letters, Dec. 14) seems to think it absurd that spending a dollar on unemployment benefits could add $1.50 to the economy. But there is nothing absurd about this “cumulative effect on output of a one-time increase in spending.” Those receiving unemployment benefits tend to spend this money right away on basic needs. Part of the money spent on groceries then goes to grocery store employees who spend some of it on their basic needs, and so on.
According to the Congressional Budget Office, a dollar in unemployment benefits thus adds between 80 cents and $2.20 to the economy (gross domestic product). By contrast, even with the multiplier effect, a dollar in high-income tax cuts only puts between 10 cents and 50 cents into the economy. So if our goal is to increase the number of jobs by using currently unused labor and capital, a dollar’s worth of unemployment benefits is about five times as effective as a dollar’s worth of tax cuts for high earners.