Economics and Government

       This article is about the Fed and how they are sticking to buying $600 million in US Treasury Bonds and keeping the interest rates near zero. Even though consumer spending for Christmas has raised significantly this year, unemployment continues to remain around 10%. In addition, Congress is expected to approve a tax cut package for next year. This has not changed the Fed's mind about their policy.

      I do not agree with the Fed buying Treasury Bonds to boost the economy. This will lower unemployment but bring inflation up. Inflation will continue to increase over the years as unemployment remains the main focus for policymakers. The Fed should not worry so much about unemployment because it will eventually fall back to equilibrium. This all goes back to how the government should not involve itself in policies that do not relate to market failure. Unemployment is not a source of market failure, so therefore it should not be a focus for policies. I feel that this policy the Fed is following through with is a source of inefficiency, because it is not a pareto improvement. It will result in higher inflation rates which will decrease the value of the dollar. Maybe what the Fed needs to do (if they feel it necessary to get involved) is focus on inflation rather then unemployment.

Back in June 2010 Nancy Pelosi made a statement that unemployment benefits are the fastest way to create jobs. This statement was made in support of extending the amount of time someone can receive unemployment benefits. The unemployment benefits were extended and now in December we have an even higher unemployment rate then we did back in June and now the extended benefits are expiring again. So what did the extended unemployment benefits do? From what I can see, it didn’t do much. Pelosi statement illustrates the problem with government trying to create jobs. They are completely clueless, they have no idea how the economy actually works. Unemployment benefits like most handouts that the government gives only serve to hinder the economy. Where does all this money come from? Taxes, and as we have seen in class is that taxes that are not trying to fix a negative externality or fix market failure cause market inefficiency. For some reason politicians cannot figure out that the best way to create jobs is to reduce taxes. What is needed is smarter taxes, taxes that create the least amount of excess burden.

Website: http://www.foxnews.com/politics/2010/07/01/pelosi-unemployment-checks-best-way-create-jobs/