A restaurant owner only hires enough workers to meet the demand. Let’s say he needs 10 workers to deal with his 100 customers per night. 10% of the population in his town are unemployed and cannot afford to shop at his restaurant. Give them adequate unemployment benefits or a job and suddenly he sees a rise in customer base. He then has to hire another two workers to cover demand. He orders more food and supplies to cover the increased demand. The companies who provide food and supplies see increased demand also. They hire more people. More truck drivers are needed. Etc. These new hires now spend money in their own communities, at the local supermarket, movie theater, restaurants, clothing stores. All of these businesses see an increase in demand and have to hire more people. Eventually the employment rate rises. That 10% unemployment number in that town drops. These newly employed people are now working in the private sector, due to the increased demand for products and services. The middle class emerges once again. The unemployment rate nationally is reduced dramatically. Tax receipts spike. The deficit drops.
Lower unemployment and higher tax revenue lead to lower debt.
Conversely, take that same restaurant. Now, take the 10% in the town who are unemployed and reduce their unemployment benefits or put forth austerity measures which force even more layoffs and pay cuts. That restaurant LOSES customers. The owner has to reduce his work force in response to this drop in demand for his product. Now he has 8 workers. That’s two less workers spending money in the town. Those other business in the town now see a drop in demand, also. So, THEY lay off employees, too. It becomes a death spiral.
Absent demand, we need the government to spend money to stimulate the economy and start this positive domino effect.
Get it? I can’t make it any simpler.