Casey B. Mulligan is an economics professor at the University of Chicago.

Benefit payments by government safety net programs, like unemployment insurance, help the people who receive those payments. But government officials, politicians and journalists sometimes go another step and assert that everyone benefits when the poor and unemployed receive payments from the government, because that “puts money in the hands of consumers,” and consumer spending is said to stimulate employers to hire.

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Perspectives from expert contributors.

I explained last week that the “hands of the consumer” theory ignores the hands of the people who pay for safety net benefits. For example, because of the extra taxes needed to help pay for the unemployment insurance program, a taxpayer may no longer be able to afford to make an addition to his house.

Thus, while jobs will be needed to serve the unemployed people as they spend their benefit payment, there will be no need for the construction workers and others who would have helped with the taxpayer’s home project.

Dean Baker of the Center for Economic Policy and Research disagreed, in a post on the center’s Beat the Press blog, saying that, for now, unemployment insurance benefits do not cost us anything because they are not financed with current taxes:

At the point in a business cycle where large numbers of people are receiving benefits (like now) the U.I. system will be running a deficit. This allows unemployed workers to receive benefits, which they will overwhelmingly spend, without an offsetting current payment from other workers.

I agree that unemployment benefits and other safety net benefit payments are many times financed with taxes in the future or taxes in the past. But that “financing channel” still does not make the payments free from the perspective of today’s economy.

Suppose the government has been borrowing the money to pay for unemployment benefits. It borrows money by selling bonds. The purchasers of those bonds have less to spend on something else.

As I explained last week, government borrowing to pay for safety net benefits may increase consumer spending and reduce investment spending, because it does put money in the hands of consumers.

But that could either increase or reduce employers’ need to hire, depending on, among other things, whether the consumer goods purchased are more or less labor-intensive than investment goods not purchased (see last week’s discussion of liquidity considerations).

Last week I noted that I was holding constant the amount that safety net beneficiaries (“the poor”) work and earn, so that more safety net income for the poor means more total income for them, which permits them to spend more. But the safety net causes some beneficiaries, or their spouses, to work less.

Unless the safety net replaces all of the income lost from reduced work time – it typically does not – then the families who reduce their labor in response to the safety net expansion will spend less as a result of the safety net, and the amount less could be many times more than the amount that the safety net expanded.

Now the “hands of consumers” theory is turned on its head: at the same time that the poor spend most of whatever income they have on consumer items, the safety net’s redistribution reduces their total spending because it reduces their total family income.

Benefit payments by government safety net programs help the families who receive those payments. But it is inaccurate to ignore that fact that those payments hurt the rest of us.

U.S. stocks slipped Wednesday, indicating the SP 500 may snap a three-day winning streak after weaker-than-expected euro zone economic data and ahead of a report on the U.S. housing market.

European shares fell for a second straight session as recession concerns increased after data showed the euro zone’s service sector unexpectedly shrank and amid residual worries about Greece despite its success in getting a bailout.

But even with the weak European data, market sentiment remained positive in a market that has seen the benchmark SP index rise 8.3 percent for the year on improving U.S. data and hopes the euro zone debt crisis could be held in check.

“We still have a slowing economy in Europe. It’s just a function of how long their shallow recession lasts, but we will take a shallow recession over what the alternative was going to be, if not for the Greek deal and the ECB’s intervention,” said Art Hogan, managing director of Lazard Capital Markets in New York.

Dell Inc slumped after the world’s No. 3 personal computer maker forecast revenue below expectations late Tuesday.

Toll Brothers Inc dropped after the luxury homebuilder swung to a quarterly loss as fewer deliveries and more contract cancellations hurt revenue.

Garmin Ltd jumped after reporting a better-than-expected quarterly profit as revenue from its personal navigation devices rose and demand for its outdoor and fitness products jumped.

Computer maker Hewlett-Packard Co is set to report earnings later Wednesday.

Other companies due to announce results later in the day include Express Scripts Inc, TJX Cos Inc and Analog Devices Inc.

According to Thomson Reuters data through Tuesday morning, of the 418 companies in the SP 500 that have reported earnings, 64 percent have topped analysts’ expectations.

Wells Fargo Co is buying an energy lending business from BNP Paribas SA in the U.S. bank’s latest acquisition from a European bank seeking to shrink its balance sheet.

Asian shares eked out modest gains on doubts about Greece and concerns grew about rising oil prices.

On Tuesday the Dow Jones industrial average finished up 15.82 points, or 0.12 percent, at 12,965.69 after briefly breaking 13,000 for the first time since May 2008.

Reuters contributed to this report.

ATHENS — Fitch cut Greece’s long-term ratings on Wednesday to its lowest rating above a default, becoming the first ratings agency to make the widely expected downgrade after the country announced a bond exchange plan to ease its massive debt burden.

It said Greece would be designated as having technically defaulted after the bond exchange is formalized, but the new bonds would be give and new rating.

All three big ratings agencies — Fitch, Moody’s and Standard Poor’s — downgraded Greece in July when an initial debt swap plan was unveiled and have warned that losses for private creditors would trigger a temporary default.

As expected, Fitch said it was downgrading Greece to “C” from “CCC,” and would follow up with further downgrade to a “restricted default” when the bond swap is completed.

It will then reassess the country’s ratings when new bonds are issued as part of the debt exchange.

“It would come out to a low, speculative grade rating,” Fitch analyst Paul Rawkins told Reuters on the ratings after the reassessment, noting that rating would factor in the country’s economic prospects and new debt profile.

He added that the current process of downgrades was largely procedural, following the path laid out by the agency in June. Ratings, which give an estimate of the capacity of a creditor to repay its debt, usually serve as a guide to investors.

Euro zone finance ministers agreed a 130-billion euro rescue plan for Greece on Tuesday to avert a messy default, including a bond swap to shave 100 billion euros off Greece’s debt burden.

Bondholders will take losses of 53.5 percent on the nominal value of their Greek bonds as part of the swap, with actual losses put at around 74 percent in real terms.

The European Central Bank fas agreed to a complex plan to ensure Greek bonds can still be used as collateral in its lending operations whilst in the process of being swapped.

Greece will take a loan from the European Financial Stability Facility (EFSF) which will come in the form of EFSF bonds. Those bonds will passed to ECB and put into a special account incase there are any losses on collateral during the short window of the bond swap.

Copyright 2012 Thomson Reuters. Click for restrictions.

CORALVILLE, Iowa — When the leaders of this small Iowa city became desperate to land a new department store, they didn’t have to look far: They lured one from the city next door, along with up to 100 jobs.

The store called Von Maur agreed to leave Iowa City for a platter of incentives offered by Coralville, which promised to put up a bigger, $9.5 million building, to provide a $1.5 million parcel of land and to discount the store’s property tax bill. It even offered $650,000 to cover any penalties related to the store’s departure.

As the economy slowly strengthens, neighboring cities and states can be pitted against one another in the competition for jobs and development. But it’s not always clear how many positions are actually created, rather than just poached and shuffled around. And some people question whether the deals are worth the high cost.

“I think it’s ridiculous,” Amber Wherry said after buying a pair of jeans at Von Maur in Iowa City, expressing concern about what will happen to Sycamore Mall when the store moves five miles to the new location, probably sometime in 2013.

Coralville first tried to negotiate with Nordstrom’s, Target and others, but those companies weren’t interested or the talks fell apart. Local leaders say the deal with Von Maur will attract other stores and restaurants to a new retail development. But Iowa City officials are bitter.

“It’s a big blow to that mall and a big blow to that area of town,” said Rod Sullivan, a supervisor in Johnson County, which includes both cities.

Communities of all sizes are launching a dazzling number of taxpayer-funded schemes to bring in new businesses or keep existing ones. They’re giving grants and loans, cutting business taxes, building new infrastructure and bending the ears of anyone willing to hear a sales pitch.

The competition, which includes politicians of both parties, is often just spirited jousting among rivals. But in extreme cases, cities have been willing to raid their neighbors in the quest for jobs.

“You don’t have to be a mathematical wizard to figure out that’s never going to pay for itself,” said Peter Fisher, research director of the Iowa Policy Project, a think tank that has estimated the value of Von Maur’s incentives at $18 million. “It’s simply not economic development. You are moving a store from one place to another. It doesn’t do anything to increase the economy of Johnson County.”

Making matters worse, he said, Iowa City residents are helping subsidize the move because Coralville is diverting tax money from the county and schools to pay for the project.

The system known as tax-increment financing allows cities to use property tax revenue in once-blighted or undeveloped areas to pay for incentives to attract businesses and for improvements such as streets and utilities. Every state but Arizona has authorized its own system.

But critics say the incentives have strayed from their original mission and are increasingly used to recruit employers to suburban developments at high cost and questionable benefit. Tax revenue is diverted from education and government services without much accountability.

Tax-increment financing districts “are a very popular economic tool. In effect, they are a way of raising money without raising taxes,” said Richard Briffault, a Columbia University law professor who has written about the growth of TIFs. “They are widespread, but there’s also pushback out there.”

California Gov. Jerry Brown last year eliminated tax-increment financing when he signed a bill closing 400 redevelopment agencies.

Officials elsewhere are worried about what might happen in their states, said Toby Rittner, president and CEO of the Council of Development Finance Agencies, which represents 300 state and local government agencies. They are mobilizing to defend what they consider a powerful development tool.

“It’s really tough to tell a community they shouldn’t do something when they are looking at it from the perspective of, ‘We need jobs. We need the tax base,’” he said.

The Von Maur deal has added to the momentum for changes in Iowa. Lawmakers are now considering banning cites from using the incentives to steal businesses from their neighbors. And some want to require additional study of the economic benefit of projects before they are approved.

Iowa City and Coralville are both financially stable and have low unemployment.

But leaders in Iowa City say Von Maur’s closure will be devastating for Sycamore Mall, where a number of other stores have closed in recent weeks. A spokeswoman for Von Maur, a Davenport, Iowa-based chain, declined to comment.

Elected officials in Coralville, a relatively wealthy city of 19,000 with big box stores and affluent neighborhoods straddling Interstate 80, aren’t backing down. They say they went after Von Maur only after learning its Iowa City location was struggling and was considering moving.

Coralville Mayor Jim Fausett said the development that will house Von Maur will transform what once was an industrial wasteland into a destination for shoppers. He credited the deal with helping persuade a brewpub to open nearby and drawing interest from other restaurants. New businesses could eventually mean hundreds more jobs in the retail, service and construction industries.

“It’s finally now starting to really move forward,” he said. “We think it’s the right development for the area.”

Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Brendan Mcdermid / Reuters

Traders work on the floor of the New York Stock Exchange Tuesday.

By msnbc.com news services

Updated at 4:00 p.m. ET:

Wall Street closed Tuesday mixed as shares pulled back after the Dow breached 13,000 for the first time since May 2008, the latest big move in stocks’ recent rally.

Greece’s securing a bailout to avoid a disorderly default initially supported stocks, but investors said the news had been priced in to the market.

The 13,000 level, which the Dow first moved above briefly in morning trading, doesn’t hold a great deal of significance to market analysts, but “it’s nice to see a symbolic number,” Art Cashin, UBS director of floor operations, told CNBC.

The Dow last moved above 13,000 on an intra-day basis on May 20, 2008. It last closed above that level on May 19, 2008.

Climbing oil prices gave investors a reason to sell Tuesday. U.S. crude oil prices rose to a nine-month high amid Iran supply worries.

Signs of improvement in the economy and stabilization of Europe’s debt crisis have driven the Dow more than 20 percent higher since late last year, while the SP has climbed more than 8 percent so far this year.

Euro zone finance ministers agreed on a 130 billion euro ($172 billion) rescue for Greece to avert an imminent chaotic default after forcing Athens to commit to unpopular cuts and private bondholders to take bigger losses.

“We’re running into some minor selling pressure given the extent of the rally we’ve seen,” said Fred Dickson, chief market strategist at D.A. Davidson Co. in Lake Oswego, Oregon, despite the upbeat news on Greece.

Even with the bailout, Greece faces a long road to economic recovery. European Union officials said the Greek economy will only return to growth in 2014 after a recession that will shrink output by 17 percent.

Results from retailers were mixed. Wal-Mart Stores Inc shares were the top drag on the Dow, falling after its quarterly profit came in short of expectations.

Home Depot Inc shares were up after the home improvement chain’s quarterly profit beat estimates.

Related:

Top finance professor bullish on the stock market

Reuters contributed to this report.

Can the Dow move higher? Discuss on our Facebook page.

Chip Somodevilla / Getty Images

U.S. Treasury Secretary Timothy Geithner testifies before the Senate Budget Committee.

By msnbc.com staff

Treasury Secretary Timothy F. Geithner has done a better job for bond investors than his predecessor Robert Rubin, but not as well as the previous head of the Treasury Department Henry Paulson, according to an analysis by Bloomberg News.

Geithner took over at Treasury during the worst financial crisis since the Great Depression, and under his watch the nation has lost its AAA credit rating and seen its public debt almost double, rising from $5.75 trillion to $10 trillion.

Still, since Geithner assumed his office, in January 2009, returns on Treasuries have exceeded the bonds of other countries by 0.3 percentage point on an annualized rate, Bloomberg said, citing Bank of America Merrill Lynch index data. That return is less than Paulson’s 7.5 percentage points, but better than Rubin’s record. Under his leadership Treasuries lagged behind foreign issues by 1.6 points, Bloomberg said.

Geithner said recently he will not be asked to remain in his post if President Barack Obama wins this November’s election.

Geithner’s Treasury has kept bond yields near record lows and has held demand for government securities at all-time highs.

Geithner’s lengthening of the average maturity of U.S. debt to 62.8 months, the longest since 2002 under former Treasury Secretary Paul O’Neill, may shore up credit quality and depress yields amid contained inflation, according to the Bloomberg report.

With the Dow Jones industrial average moving back above 13,000 for the first time since May 2008, you might be considering adopting a bullish stance and getting into the stock market.

You’d be in good company if you did.

Jeremy J. Siegel, a professor of finance at the Wharton School, appeared on CNBC Tuesday to discuss the outlook for the market. He said he sees a second leg upward for stocks, and also the possibility of the Dow moving up to 17,000.

Related:

Dow crosses 13,000 for the first time since May 2008

EXTRA RELIEF

A report prepared by experts from the European Union, European Central Bank and International Monetary Fund said Greece would need extra relief to cut its debts near to the official debt target given the worsening state of its economy.

If Athens did not follow through on economic reforms and savings to make its economy more competitive, its debt could hit 160 percent by 2020, said the report.

“Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it,” the nine-page confidential report said.

The beefed-up monitoring of implementation of the reforms could bolster accusations among some Greeks of interference in domestic affairs but some critics say that is essential.

Dutch Finance Minister Jan Kees de Jager, one of Athens’ most strident critics, told Dutch news agency ANP he had bargained hard for the permanent monitoring mission.

“This program is not something to cheer about,” he said.

BOND SWAP

The accord will enable Athens to launch a bond swap with private investors to help put it on a more stable financial footing and keep it inside the euro zone.

About 100 billion euros of debt will be written off as banks and insurers swap bonds they hold for longer-dated securities that pay a lower coupon.

Private sector holders of Greek debt will take losses of 53.5 percent on the nominal value of their bonds. They had agreed to a 50 percent nominal writedown, which equated to around a 70 percent loss on the net present value of the debt.

Juncker said he expected a high participation rate in the deal, a view echoed by the German banking association.

Greece said it would legislate to allow it to enforce losses on bondholders who do not take part voluntarily.

Euro zone central banks will also play their part.

A Eurogroup statement said the ECB would pass up profits it made from buying Greek bonds over the past two years to national central banks for their governments to pass on to Athens “to further improve the sustainability of Greece’s public debt.”

The ECB has spent about 38 billion euros on Greek government debt with a face value of about 50 billion euros.

The private creditor bond exchange is expected to launch on March 8 and complete three days later, Athens said on Saturday. That means a 14.5-billion-euro bond repayment due on March 20 would be restructured, allowing Greece to avoid default.

The vast majority of the funds in the program will be used to finance the bond swap and ensure Greece’s banking system remains stable; some 30 billion euros will go to “sweeteners” to get the private sector to sign up to the swap, 23 billion will go to recapitalize Greek banks.

A further 35 billion or so will allow Greece to finance the buying back of the bonds. Next to nothing will go directly to help the Greek economy.

Copyright 2012 Thomson Reuters. Click for restrictions.

Getty Images file

Whole Foods saw customer satisfaction increase in the past year, according to a new survey.

We’ve been hearing a lot of potentially positive news about the economy lately, and that may be trickling down to the grocery store level.

A new survey finds that even though food prices are going up, Americans are more satisfied than they were a year ago with upscale grocer Whole Foods and less satisfied with discount giant Wal-Mart.

The American Customer Satisfaction Index, an ongoing study of people’s shopping preferences, said Whole Foods’ customer satisfaction rose slightly in the past year, continuing an upward trend. It’s the nation’s second most beloved major grocery, after Publix.

Wal-Mart, on other hand, saw customer satisfaction fall. It’s the least popular of the major grocers in the survey.

David VanAmburg, managing director of the ACSI, said that in general people tend to favor quality over price – except when we experience a downturn as we did with the Great Recession.

“When the economy tanks, people are thinking more about, ‘How can I stretch my dollar as much as possible?’” VanAmburg said.

As the tepid recovery has picked up steam, shoppers appear to be starting to look again at factors such as store cleanliness, checkout lines and quality of produce, VanAmburg said.

“Things have improved enough that customers are looking more for quality. They’re looking for that combination of good quality and good price,” VanAmburg said.

Consumer prices jumped in January, thanks in part to high gas prices, and food prices were up slightly. But the nation’s unemployment rate fell to 8.3 percent last month, one of a growing number of signs that brighter days are coming.

A separate poll from Pew Research Center found that people are more optimistic about the economy than they were even two months ago.

In periods such as this, when the economy is showing improvement and prices are rising, upscale chains like Whole Foods have more tools available, VanAmburg said.

The store, which some call “Whole Paycheck” for its high prices, can offer promotional deals or tout its private label 365 Everyday Value line, which may make people feel better about shopping there. That can build on what people already think of as a positive shopping experience, he said.

Wal-Mart, on the other hand, is largely known for being low-cost, and that can make it harder for the chain to find other ways to attract customers when food prices are rising, VanAmberg said.

Wal-Mart has said it is making a major effort to keep costs down. In its most recent earnings call in November, the company acknowledged that rising food prices are an issue for its core customers and that it was trying to absorb some price increases.

Wal-Mart spokeswoman Sarah Spencer said she couldn’t comment specifically on the ACSI study because she hadn’t seen it. But she said the company works hard to please customers with such efforts as helping people choose healthy foods and sourcing more food locally.

“We survey more than half a million customers every month, and they are telling us they are pleased with their shopping experience at our stores and clubs. We continue to work to meet and succeed our customers’ expectations by offering them low prices on fresh and packaged food,” she said in an email.

The American Customer Satisfaction Index is based on interviews with about 70,000 customers annually, gauging opinions on  several different industries.

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