Stimulus checks are a bad way to fix the economy

Stimulus checks are a bad way to fix the economy

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“Six hundred dollars is simply not enough if you still have a choice between paying rent and putting food on the table,” said Biden in revealing his economic recovery plan. “Even for those who kept their jobs, these checks are very important.”

The problem with direct payments, according to economists and other critics of the plan, is that much of the stimulus would go to individuals who were not financially harmed by the Covid-19 pandemic. This means that these added dollars may not do much to boost economic activity.

The $ 1,400 checks would go to almost everyone who earns less than $ 75,000. Taxpayers who submit joint statements that earn less than $ 150,000 are also eligible. Those who earn more can qualify for lower amounts, with a limit of $ 87,000 for individual taxpayers to be eligible.

“This money is not well targeted,” said Mark Zandi, chief economist at Moody’s Analytics.

Zandi said the only economic argument for checks is that they are a politically viable way to get a lot of money into the economy very quickly.

“Politics is important, and speed is more important than getting it right,” he said. “But I think it is the second or third best policy. It is certainly not the most effective way to help.”

Many will not spend

Money can be a lifeline for struggling taxpayers. But one of the biggest problems, according to economists, is that many of those who receive the checks will either put the money into savings or use it to pay debts, neither of which will do much to increase overall economic activity.

“The accepted theory of family behavior is that a single payment does little to encourage additional spending,” said Joel Prakken, Chief Economist for the USA at IHS Markit. “People who spend it will make purchases that are unlikely to be repeated. It is increasingly difficult to argue that it will be an immediate stimulus for the economy.”

Much of the challenge of maintaining consumer spending during the pandemic is that many of the goods and services that people spend money in “normal” times are not available because of the crisis.

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“Given that many holes [in spending] it was not because people do not want to spend, but because they cannot spend because they cannot take a plane or go to a restaurant, “said Larry Summers, in a recent interview with Bloomberg Summers he served as a leading economist in the early days of the Obama administration. “I don’t necessarily think the priority should be to promote consumer spending beyond where we are now.”

Although Summers has supported direct payments in the past, he does not believe the proposal will be effective this time. “I’m not even sure I’m so excited about the $ 600 checks,” he said. “And I think taking them to $ 2,000 would be a very serious mistake.”

Difficult policy

There is a chance that Biden’s proposal for the additional $ 1,400 payments will not be approved.

The additional round of stimulus would cost the government $ 465 billion, according to the Federal Responsible Budget Committee. This is about $ 100 billion more than what was proposed for increasing unemployment benefits.

Most experts believe that the full $ 1.9 trillion package is unlikely to become law and is likely to be passed in some form. In addition to bipartisan support for checks, there is also bipartisan opposition. Among the top Democratic critics is Sen. Joe Manchin of West Virginia.

“I am on board to help people who need help. People who cannot survive. People who have no jobs cannot put food on the table,” Manchin told CNN in a recent interview. “Sending checks to people who basically already have a check and are not going to spend it, who are putting it in their savings accounts now, we are not like that. We did that a lot. Now to find out where that money is going.

Senator Mitch McConnell, who will be the minority leader in the new Democrat-controlled Senate, said he is also opposed to another round of stimulus checks, despite the support of some members of his caucus.

“It is no secret that Republicans have a diversity of views on the wisdom of borrowing hundreds of billions of extra money, including for many families who did not suffer any loss of income during the crisis,” he said in a statement. recent comments in the Senate. “It is not clear that the federal government’s top priority should be to send thousands of dollars to, for example, a childless couple who earn about six digits and have telecommuting comfortably all year round. Our duty is to bring help to people who need help. “

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