Stimulus checks are a bad way to fix the economy

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“Six hundred dollars is just not enough if you still have to choose between paying rent and putting food on the table,” Biden said when unveiling his economic stimulus package. “Even for those who have kept their jobs, these checks are really important.”

The problem with out-of-pocket payments, according to economists and other critics of the plan, is that much of the stimulus would go to people who have not been financially affected by the Covid-19 pandemic. This means that these additional dollars may not do much to stimulate economic activity.

Checks for $ 1,400 would go to almost anyone who earns less than $ 75,000. Taxpayers who file joint returns who earn less than $ 150,000 would also be eligible. Those who earn more may be eligible for smaller amounts, with a cap of $ 87,000 for individual taxpayers to qualify.

“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 feasible way to get a lot of money into the economy fairly quickly.

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

Many will not spend it

Money could be a lifeline for struggling taxpayers. But one of the biggest problems, economists say, is that many of those who receive the checks will either put the money in savings or use it to pay off debt, which won’t do much to increase activity. overall economic.

“The accepted theory of household behavior is that a one-time payment does little to stimulate additional spending,” said Joel Prakken, chief US economist at IHS Markit. “The people who spend it will do so on purchases that are unlikely to be repeated. It’s getting harder and harder to claim that this will be an immediate boost to the economy.”

Much of the challenge of sustaining consumer spending during the pandemic has been that many goods and services that people spend money on in “normal” times are unavailable because of the crisis.

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“Since a lot of holes [in spending] isn’t because people don’t want to spend, but can’t spend because they can’t take a flight or can’t go to a restaurant, ”said Larry Summers, in a commentary. recent interview on Bloomberg Summers was one of the leading economists at the start of the Obama administration. “I don’t necessarily think the priority should be to promote consumer spending beyond what we are now.”

Although Summers has supported direct payments in the past, he is skeptical of the effectiveness of the proposal this time around. “I’m not even sure I’m that excited about the $ 600 checks,” he said. “And I think getting them to $ 2,000 would be a pretty big mistake.”

Difficult politics

Biden’s proposal for the additional payments of $ 1,400 may not be approved.

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

Most experts believe that the full $ 1.9 trillion package is unlikely to become law and will likely be passed in a scaled-down form. In addition to bipartisan support for checks, there is also bipartisan opposition. One of the leading Democratic critics is Senator Joe Manchin of West Virginia.

“I’m on board to help people who need help. People who can’t make it. People who don’t have jobs, they can’t put food on the table,” he said. Manchin told CNN in a recent interview. “Sending checks to people who already have a check, and they’re not going to spend it, putting it in their savings account right now, that’s not who we are. We have done a tremendous amount of this. Now is the time to target where this money is going. “

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

“It’s no secret that Republicans have a diversity of views on the wisdom of borrowing additional hundreds of billions of untargeted dollars, including from many households that have not suffered any loss of income. during the crisis, “he said in recent remarks in the Senate. “It’s hardly clear that the top priority for the federal government should be to send thousands of dollars, for example, to a childless couple turning into six figures who have comfortably telecommuted all year round. Our duty is to help those who need it. “

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