Last spring, the Treasury Department sent out “economic impact payments” to some 160 million people, in the amount of $1,200 for each adult who qualified. In September, exhibiting a sense of humor not normally associated with pollsters, Gallup asked people if they would like the government to give them more money.
Lo and behold, 70% of them said yes. Only 17% said no — a group possibly dominated by those who didn’t qualify the first time and were seething with resentment.
In December, when President Donald Trump proposed to distribute another round of checks of $2,000 per person, he again found a receptive audience. Two-thirds of Americans were prepared to shoulder their patriotic duty to accept more money. But in the end, Congress agreed to payments of just $600.
President Joe Biden now wants to make up the difference, providing checks of $1,400 to the vast majority of Americans. In the middle of an economic crisis brought on by a raging pandemic, there are many ways the federal government could spend money that would be cost-effective as well as humane. Stimulus payments are not one of them.
Now is no time for austerity. Millions of people have lost jobs and are unlikely to go back to work until a large share of the population has been vaccinated against COVID-19. Tens of thousands of businesses have closed because of public health rules or missing customers. The federal government should be ready to take on large amounts of new debt to alleviate widespread hardship and keep the economy from collapsing.
But that obligation is no excuse for outlays that are poorly suited to either task. True, additional stimulus checks will help Americans who are in serious need, but they will help a lot more people who are not. Any individual making $99,000 or less, or two-adult household with an income of $150,000 or less was eligible for the full amount of the first payments.
About 90% of Americans got something, which is double the number of people who say they’ve suffered any economic impact from the pandemic. It’s one thing for Uncle Sam to incur debt to rescue people from destitution. It’s another to do it to enhance the comfort of people who are fully employed and financially secure.
The checks are commonly referred to as stimulus payments, but they’re not designed to stimulate the economy. Nor is stimulus what the economy needs. In a normal recession, people spend less money as they lose their jobs or fear losing them, which causes the economy to contract. The federal government can help in the short run by giving people money to spend.
But this time, the economy contracted because the pandemic shut down or curtailed a wide range of activities. Giving people money doesn’t help when they can’t or don’t want to do so many things that involve outlays of cash — dining out, going to a movie, buying clothes, taking a trip or hosting a party. It’s like wasting matches trying to light a sodden firecracker.
The futility of this approach became clear after the first round of payments. A study published by the National Bureau of Economic Research found that just 40% of the money was spent on goods and services, with the balance going to pay down debt or increase savings.
The $600 checks cost $166 billion, and following up with $1,400 payments would bring the total to as much as $600 billion, according to the Committee for a Responsible Federal Budget. That money could be dispensed in far more productive ways — to keep businesses and nonprofits from going bankrupt; enable tenants to pay their rent; or finance COVID-19 treatment, testing and vaccinations.
Limiting the payments to individuals making up to $50,000 and families with incomes up to $75,000 would save $200 billion while concentrating the help on people most likely to need it and to spend it.
For Washington to skimp on urgent needs during a crisis would be a false economy. But that doesn’t excuse pumping out cash with a fire hose. Every dollar borrowed enlarges the swollen federal debt. We’re lucky that interest rates are low now, making it cheap to borrow. But they won’t stay low forever, and when they rise, taxpayers will groan under the weight.
Most Americans would be happy for the federal government to give them free money, just as they would be happy for someone to offer them free beer or free food. They may not realize they’re volunteering to pick up the tab.
