Making the $2000 Stimulus Check Work
The Context: The COVID-19 pandemic has left hundreds of thousands dead, millions hospitalized or sick and many more out of jobs. As a result, the American economy has suffered dramatically, and unemployment has risen to unprecedented heights. To ease the suffering many citizens are enduring through the pandemic, the United States Federal Government passed the Consolidated Appropriations Act, 2021, which includes a $900 billion COVID relief stimulus package. The bill separates the money into three main categories, $166 billion in direct checks, $120 billion towards unemployment, and $325 billion for small businesses. As it currently stands, individuals making up to $75,000 a year will receive $600, while couples making up to $150,000 will receive $1,200, in addition to $600 per child. The unemployed will receive $300 per week through federal funds through March 14. The legislation also extends employment benefits to self-employed individuals, gig workers, and those who have exhausted their state benefits. Finally, small businesses would receive a total of $325 billion, including $284 billion in loans through the Paycheck Protection Program, $20 billion for companies in low-income communities, and $15 billion for struggling live venues, movie theaters, and museums. However, President Trump and the Democratic Party are attempting to increase the amount in direct checks from $600 to $2000 for any individual making less than $75000 in yearly salary. While increasing the money in direct checks to $2000 per individual making less than $75000 seems like an equitable and beneficial plan, I came across an opinion piece in the Wall Street Journal that discusses whether there is something like “too much stimulus” at this point that made me look at this issue in depth.
Actual Effect on the Economy of the Last Stimulus: Let’s begin with economic concerns. Firstly it is essential to recognize some key figures that can be observed from both the status quo and the last set of stimulus checks. The aggregate wages and salaries were just 0.4% lower in November than before the pandemic. Thanks to past stimulus, total income was 2% higher. Additionally, a National Bureau of Economic Research study concluded that more than 80% of recipients either saved the money or used it to pay down debt, failing to meet the definition of a “stimulus” check. Thus we can observe the lack of efficacy the last bill had in actually stimulating the economy.
Additionally, a significant detriment to any federal spending is the increase of the National Debt. The legislation is projected to add $2.3 trillion to the deficit in the fiscal year 2020 and $0.6 trillion in 2021. The Congressional Budget Office estimates that the legislation will increase the level of real (inflation-adjusted) gross domestic product (GDP) by 4.7 percent in 2020 and 3.1 percent in 2021. While the bill somewhat serves short term needs, by increasing debt as a percentage of GDP, the legislation is expected to raise borrowing costs, lower economic output, and reduce national income in the longer term. The United States GDP has been relatively stagnant, and its national debt has been ballooning since the Bush tax cuts and wars. The rise in National Debt illustrates that the social compact is not sustainable in its current form. Markets will eventually react to the increasing debt, and the government will either be forced to overcorrect, leading to much harsher cuts and tax increases, in which case the economy is likely to suffer as well, or it will decide it cannot repay all its debt and default. This second option would send world financial markets into disarray and cause a global depression.
Targeted $2000 Stimulus Can Make a Difference: With all this in mind, there is potentially a more effective solution. If the United States were to follow Rawl’s distribution principle and focus the bill on the citizens who would be most impacted and benefited, as opposed to everyone who makes less than $75000, it would lead to greater economic stimulus and less national debt. Academic economists Bruce Meyer and James Sullivan calculate 2.3 million more people were below the poverty line in November than February, and according to Black Knight, a mortgage data provider, about 2 million more mortgages are now delinquent than before the pandemic. This is mostly due to the downsizing or closure of companies resulting in a lack of available jobs. In addition, there were certain segments of the economy — such as hospitality and tourism — that were significantly more impacted during the pandemic compared to other industries such as agriculture or certain service industries that could be run virtually. Because the pandemic fell hardest on low-paid workers especially in certain segments, replacing their lost income is inexpensive and effective. Returning the 10% poorest households to their February level would take $1.5 billion a month. Because these are the people who need the money the most and are most likely to spend the money instead of saving it, this will lead to similar amounts of economic stimulus while having a less of an impact on the national deficit. A solution that meets the philosophical criterion of Rawls’s theory of distribution through maximal difference and avoids some of the economic pitfalls would be to replace the incomes of the 10% poorest households to their February level and increase the unemployment benefits to $750.
