The coronavirus crisis hasn’t generated much unity in Washington, DC, where Democrats and Republicans continue to trade blame for the outbreak and shoot down each other’s ideas. But one idea is already getting some bipartisan support: Sending government checks to every American to put spending money in their pocket.
Harvard economist Jason Furman, a top official in Democratic President Obama’s White House, has been pushing for a plan to send every adult citizen or taxpaying resident at least $1,000, plus $500 for each child. More, if possible. Furman argues this is the fastest and most direct way to help people who lose their jobs, even temporarily, or suffer any other kind of financial distress from thousands of business closures and canceled events.
Maybe this sounds like an overgenerous liberal giveaway. But Greg Mankiw doesn’t think so. He’s a Harvard economist who was a top official in Republican George W. Bush’s White House. He agrees with Furman. “Considering the difficulty of identifying the truly needy and the problems inherent in trying to do so, sending every American a $1,000 check asap would be a good start,” he wrote on his blog on March 13.
A smattering of other economists and politicians are beginning to endorse the idea of a money drop directly to consumers, including Republican Sen. Mitt Romney and Democratic Congresswoman Tulsi Gabbard. Washington has done this before, so it’s not a novel idea. In 2009, Congress passed legislation that sent checks ranging from $300 to $1,200 to most U.S. households.
Congress is working on a short-term plan that would cover the cost of coronavirus testing, and provide paid emergency and sick leave for some workers. The House passed the bill last week, and the Senate is deliberating now. Some Senate Republicans don’t like the new requirements on business, yet it would be an embarrassment to vote down the bill as the economy tumbles into recession. So it’ll probably pass.
It will take a lot more stimulus to combat the coming recession, however, especially since the Federal Reserve has failed to reassure financial markets with aggressive monetary stimulus of its own. President Trump wants to suspend or reduce payroll taxes, but there are several problems with that. First, part of the savings goes to businesses rather than consumers, since they pay a portion of those taxes. And businesses are less likely to spend the windfall than consumers are. Second, payroll tax cuts only benefit people who have a job—not people who may have lost their job amid the crisis. Third, it would cut into funding for Social Security and Medicare—already in shaky financial condition—since that’s where revenue for payroll taxes goes.
Any kind of stimulus will push federal deficits upward, since Washington, by definition, would be spending more and taking in less revenue, which is what always happens during a recession. And deficits have already soared to $1 trillion per year under Trump. But economists say worry about that later. “There are times to worry about the growing government debt,” Mankiw wrote. “This is not one of them.”
There’s built-in resistance to dropping “helicopter money” on citizens. To some conservatives and moderates, it seems like a shell game, taking money from some people and giving it to others. But all stimulus programs have something to dislike, since the government gets far more involved in the private-sector economy than it normally would. Economists favor programs most likely to help the people who need it most and stimulate spending, which is what helps end recessions.
Consumers don’t always spend helicopter money. Some save it or use it to pay down debt, which doesn’t stimulate the economy as much as retail purchases. But recessions are times when no option seems ideal, and policymakers often have to stomach the least bad idea, because the alternative is worse.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. Confidential tip line: [email protected]. Encrypted communication available. Click here to get Rick’s stories by email.
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