The $1,400 direct checks to people are the most expensive and perhaps most popular part of the $1.9 trillion coronavirus relief package signed by President Joe Biden on March 11.
The package contains a lot of provisions that will help struggling Americans, and we understand why the checks are so popular.
But as economists, we believe these direct payments make little economic sense.
First, let’s consider the checks as relief.
The purpose of a measure primarily designed as relief during a crisis is to help those most affected.
The latest jobs report shows about 10 million people are unemployed. These people – mostly workers in the hospitality and leisure industries, disproportionately low-income and people of color – are in desperate need of aid and support.
But for the vast majority of Americans, it’s like the pandemic never happened, financially speaking. A recent Pew survey found that 79% of Americans reported their family’s financial situation is about the same as or better than a year ago.
The relief package phases out at $80,000 for single people and $160,000 for couples, which would still benefit about 280 million people, according to the Institute on Taxation and Economic Policy.
This means that checks will go to a lot of people who don’t really need them.
OK, then how about the checks as a stimulus? So even if a lot of people who aren’t in desperate need get a payment, at least they’ll spend it and help the economy recover from the COVID-19 shock, right?
There are two problems with that. The first is that it’s not clear the economy needs much stimulus right now. While the jobs report showed millions of people remained unemployed, the February numbers came in a lot better than expected, adding to signs the U.S. economy is in fairly good shape.
The other issue is that past coronavirus checks haven’t been all that stimulative. The government began cutting $1,200 checks for most Americans in March 2020 and sent out another round of checks in December.
Research conducted on the first round found that the vast majority of Americans saved most of the money or used it to pay down debt. About 40% of the money went toward purchases supporting industries such as food, beauty and other nondurable consumer products that had already seen spikes in spending.
So you might be wondering, what’s a better way to spend the several hundred billion dollars earmarked for checks?
At a minimum, relief payments should be targeted, such as to people who lost jobs or are working fewer hours due to illness. But a better way would be to increase those supplemental unemployment checks to $600 from the $300 lawmakers agreed to.
Or take the U.K. approach and provide targeted but generous income replacement for workers affected by COVID-19. Another focused measure would be to help people pay for their mortgages and rent.
Robert H. Scott III is a professor of economics and finance at Monmouth University. Kenneth Mitchell is an associate professor of Latin American politics at Monmouth. Distributed by The Associated Press.
