I admit I haven’t been closely following the progress of Biden’s pandemic stimulus bill in Congress, because the back-and-forth arguments exceeded my tolerance for tedium. Nevertheless, I don’t think a stimulus is what we need.
Let me start by saying that what we need most from a pandemic relief bill is things that make the pandemic stop. More vaccine, more PPE, more testing, more contact tracing. More of whatever public health measures will most effectively stop the spread. There’s a bunch of that in the COVID relief bill, but it’s only about 5% of the total cost. (The medical fight to prevent an epidemic is not that expensive — it’s when prevention fails that it gets expensive.) These measures should have been carved out of the relief bill and passed weeks ago, instead of delaying them until the whole ugly bill passed.
Getting back to the stimulus… The ordinary Keynesian economic story about recessions is that they are caused when consumers lose confidence. If you’re worried you might not be able to make ends meet, you’ll probably want to cut back on spending, to try to build up some savings to get you through the hard times you’re expecting. And if something happens that makes everyone worry about their economic security, then everyone will try to cut back on spending. But one person’s spending is another person’s income — you stop eating out and prepare more meals at home, and waiters and cooks lose their jobs — so if everyone cuts back on spending, everyone’s economic situation becomes more precarious. That makes even more people want to cut back on spending, which causes even more insecurity, and so on. This is how a bustling economy can crash in just a few months.
But that’s not what happened to us.
Restaurant patrons didn’t stop going to restaurants because they were worried about the cost. They stopped going to restaurants because they didn’t want to get COVID-19. The same thing happened to varying degrees with most other in-person businesses — movie theaters, bars, hairdressers, dentists, non-essential shopping. Giving people more money isn’t going to make them safer from COVID-19, so it’s not going to get them to go back to all of those activities they’ve curtailed. It won’t bring back all those jobs.
What we need instead of a stimulus is welfare support. We need to get money to people who are hurting, so they can take basic care of themselves and their families. The bill has some of this in the form of extended unemployment benefits, which are a great way to target financial help at people who need it. (Yes, some people will use their unemployment benefits to avoid working, but that’s a price I think we can afford over the short term, given the genuine improvement it will bring for so many people.) Arguably, some of the Paycheck Protection Program (PPP) and emergency loans are a substitute for unemployment benefits — keeping people from becoming unemployed in the first place.
The one-time checks — currently for $1400 per person — may be helpful, but they aren’t particularly well targeted. Under some versions of the plan, even people doing fairly well will get the money, which is unnecessary and wasteful. And it’s almost certainly not a stimulus — one-time payments rarely are.
And that’s about it. The rest of the pandemic relief bill is…not really pandemic relief:
- $350 billion is going to state and local governments. Maybe some of that will go to fund aid to those in need, but maybe it won’t. It’s not even clear that state and local government tax revenues declined that much.
- The additional tax cuts for having children and the increases in aid for child care, rent, and food may all be good anti-poverty measures, but they have nothing directly to do with COVID-19 and are set to last indefinitely, long after the pandemic is over.
- The $130 billion to schools seems like little more than a political giveaway. A variety of schools have already reopened without a massive infusion of funds, and more than 90% of the money is expected to be spent in 2022 or beyond. Heck, most of the $100-million-plus in emergency school funding from 2020 hasn’t even been spent yet.
Finally, it looks like increasing the federal minimum wage to $15/hour is off the table. I think this is probably a good thing.
You may have noticed when you go shopping that there’s a bit less of everything. Fewer cuts of meat, and what you get isn’t as good. Less chicken and less seafood. Not as many flavors of Diet Coke in not as many sizes. Not as many flavors of soup. There’s a shortage of hand soap and paper towels. My favorite suspenders are available in fewer colors, and some office furniture I wanted is now backordered 4 months.
By definition, when you can’t get as much of what you want as you could before, you have gotten poorer. As a nation, we are poorer now because of COVID-19. Some these shortages are due to shifts in demand that have not been met by shifts in supply, but a lot of these shortages are due to the difficulty of producing goods and services in the middle of a pandemic. Every factory can hold fewer workers, and everything takes longer, and all the materials are also running short because your suppliers are also impaired by dealing with the pandemic. Our economy has become less productive. Our workers can’t make as much stuff as they did before. The pandemic has reduced their productivity.
And if they can’t produce as much, their employers can’t afford to pay them as much, because they aren’t able to sell as much product. Yes, some companies are making a lot of money, but on the whole, our economy has shrunk slightly instead of growing like it usually does. A bunch of businesses have gone under, and a bunch more are teetering on the edge of disaster. This seems like an especially bad time to present employers with the choice of raising wages or shutting down. They might make the choice that hurts a lot of people.