Stimulus checks should take back seat to jobless aid, economists say

A bipartisan push to include stimulus checks in the next COVID-19 relief package is raising concerns among economists that other forms of relief considered more effective may be left out.

Direct payments in the form of $600 or $1,200 checks are undoubtedly popular with most Americans, economists say, but targeted funds for unemployed workers would do more for the economy since those households are less likely to put the money into savings.

“They’re a decent stimulus. They’re far from the best stimulus out there,” said Marc Goldwein, head of policy at the Committee for a Responsible Federal Budget.

“A dollar spent on boosting unemployment benefits is going to be better stimulus than a dollar spent on checks.”

While Federal Reserve Chairman Jerome Powell has repeatedly argued that “more is better than less” when it comes to the kind of fiscal stimulus only Congress can approve, proposals like the one put forth by Treasury Secretary Steven Mnuchin this past week that would have provided a one-time $600 payment, but at the expense of weekly expanded unemployment benefits.

The $908 billion bipartisan package that formed the basis of current COVID-19 relief negotiations, includes extensions of unemployment and small business programs but no new stimulus checks.

Economists say that politics aside, aid for the 10 million Americans who remain jobless provides more bang for the buck than stimulus checks. Unemployment insurance is more efficient because it targets people who need it the most and are more likely to spend it.

“More of it goes to low-income folks, and it goes specifically toward people who are likely to spend it,” said Goldwein, noting that people whose income hasn’t been affected and are more likely to just deposit a stimulus check in the bank.

The record $2.2 trillion CARES Act in March provided $300 billion in direct payments for most Americans, who received $1,200 per person and another $500 per child for families making under $75,000 a year, with phase-out for families making up to $95,000.

Stimulus checks have accounted for only 9 percent of the total Congress has spent so far on COVID-19 relief, including funds for forgivable loans and emergency grants for small businesses, extended and expanded unemployment benefits, expanded safety net programs such as food assistance, funds to shore up financial markets, bailouts for key industries such as airlines, testing, and vaccines.

Neil Sroka, communications director for the progressive political action committee Democracy for America, said the popularity and visibility of direct checks gives politicians an incentive to favor them over other, more efficient forms of stimulus.

“There’s obviously a greater political interest in universal checks because you’ll be more likely to touch more people and be confident that more people have seen your action, or appreciated what your action has meant,” he said.

“This is an instance where what’s preferred politically may not be the best policy choice.”

But many progressives argue that stimulus checks could be a good idea if they’re provided alongside unemployment insurance (UI), as opposed to one or the other.

“Although the data shows that UI benefits have a better effect on the economy than stimulus checks alone, that doesn’t mean that stimulus checks aren’t helpful. We know that providing money to people directly is one of the best ways to stimulate the economy and stimulate the demand,” Sroka said.

The popularity of the direct payments has created some unusual political bedfellows by putting the White House and some congressional Republicans in the same camp as progressives.

“Direct payments to American workers continue to be a high priority of the President’s,” White House spokesman Ben Williamson told The Hill.

Sen. Josh Hawley (R-Mo.), a conservative who is seen as a contender for the 2024 GOP presidential nomination, joined Sen. Bernie Sanders (I-Vt.) in pushing for an amendment that would provide a round of $1,200 checks just like the ones approved by Congress in March.

“It’s what every single senator has already supported, so there should be no fiddling about, ‘Oh, I don’t know this is different.’ It’s exactly what every senator has voted for once,” Hawley said, referring to the overwhelming bipartisan support for the CARES Act.

But many conservatives are bristling at the notion of adding billions more to the price tag of a relief bill.

“Checks were *maybe* justified in spring when the economy was collapsing & we didn’t have time to determine who was losing their jobs/wages,” tweeted Brian Riedl, an analyst at the right-leaning Manhattan Institute.

“At this point, with a stable < 7% jobless rate and a vaccine coming, broad-based checks are just pandering to voters.”

Goldwein said that while most permutations of the $908 billion deal on the table would be enough to get the economy back on track next year, the likelihood of providing too much stimulus is pretty low.

President-elect Joe Biden has indicated he will seek more COVID-19 relief from Congress early in his term, prompting some to argue there’s still time to try to strike the right policy balance, even though there’s no guarantee of a deal next year.

Between now and then, several unemployment programs and housing protections are slated to expire, putting more pressure on Congress to pass a relief bill during the lame duck as the COVID-19 infection rates, hospitalizations and death set almost daily records.

“I think getting the aid now is really important if we want to avoid a dip in activity,”
 said Goldwein.

“If we don’t get it until March, we will have missed the window to provide the most help to the most people and the economy.”