As coronavirus continues to choke the economy, among the most effective economic stimulus tactics are another round of direct payments to families and more federal unemployment supplements, according to an analysis published last week.
Amid several signs that huge numbers of Americans are in economic peril, House Speaker Nancy Pelosi, D-Calif., set a Tuesday deadline to reach a stimulus deal with the White House. Yet, with Senate Republicans refusing to consider another package on a scale similar to this spring’s $2.2 trillion CARES Act, many observers believe there’s little chance of anything passing in the coming months.
Meanwhile, with earlier direct payments long spent and a $600-a-week federal unemployment supplement expiring on July 31, economic misery is deepening.
The New York Times last week reported on two studies. One, by researchers at Columbia University, estimated that 8 million Americans have been plunged into poverty since May. In another, researchers at the University of Chicago and the University of Notre Dame used a different definition of poverty and found that 6 million Americans have newly dropped below the poverty line in the past three months.
That pain is close to home.
The U.S. Census Household Pulse Survey estimates that from Sept. 16-28, 859,000 Ohioans often or sometimes didn’t have enough to eat over the previous seven days. It also estimated that 400,000 residents had slight or no confidence that they would be able to pay the next month’s rent.
In the face of so much misery, the Hamilton Project — an arm of the Brookings Institution — gamed out how certain kinds of federal relief would affect the economy over the next three years.
It created a hypothetical, $2 trillion relief package that would spend $400 billion in each of five areas:
- Rebates to households — $1,700 rebate checks and a child tax credit of $700
- Federal unemployment supplements — $300 a week for 12 months and extended eligibility for the self-employed, gig workers and past its scheduled expiration in December
- Aid to state and local governments — $400 billion spread out over eight quarters
- Support for small businesses — a program similar to the Paycheck Protection Program over four quarters
- Other policies: Additional $400 billion for coronavirus testing and tracing, higher education, and airlines
When the researchers ran their models using economic assumptions from the Congressional Budget Office, they found that additional federal unemployment supplements were the best “bang for the buck,” followed by rebate checks to Americans and aid to state and local governments.
For every dollar spent on unemployment supplements, the estimate found, cumulative gross domestic product would be boosted by $1.30. Rebate checks and relief for state and local governments each would boost GDP by $1 for every $1 of federal spending, the report said.
Propping up small businesses offers the least bang for the buck, the analysis said.
“For most businesses the grants do not change spending or the chance of survival, increasing cumulative GDP by just 40 cents for every $1 of spending,” it said.
Altogether, the $2 trillion spending package would raise “GDP by 0.2 percent in 2020, 4.0 percent in 2021 and 2022, and 1.6 percent in 2023 above the level it would otherwise be,” the report said.
Of course, there are reasons beyond growing the economy to make sure that state and local governments function, small businesses survive and people have money to pay for housing and food.
And, of course, how effective any of these measures will be depends on whether people take steps to stop the spread of the coronavirus, which caused all the dislocation and misery in the first place.
“In the midst of the pandemic, the (consumption patterns) and the fiscal multiplier, in turn, depend on the extent of social distancing people practice, among other factors,” the report says.
In other words, the report is saying that refusal to follow health guidelines is literally costing everybody.