Concerning the efficacy of an individual stimulus payments
NOTE — Current Article Completion ~95%
This New Year’s weekend we approach a second stimulus package from Congress. Sections of it target individual payments. We can now assess the results of the previous stimulus, the broader topic of UBI, and how it compares to unemployment and business assistance programs.
Pandemics: A Unique Situation for Stimulus
We’re in a situation where time is of the essence. Sustaining individuals in an unwelcoming economic environment for service workers is paramount to keep citizens safe. Amelia Thomson-DeVeaux at FiveThirtyEight discussed the stimulus with congressmen and social program professionals:
“Right now, the risk of overreach is negligible and the risk of doing too little is very high,” said Indivar Dutta-Gupta, the co-director of the Georgetown Center on Poverty and Inequality.
Unlike wealthy individuals already invested in the volatile stock market that had massive gains (after questionable insider trading prior to the mid-February crash). Accomplished economist Mark Zandi wrote on the original stimulus in March: “response to COVID-19 to date is a testimony to Americans’ ability to quickly put aside our differences and work together creatively to address an existential crisis.”
Zandi continues, reasoning that swift payments through individual payments were necessary: “This package is largely focused on the right things. That is, providing immediate cash and credit to families and businesses. Close to one-half of Americans live paycheck to paycheck and have almost no savings for an emergency. Without a job, or with lost hours and pay, these families have no prospect of paying their rent, let alone money for utilities or even food.”
Unemployment Benefits: Important, but Lacks Scale
Unemployment insurance is a long-term staple for providing aid to American citizens facing difficult times. As much assistance as it provides, Thomson-DeVeaux notes “the system is already threatening to buckle as the number of people applying for unemployment benefits spikes.” This is evident at many layers of the safety net program.
One example of such buckling is a lack of infrastructure for dramatic spikes of unemployment: Thomson-DeVeaux points out that “across the country last week, websites crashed, phone lines jammed, and lines snaked outside unemployment offices. And many states don’t have the funds to handle a surge in unemployment claims without assistance from the federal government.” While the CARES Act successfully infused money into the system, the unemployment insurance programs of the US have structural faults that simply cannot — even with funding for payouts —assist everyone who needs it without months or years of infrastructure scaffolding, increased manpower, and better coordination.
Unemployment on its own fails to protect the interests of those with fluid employment statuses. Before the CARES Act expanded allowances, part-time workers were often excluded from benefits or had to navigate a complicated ruleset to determine individual eligibility. These unemployment benefits vary based on state, which places some at a disadvantage simply for the community they serve.
Furthermore, healthcare is so reliant on employment benefits that workers are often denied benefits by the common practice of keeping part-time workers’ hours just short of full-time. These citizens often work multiple part-time jobs to sustain their families. Without full-time benefits, they lack access to these benefits without — a common theme — requiring assistance to navigate government employee support systems. These systems often have office hours that conflict with their own work and family responsibilities. Such obstruction to assistance effectively prevents them from acquiring the care they may need during a pandemic. These part-time workers are not helped by much of the recent legislation, as they were made applicable only “if hours have been cut due to the coronavirus pandemic.” The silver-lining, of course, is that the CARES Act did try to catch much of the population whose full-time employment was disrupted by the pandemic. It unfortunately could not , and should not have needed to, address the systemic issues with our labor laws that are inherently predatory of service and other part-time vocations.
Individual Stimulus: Data Thus Far
The Census Bureau, US Bureau of Labor Statistics, and The National Bureau of Economic Research have reported on how individuals spent their stimulus payments. The vast majority of individuals used their stimulus checks to cover either goods and services or debts incurred during the pandemic. Only ~15% appear to have deposited their checks into savings, generally in the “Silent” generation. This data indicates that, in general, individual payments helped citizens during the pandemic.
Regarding the small percentage of individuals who chose not to spend their stimulus checks, this data may help define how future individual assistance payments could be targeted in ways beyond taxed income. Lisa Rowans at Forbes writes:
But a more targeted direct payment system would work better to encourage immediate economic rejuvenation, he said, although it’s tough to implement more focused economic aid quickly. That’s where assistance like enhanced unemployment benefits have more potential to keep the economy moving.
While the data implies the retired generation could be omitted from payments, such an approach could still hurt vulnerable, older citizens in need. The first individual stimulus appears successful, and those who fell through the cracks — such as those who filed no taxes the previous year or lost their jobs in 2020, but received no stimulus due to >$100K taxable income from the previous year — had other opportunities like expanded unemployment benefits to support them.
These benefits, when also accounting for the problems of Unemployment system, outweigh the supposed “wasted” payments to those who may not use them right away. Waste is always present in social systems; in many they are present as overhead in bureaucratic administration and deliberate acts of obstruction to prevent access to benefits. Direct payments may have a wasted cost, but it at least goes to our citizens as taxable income as opposed to empowering systems designed against efficiency and aid. These comments are not to disparage federal employees trying to help those in need in various sectors; it is to disparage the legislators who set them up for failure. We have federal government organizations managed by those with ideologies counter to their existence. Their legislation is often meant to force the organizations’ perception to match their ideology:
The scapegoats for bureaucratic ineptitude and inefficiency are typically low-level workers: a fed-up Department of Motor Vehicles (DMV) clerk who may waste hours of your life, or the social worker who offers more excuses than help. But the real flaws begin at the top of the political food chain, with politicians who set regulatory or budgetary constraints for those beneath them. Generations of anti-bureaucratic rhetoric have reinforced their hostility, from New Deal critics like Calvin Coolidge claiming “unless bureaucracy is constantly resisted, it breaks down… and overwhelms Democracy” to Donald Trump painting bureaucrats as deep state conspirators. Decades of propaganda and negative experiences have cemented the American understanding of bureaucrats as incompetent, inconvenient, and hostile to providing actual services.
— Kohl Neals, Current Affairs
Those who save money over spending government assistance often have high liquidity in their asset portfolios, as evidenced by research on a large tax refund in 2001. The recipients of the current stimulus package are unlikely to have this liquidity, as a personally disturbing report from Princeton Survey Research Associates International presented in 2015:
“The survey shows that a very significant minority of American households apparently don’t have the resources to pay for an unexpected expense of around $1,000,” says Stephen Brobeck, executive director of the Consumer Federation of America.
Unexpected expenses occur with such frequency that they should be accounted for by budgeting to save money for emergencies. In Bankrate’s survey, 4 of 10 respondents or their immediate family ran into a major unexpected expense last year. Just 57% made it out of 2015 financially unscathed.
During a pandemic, which is worse now (January 2020) than any time before, with all measurements exceeding previous peaks and state governments declaring local shutdowns, it’s reasonable to assume that more than just 57% of respondents this year may report financial hardship.
A common worry about large influxes of money, especially when they go into the pockets of low-income earners, is inflation of the US Dollar. Kathy Jones at Charles Schwab wrote specifically on inflation concerning he 2020 stimulus and the chances of inflation over time:
It’s possible, but recent history doesn’t support the idea that it will necessarily happen. There were similar worries during the 2008–2009 financial crisis. However, despite the rapid and huge expansion of the Fed’s balance sheet at the time, inflation stayed muted.
In the 1970’s, the exiting gold standard, oil prices, and lower income inequality amongst the middle class contributed to its inflation period. But now, Jones continues, “wages for many workers haven’t kept up with inflation for many years, partly as a result of globalization and outsourcing production to countries with lower wage costs.” These factors, in combination with a larger surplus of goods at lower costs, has resulted in a muted inflation rate.
Another reason extreme inflation is unlikely is due to the Federal Reserve’s competence. Their policies of Quantitative Easing in the 2008 crisis were highly effective, and thus far in this pandemic their actions have continued to stabilize inflation and promote borrowing. Neil Irwin of the New York Times attributes inflation stability to Quantitative Easing, asserting that “[Q.E.] helped arrest that vicious cycle [of commodity prices in free fall]. By late 2009, both the actual rate of inflation and investors’ expectations for future inflation were rising back toward the 2 percent the Fed aims for. The second round, announced in late 2010, helped guide them up further.” After injecting trillions of dollars into the economy, the Fed’s Q.E. practices proved predictions of hyperinflation wrong: “the Fed has been perpetually unable to get inflation up to the 2 percent level it aims for, except for the occasional brief period.” It should be noted that 2-percent is a healthy level of inflation, and lessons learned by 2008’s economic disaster will hopefully lead to better methods of reaching that rate.
After the stimulus earlier this year, we see similar promising signs that we’ve escaped a cycle of hyperinflation. Shortly after the first set of checks were distributed, the Fed’s low interest practices among other recommendations have helped maintain a steady inflation. There is little evidence, past or present, that individual checks both in 2008 and this year, contributed to any reliably measured inflation.
Universal Basic Income: A Bigger, Different Picture
Many of the arguments against providing stimulus checks to individuals overlaps with arguments made against Universal Basic Income (UBI), especially in regards to cost, unemployment, and inflation. Due to these similarities, it is prudent to present the current research on UBI and dispel misinformation.
It should be noted that this UBI is not a new idea. Its origins are with one of the country’s founding fathers, Thomas Paine. It also continues to be popular with right wing Libertarians as a means to reduce bloat in the government by creating a more efficient welfare system that keeps money in the hands of citizens instead of a web of administrative entities. It is an option meant to replace the overhead and complications of our current welfare system. This is not “left propaganda,” it is not promoted with malintent, and it is not particularly partisan for those willing to look beyond the Murdoch media zeitgeist. UBI may have flavors of socialism, but so does the American military complex, infrastructure, schools, and other parts of our society that have been deemed necessary for the function of our nation and the welfare of our citizens.
There have been several studies conducted that are UBI-adjacent in subject matter. There are important distinctions between most studies’ participants and a true UBI system— for example, the targets of the studies were often unemployed, which is not a prerequisite for recipients under a “universal” basic income. Aviezer Tucker of The American Interest exemplifies Finland’s UBI study for these issues: “By limiting the pilot to a random sample of unemployed over a limited time horizon, rather than extending it to the whole of society, indefinitely, and without considering the system of taxation, they were testing something other than a genuine UBI program.” Tucker also stresses the need for more carefully crafted control groups; in a true UBI pilot study “[t]he ‘treatment’ of the experimental group should be the closest possible simulation of universal basic income. The pilot should measure the effects of UBI on the experimental group by comparing it with the control group and with its own baseline.” These shortcomings largely spring from a lack of scope, funding, and a still gestating public interest. In the coming years, several pilot studies more representative of a UBI should be underway. More fruitful data is on the horizon.
However, even with such flaws, we can glean some insights from what might happen if some sort of wealth distribution happened that would most impact low income earners.
Alaska Permanent Fund is one such experiment. After almost 40 years of activity, we can see the effects of prolonged assistance that targets low-income earners. Damon Jones, et. al, wrote in the highly regarded journal Social Science Research Network, found that universal cash transfers to all Alaskan residents had no meaningful stifling of employment in the state:
“[We] find our results to be consistent with cash stimulating the local economy — — a general equilibrium effect. We further show that non-tradable sectors have a more positive employment response than tradable sectors. Overall, our results suggest that a universal and permanent cash transfer does not significantly decrease aggregate employment.”
It should be noted that the Alaska Permanent Fund is not without flaws. It has become a political landmine to discuss and was in response to the economic hardships of the area that still exist today due to its remote isolation.
Finland just recently concluded an experiment with automatic cash distribution, though as mentioned above, its participants and funding infrastructure didn’t truly represent what a UBI needs to be. McKinsey & Company reports on the study, first noting an employment finding similar to Alaska’s: “People on the basic income were more likely to be employed than those in the control group, and the differences were statistically significant, albeit small.” Those who are unemployed do not appear to be deterred from joining the workforce, even if a safety net in the form of UBI is guaranteed.
What’s more intriguing, however, is the impact Finland’s basic income program had on the well-being of participants. As we approach a year with record suicide rates and have begun to recognize the inherent problems our healthcare infrastructure has in treating mental health issues, exploring new ways of promoting the well-being of our population is given renewed importance:
However you read the findings on employment, other effects were clear: people on the basic income reported significantly better well-being on multiple dimensions. Average life satisfaction among the treatment group was 7.3 out of 10, compared with 6.8 in the control group — a very large increase. To experience a similar lift in life satisfaction, we estimate that a person’s income would need to go up by as much as €800 to €2,500 per month — 60 to 170 percent of the average per-capita household income in the European Union. Indeed, the difference was big enough to erase the gap in life satisfaction between unemployed and employed people.
While no experiment has been large-scale enough to help predict macroeconomic effects, at the very least under various forms of basic income conditions employment appears stable and “people receiving the basic income reported better health and lower levels of stress, depression, sadness, and loneliness — all major determinants of happiness .” This potentially dispels two major concerns over UBI.
Regarding a third typical concern — how to fund a true UBI system — there are several steps that can be taken to avoid running at a deficit while maximizing how much assistance is actually provided.
First, UBI if put in place of currently existing welfare, food stamp, and other programs that have been scaffolded over the years to support low-income, would reduce the size of the bureaucratic arm of financial assistance programs in the country. Tucker asserts “UBI programs would shift funds from administrative intermediaries and put them directly in the hands of beneficiaries.” This aligns with classical libertarianism as outlined above, as it would negate the need for several welfare programs and potentially defuse the need for minimum wage.
Second, tax reform can be taken to benefit endeavors like UBI. Social Security was one such major step taken on taxes to benefit the community with sustained payments. Unfortunately as the nation grows older and our government takes irresponsible steps to “help,” Social Security has been made more vulnerable to deficit. However, this doesn’t negate the argument at hand: tax reforms have been passed in the past for social programs, and they can be again. Andrew Yang, for example, is a proponent of updating our laws to enforce value-added taxes for online storefronts like Amazon, who like other large online vendors, have escaped paying the majority of taxes for decades. There are many ways to address our deficit, and most of them deal with negating the tremendous damage caused by corporate interests eclipsing those of citizens in government policies, poor ideologies popularized during the 80s concerning “Trickle-Down” economics that have only become more extreme today, and a growing wealth inequality that leave the US Government with less to collect as wealth shuffles into groups with the means to avoid paying it back.
Regarding tax reform, just recently the London School of Economics “examined five decades of tax cuts in 18 wealthy nations and found they consistently benefited the wealthy but had no meaningful effect on unemployment or economic growth.” It has been obvious for decades to most research-driven economists that lowering corporate taxes in the hopes of their investing it back into society never comes to fruition.
Irresponsible fiscal policies of the past century must be corrected before any changes to how welfare works in our nation can be made. This is made especially difficult after deregulating oversight of Super PACs in ways that enabled large corporate interests to paralyze government entities from taking progressive or even productive stances on many current issues, including climate change, healthcare, and income inequality. Cutting or offsetting taxes owed by the upper class is hardly partisan. Politics are preferential to wealthy by design: this is one reason campaign finance reform has been taken to task by politicians who avoid accepting corporate donations.
UBI is a separate issue from the current topic of one-time payouts of the CARES act and its successor passed in December 2020. Deficits must be taken to swiftly manage an emergency like forest fires, pandemics, and other catastrophic events. The above conjecture is specifically on why UBI is an unrealistic, but promising goal, until real reform comes to taxes to combat the overreach of corporate interests in the country.
Small Businesses and PPP Loans
The Paycheck Protection Program funded by the CARES Act had the intent to help small businesses keep employees paid as lockdowns intermittently get enforced throughout the nation.
The first iteration of the PPP helped stabilize the economy in a stressful time. Rohit Arora at Forbes points out that “small businesses of all types and across all industries benefited from this unprecedented program. The jobs numbers released last week reinforce that PPP is working by keeping employees on payroll and sustaining millions of small businesses.” However, several factors marred its ability to target businesses in need and show clear results.
In order to assess the successes and failures of of such a program, information and reporting is vital. This way, we can assess how much money actually went to assisting employees, keeping jobs, and helping a company stay solvent. Research organization and tax advocacy group Alexia Elejalde-Ruiz of Taxpayers for Common Sense presents a poor picture for the potential job security afforded to Americans by the PPP Loans:
… more than 550,000 recipients, including more than 9,500 in Illinois, were listed in the official government data as having retained zero jobs. Nearly 50,000 of those recipients nationally, and nearly 1,000 in Illinois, received loans of more than $150,000.
This metric sounds outlandish, because it is. Elejalde-Ruiz notes the lack of accountability due to poor, decentralized, unstandardized reporting: “those discrepancies seem to be the result of inconsistent data reporting… the decentralization is not good from an accountability standpoint.” For the PPP to be successful, data resulting from its use must be transparent. As it stands, it’s one of many issues that makes helping small businesses more difficult than it should be.
A second complication with the initial implementation of the PPP is its business targeting criteria. It had no limitations, for example, on political affiliations. This oversight led to questionable, possibly incriminating, favorable treatment of businesses with more political connections than others. This includes businesses run by family and friends of Senators and cabinet members. Given the distribution of these loans were dependent on banks like Wells Fargo to be transparent and even-handed, it’s no surprise that lawsuits have already arisen concerning their treatment of small businesses seeking smaller PPP loans. Whereas some corporations in no true need of a PPP loan received millions, some small, local businesses often were “surprised to only get approved for $810.” It’s difficult to declare the successes of a program that is opaque both in the distribution of its loans and the collection of its accountability metrics.
A third complication lies in the cost per job saved. Greg Rosalsky of NPR referenced a reports lead economists indicating the cost of each additional job afforded by the loans, in the best-case scenario, came at a steep cost to the taxpayers:
The federal government was supposed to save small businesses with the Paycheck Protection Program, which has spent about a half-trillion dollars providing grants and loans to them. The Opportunity Insights team’s research has been pretty negative on the program. Its most recent estimate is that PPP boosted employment at small businesses by only 2.4%, or about 1.51 million jobs total — which implies a staggering taxpayer cost of $377,000 per job saved. Another group of economists estimates the program saved between 1.4 million and 3.2 million jobs through the first week of June. Even if we accept the most generous estimate, Friedman says, every job saved by PPP cost about $150,000, and it was guaranteed for only several months. “I mean, this program was extremely expensive,” Friedman says.
Fortunately, the next rollout of PPP loans has taken more measures to better target and serve the small businesses that need them. However, this doesn’t address some of the larger stresses associated with loan forgiveness for small businesses: applications for forgiveness must be filed properly and promptly for forgiveness to take effect. “The [The Consumer Bankers Association],” Al Tompkins writes for Poynter, “wants the government to forgive all PPP loans for less than $150,000 and be done with it. It says “mom and pop” businesses should not be spending more time and money filling out more government forms.” It also doesn’t address actually retaining employees: the updated PPP rules no longer forgive based only on keeping employees paid if the loans were sufficiently small. So, while it may help small businesses stay afloat, it certainly offers no guarantees to the employees within them and appears to be cost inefficient for taxpayer dollars when compared to other programs.
Assumptions and Clarifications
The following assumptions are made to establish perspective:
- People are more important than corporations and businesses.
- The goal of a stimulus package during an emergency is to help those suffering more than “save” the economy; whether to protect the livelihood of furloughed workers, defend the rights of front-line workers, or help small business owners trying to keep afloat when the nation is shut down.
- Those suffering, similar to our health care crisis, extend beyond the employed population.
- National budget and debt are separate from whether or not individual stimulus checks are beneficial. Fiscal policies can be changed to support a system should it be beneficial. Both topics have been discussed, but claiming “deficit spending” as an argument against the concept is not a valid dismissal of research or theory. It’s the responsibility of Congress to reform tax and budget to match the needs most beneficial to society, innovation, and labor. It is obvious that in regards to the current stimulus, the current deficit should be taken into account, but the issues are separate.
Additional Reminders to edit in later
- “Stimulus checks are socialism for the rich” — how leadership paints the middle class while disproportionately passing legislation that arguably are actually “socialism for the rich” via tax loopholes / deductions / etc.
- “Deficit Spending” — how tax reform is a prerequisite for progressive issues, and how tax reform has proven difficult
- Alternative Approaches — other solutions to solve the current crisis