January 19, 2021

There is no debating the need and justification for sending a stimulus check to individuals and families whose income has been interrupted through no fault of their own due to the pandemic.  Along with enhanced and extended unemployment benefits these combined payments could make all the difference in allowing these individuals to survive during this unprecedented time. Small business, the lifeblood of a community, has been particularly affected and deserves all the help we and the government can give them.

But the question remains as to why people on fixed incomes (retirees), those possibly receiving uninterrupted government support (welfare), or those who have not had their employment-based income interrupted by the pandemic would need to receive a stimulus check. The fact is that absolutely nothing has changed for these individuals from an income standpoint.  If anything they have experienced a crisis in not being able to spend their money as most venues for their spending have been locked down.

No doubt a $1200 check for each adult whose income falls below $75,000 and $500 for each child in a family is certainly justified for those whose income has been interrupted but for all others it serves as a windfall.

Alternatively, wouldn’t it be much more effective to further enhance the stimulus payments and unemployment benefits for those who need it the most rather than fritter it away on those who do not? In that regard, some have called for more targeted payments. Others have said that in the scheme of things these “over payments” to those who do not need them are inconsequential and do not warrant our concern.  As a taxpayer I would offer that this latter attitude is what has contributed to our country’s substantial deficit.

In fact, a recent study by the National Bureau of Economic Research supports a more targeted approach.  The study, published in August 2020 as a working paper ( http://www.nber.org/papers/w27693 ), was conducted in July 2020. It surveyed 46,000 people with a 26% response rate. It found that 60% of direct stimulus checks were either saved or used to pay down debt.  That means only 40% was spent to directly stimulate the economy.  The reason cited by individuals who responded to the study for not spending the money was that “there was no place to spend it”. The study points out another reason for the lack of spending…”the larger the check the less likely recipients are to spend it” …what is referred to in economics as the law of diminishing returns. 

Our representatives and the new President should learn from this study and refrain from just throwing money at the problem and focus, instead, on those who need our help the most.  But the temptation to provide a broad based salve to the general population for the inconvenience caused by the pandemic might prove too difficult to resist as they seek to garner political favor at the beginning of a new administration. A show of fiscal responsibility would, however, go a long way in winning over conservatives who see the largess by our more liberal politicians as nothing more than another step toward the goal of income redistribution within an overall socialist agenda.