Relief, not stimulus
By Scott Sumner
In a rare bit of good news out of DC, it seems as though the “stimulus” part of the new fiscal package may be dropped:
Direct cash payments to most American households were one of the most popular and efficient measures Congress enacted as part of its response to the coronavirus pandemic earlier this year, but lawmakers seem to have lost interest in another round of checks.
Legislators this week resuscitated talks over a new coronavirus relief package, which includes new unemployment assistance, money for vaccine distribution and more aid for businesses and state governments. But none of the potential compromise proposals includes another round of stimulus checks.
“We’re sending money out as a relief for people in distress, as opposed to a stimulus. This is not a stimulus bill,” Sen. Mitt Romney (R-Utah) told HuffPost about bipartisan $900 billion legislation he is crafting with other moderate senators.
The main factor holding back the economy is not a lack of disposable income; indeed areas where people are free to spend (retail sales, housing, etc.) are booming. Rather the recession is heavily concentrated in services where social distancing is a problem. Once the vaccines are widely available in the early spring, those sectors will bounce back strongly. Many people who skipped summer vacation this year will be anxious to take a vacation next summer. As an analogy, consumption rebounded strongly after the WWII-era rationing came to an end. The postwar depression predicted by Keynesian economists never happened.
I have not examined the proposed legislation in detail and thus don’t have a position on the overall bill. But right now the economy does not need fiscal stimulus. If any fiscal package is going to be enacted, it makes sense to focus on those who are negatively affected by the crisis, especially the unemployed and small businesses adversely affected by Covid-19. There is no obvious reason to send $1200 checks to Americans with good jobs.
I wouldn’t be opposed to a bit more monetary stimulus, although I suspect the Fed will hit its 2% average inflation target sooner than most economists expect. The Fed did not actually do very much monetary stimulus in 2020. They have plenty of ammo.