Struggling gig worker: Right now we're able to eat, forget the rent

New York (CNN Business)The most expensive provision in Joe Biden’s $1.9 trillion economic recovery plan is his proposal to send an additional $1,400 to most Americans. According to many economists, that’s the least effective way to help revive the economy.

The added stimulus is born out of widespread support among Congressional Democrats, and many Republicans, including outgoing President Donald Trump, to increase the direct payments from the most recent Covid-19 economic relief package from $600 to $2,000.
“Six hundred dollars is simply not enough if you still have to choose between paying rent and putting food on the table,” Biden said when unveiling his economic recovery plan. “Even for those who have kept their jobs, these checks are really important.”

Targeting the wrong people

The problem with the direct payments, according to economists and others critical of the plan, is that much of the stimulus would go to individuals who have not been financially hurt by the Covid-19 pandemic. That means those added dollars may not do much to boost economic activity.

The $1,400 checks would go to most everyone who makes less than $75,000. Taxpayers filing joint returns who earn less than $150,000 would also qualify. Those earning more could qualify for lesser amounts, with a cap of $87,000 for individual tax filers to be eligible.
“That money is not well targeted,” said Mark Zandi, chief economist for Moody’s Analytics.
Zandi said the only economic argument for the checks is that they are a politically feasible way to get a lot of cash into the economy fairly quickly.
“Politics matter, and speed is more important than to get it exactly right,” he said. “But I think it’s the second or third best policy. It’s certainly not the most effective way to help out.”

Many won’t spend it

The money could be a lifeline for struggling taxpayers. But one of the biggest problems, according to economists, is many who receive the checks will either put the money into savings or use it to pay down debt, neither of which will do much to increase overall economic activity.
“The accepted theory of household behavior is that a one-time payment does little to spur additional spending,” said Joel Prakken, Chief US Economist at IHS Markit. “People who do spend it will do so on purchases that aren’t likely to be repeated. It’s getting harder to argue it’ll be an immediate stimulus to the economy.”
A big part of the challenge with maintaining consumer spending during the pandemic has been that many of the goods and services people spend money on in “normal” times aren’t available because of the crisis.
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“Given that lots of the hole [in spending] was not from the fact that people don’t want to spend, but that they can’t spend because they can’t take a flight or they can’t go to a restaurant,” said Larry Summers, in a recent interview on Bloomberg. Summers served as a top economist in the early days of the Obama administration. “I don’t necessarily think the priority should be on promoting consumer spending beyond where we are now.”
Although Summers has been a supporter of direct payments in the past, he is skeptical that the proposal will be effective this time. “I’m not even sure I’m that enthusiastic about the $600 checks,” he said. “And I think taking them to $2,000 would be a pretty serious mistake.”

Difficult politics

There is a chance that Biden’s proposal for the additional $1,400 payments won’t be approved.
The additional round of stimulus would cost the government $465 billion, according to the Committee for a Responsible Federal Budget. That’s roughly $100 billion more than is proposed for increased unemployment benefits.
Most experts believe that the full $1.9 trillion package has little chance of becoming law, and is likely to be passed in some scaled back form. In addition to bipartisan support for the checks, there is also bipartisan opposition. Among the leading Democratic critics is Sen. Joe Manchin of West Virginia.
“I’m on board helping people that need help. People that can’t make it. People that don’t have jobs, they can’t put food on the table,” Manchin told CNN in a recent interview. “Sending checks to people who basically already have a check, and who aren’t going to spend it, who are putting it in their savings account right now, that’s not who we are. We have done an awful lot of that. It’s time now to target where that money goes.”
Sen. Mitch McConnell, who will be the minority leader in the new Democratic-controlled Senate, said he also opposes another round of stimulus checks despite support from some members of his caucus.
“It’s no secret that Republicans have a diversity of views on the wisdom of borrowing hundreds of billions more non-targeted money, including to many households that have suffered no loss of income during the crisis,” he said in recent remarks in the Senate. “It’s hardly clear that the federal government’s top priority should be sending thousands of dollars to, for example, a childless couple making well into six figures who have been comfortably teleworking all year. Our duty is to get help to the people who need help.”
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