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Inside the stimulus bill: The cost of an unfocused stimulus

Louisville, Ky., has an estimated $115 million budget shortfall for the next fiscal year. Luke Sharrett for The New York Times

For many Americans, the coronavirus recession has done almost no damage to their finances. They still have their jobs, and their expenses have gone down while they’ve been stuck mostly at home. Their homes have not lost value, unlike during the financial crisis of 2007-9. If they are fortunate enough to own stocks, their portfolio is probably worth more than a year ago.

Of course, millions of other Americans are struggling mightily. Nine million fewer people are employed than a year ago. Others are coping with big medical bills. Many small businesses have closed or may soon. State and local governments are planning deep cuts.

The $900 billion stimulus bill that Congress passed last night will provide a lot of help to the economy. But many economists believe that it also has major flaws. Among them: It isn’t especially targeted at the parts of the economy that need help.

A central part of the stimulus are one-time checks that the government will mail to people. Any household with income below $150,000 will likely receive at least $1,200. Families with children will receive more.

Much of that money will go to Americans who are doing just fine and who will save the money they receive, which in turn will do nothing to keep struggling businesses afloat or keep workers employed. Already, the personal savings rate had risen to about 14 percent this fall, from 8 percent at the start of the year.

At the same time, the bill provides only 11 weeks of expanded unemployment insurance.

“That’s not enough to bridge us to when a vaccine is widely distributed,”

Ernie Tedeschi, a former Treasury Department economist, wrote yesterday. In all, the bill spends less on the expanded jobless benefits than on the stimulus checks.

An even bigger issue is the lack of help for state and local governments. Mitch McConnell, the Senate majority leader, insisted on excluding such aid, saying it would be a bailout for fiscally irresponsible states. Many economists disagree and point to the pandemic’s toll on state budgets.

“Economists are especially concerned that the final deal stripped out new funding for state and local governments, which is likely to lead to more job cuts and higher taxes in parts of the country,”

The Washington Post’s Heather Long wrote.

“Congress leaving out local aid is like the Grinch that stole Christmas.”

Larry Johnson, a county commissioner in the Atlanta area, said,

“I’m incredulous that they’re not providing state and local aid.”

And Tracy Gordon of the Urban-Brookings Tax Policy Center told Bloomberg CityLab,

Among the likely areas for the cuts that state and local government will have to make: public transportation, police and fire departments, schools and health care programs.

The bottom line: The stimulus plan seems big enough to keep the economy from falling into a new recession early next year. But a different plan could have prevented more economic hardship than this one will.

More on the bill:

“The legislation overcame strong pushback from doctor and hospital groups, which worried new rules would cut into their profits,”

The Times’s Sarah Kliff says.

  • The bill also includes funding for two new Smithsonian museums, one focusing on Latino-Americans and one on women.

  • David Roberts, author of the Volts newsletter, says journalists have underplayed the fact that Democrats favored a bigger bill that would have helped the economy more while Republicans insisted on a smaller one.

  • Omar Wasow of Princeton University says it “seems likely” that President Trump would have won re-election if he had agreed to the $2.2 trillion bill Nancy Pelosi was pushing this fall.

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