With negotiations over coronavirus aid still deadlocked on Capitol Hill, the White House released a $916 billion proposal of its own this week that demonstrated some questionable priorities. The offer would include a new, $600 round of relief checks—which everyone loves. But as a tradeoff, it would not increase the size of unemployment benefits for the many millions of Americans who are still out of work.
This is the opposite approach of the bipartisan plan that has lately been at the center of talks, which would leave out the checks, but would up jobless payments by $300 per week. Democratic leaders quickly panned the administration’s offer, arguing that it would shortchange the people who need help most at the moment, in order to send a holiday bonus to a lot of people who aren’t really in dire need.
On Wednesday, Treasury Secretary Steve Mnuchin tried to push back and justify the administration’s position.
“We obviously want to get people back to work,” Mnuchin told reporters. “By sending out checks, we’re putting money into the economy for people. This will have the impact of creating demand, which will have the impact of creating jobs. We want to get people their jobs back.”
While it’s refreshing to see a Republican administration come out in favor of straightforward Keynesian stimulus, Mnuchin’s argument is not particularly convincing. Given the circumstances, beefing up unemployment insurance is clearly more urgent than sending a modest round of checks.
Before we get into why, I just want to stipulate that this entire debate is obviously frustrating, because in an ideal world Congress would send checks and increase unemployment benefits, just to make sure everybody who needs help as we enter the hellish winter stretch of this pandemic is covered, whether they are employed or not. But unfortunately, even moderate Republicans seem to be insisting that Congress cap the next bill below $1 trillion, which means we basically have to pick and choose priorities. There are basically three reasons why it makes more sense to prioritize unemployment insurance.
First, there’s basic decency. At this point, the vast majority of Americans—especially white-collar, college-educated professionals—are working and drawing their normal paycheck. The people suffering most are those who’ve been stuck without work for months, because low-wage service industries are partly or completely shut down, or just experience a drop in business. Swapping out thousands of dollars in aid to people who don’t have jobs in order to hand an extra $600 to people who do would be unconscionable.
Second, there’s effectiveness. If you’re really interested in stimulating the economy—which seems to be Mnuchin’s priority—boosting unemployment payments might be the better route than checks. If Washington sends out cash payments to almost everyone right now, chances are that a lot of Americans are just going to save the money, because people aren’t traveling and going out as much on account of the plague (that’s what happened early in the pandemic; personal savings skyrocketed as the government disbursed aid). If you give help to the unemployed, on the other hand, they’ll probably spend the cash paying for basic expenses, and money will cascade through the economy.
The third issue is that we don’t really need a stimulus bill right now. What the U.S. requires is a relief bill. Journalists and politicians have used those two words somewhat interchangeably since March—I’ve been guilty of swapping them occasionally myself—but there’s actually an important conceptual difference between them that helps explain why unemployment benefits should get priority at the moment. The point of stimulus spending is to jolt the economy back into action after it’s stalled out for one reason or another. The point of relief is just to protect people from the worst aspects of a downturn. In practical terms, the way you accomplish these two goals might look the same (unemployment insurance is a good example of something that can achieve both ends). But there are some policies, like infrastructure spending, that definitely are more appropriate when you’re in stimulus mode.
Right now, thinking in terms of stimulus doesn’t make a lot of sense. We aren’t trying to dig ourselves out of a liquidity trap or prevent a deflationary spiral by pushing up spending and prices. We don’t even want the economy to go back to normal, really; after all, states are once again shutting down businesses to prevent the spread of the virus. What we need to do is tide over those in need of help until the country is vaccinated, at which point there’s a good chance Americans are going to embark on a spending binge and get the roaring ‘20s started for real. One of the people who’s been clearest on this point has actually been Sen. Mitt Romney, who helped negotiate the bipartisan compromise proposal in Congress right now. “The economy is showing good signs of life, so we’re not looking for a stimulus,” he told reporters. “We’re looking to help people in need.“
When you’re thinking in terms of targeted relief rather than stimulus, unemployment insurance is obviously the correct policy tool. Checks are nice. But they should come second.
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