The government needs to spend lots of money to rescue the economy. It also needs to spend this money well. That is, Congress must make sure that as many dollars as possible reach those who genuinely need them.
Yet the supposedly “progressive” left is demanding funds get siphoned off to rich, fully employed households that have been financially unharmed by the recession.
One major lesson from the Great Recession was that the federal government should have done much more stimulus, sooner. A too modest rescue package, followed by years of state-level austerity, deeply scarred workers and the economy, producing a much slower recovery. This time around we ought to spend big to relieve suffering and prevent permanent economic damage.
Somehow, though, this important lesson has lately gotten twisted into: So long as we spend a lot of money, what we spend it on doesn’t matter. Attempts to strategically target federal spending are viewed as a betrayal of the progressive cause.
For example: The Democratic-controlled House passed legislation in December to expand stimulus payments to $2,000. This was marketed as aid to the poor and middle class, but the bill would have given some money to 94% of households — including those making over $300,000. President Biden, who supports more direct payments, said this week that he is open to negotiating eligibility details to ensure the funds are targeted to the needy.
To this anodyne (and reasonable) remark, some on the left reacted with rage: Just give the money to everyone, they argue, and stop this nonsense about targeting. It only slows things down.
Designing a swift, targeted package — when working with scant information about who actually needs assistance — is challenging. I first wrote about this tradeoff between speed and efficacy last spring.
Since then, though, it has become much clearer who has suffered the biggest economic losses in the pandemic and who has escaped unscathed (or even benefited). Now we know the recovery is “k-shaped” and that we’re experiencing the most unequal economic crisis in modern history.
Employment of low-wage workers is still down about a quarter since last January, whereas employment of higher-wage workers is slightly up. Higher-income households have amassed tons of savings, both because many of the activities they usually spend on (travel, restaurants) remain shuttered or unsafe; and because assets they’re more likely to own (housing, stocks) have appreciated.
Greater availability of real-time data has also offered valuable insights into which kinds of aid have had the biggest bang for the buck and therefore should be ramped up. Or down.
For example, a new Opportunity Insights analysis found that the $600 direct payments distributed this month increased spending among households making less than $50,000. Households making over $75,000, however, generally saved their payments.
“The fact that we have the ability to analyze this stuff after a few weeks gives us the opportunity to have policy that adapts to circumstances in a way we haven’t had before,” said Brown University economist John Friedman, who co-authored the analysis. In other words: We have tools to better tailor relief so it adds more value.
Some on the left counter that the only way to get money to the poor is to also give it to the rich. This sounds more like a Republican talking point than a socialist one, but either way it’s confused.
The argument that it’s administratively simpler for the federal government to send money to (almost) everyone misunderstands the actual administrative complications. The hard part of getting funds out isn’t recalculating how much high-earners get or setting a new income cut-off; that requires rewriting some computer code. The hard part is actually finding and delivering money to poor people — who are more likely to be non-tax-filers, unbanked and itinerant. (To its credit, the Biden administration is adding resources in this effort.)
Sometimes advocates argue that bribing the rich is a political necessity for maintaining aid to the poor. This premise seems to be based on the long-term defunding of traditional welfare. But there are huge counterexamples: Medicaid and the earned-income tax credit are means-tested programs. They are politically popular, and their funding has been expanded over the decades.
Even if this political-economy argument were true, it would apply to preserving programs that must get reappropriated year after year — not a (hopefully) one-off emergency program.
If you believe that government fiscal capacity is infinite and deficits never matter, perhaps it’s easy to dismiss concerns about wasting money on the rich so long as money also happens to reach those who are suffering. But at some point there will be choices to make, and tradeoffs. Either Republicans will enforce a ceiling on the size of the next relief bill, or the reconciliation process will.
And then every dollar spent on those who don’t need it will be a dollar not spent on those who do.