Problem with stimulus is not the money; it’s where it’s going

There are plenty of reasons to be unhappy with the COVID-19 stimulus compromise President Donald Trump signed.

Its shortcomings, however, are not the specific provisions that populists on both the left and right are complaining about.

The biggest problem with the U.S. fiscal response so far is not the overall amount of aid nor the generosity of our nearly universal stimulus checks, it’s how inefficiently many of those dollars have been allocated.

Right-leaning critics have mostly griped about foreign aid measures, with the suggestion that Democratic globalists are helping foreigners at the expense of struggling Americans.

“When your country’s COVID-19 relief bill includes $10 million in ‘gender programs’ for Pakistan, you know Congress is broken,”tweeted Rep.-elect Lauren Boebert, R-Colo.

This is, at best, misleading. The foreign aid measures had been drafted separately, as part of the annual budget bills that underwent separate legislative processes. And similar foreign aid provisions were in Trump’s own fiscal 2021 budget request. The omnibus spending bill and COVID-relief provisions were bundled into a single vote because both faced deadlines.

Demagogues, including Trump, exploited this to mislead the public about which measures were intended for what purpose.

Meanwhile, the populist left demanded that the new law’s $600 payments be increased to $2,000. Some advocates characterize the law as providing only this stimulus, with ubiquitous social media memes contrasting the supposedly stingy U.S. stimulus payments with generous aid in other developed nations.

But these takes ignore the other hundreds of billions of dollars in critical aid that Congress has disbursed, including to small businesses and the unemployed. With this newly enacted relief package, the United States has spent the equivalent of about 18% of gross domestic product in fiscal relief.

Our issue is less how much the government is spending than how it is directing this aid.

The economic crisis acutely affects a minority of Americans. These are predominantly service workers whose hours have been cut or jobs eliminated because of the pandemic. Tens of millions of people are jobless, hungry and on the edge of eviction. They need help.

Meanwhile, a large portion of the populace is OK, at least financially. Many are better than OK.

The number of higher-wage jobs (those paying above $60,000) is slightly greater than it was prepandemic. Savings are also up among higher-income households because they have been less likely to suffer job losses; asset values (stocks, housing) have risen; and there are fewer leisure activities (such as travel) available for them to spend money on.

Stimulus payments go to these families, too, whether or not they need the funds.

The just-passed stimulus payments will benefit 89% of households, according to American Enterprise Institute resident fellow Kyle Pomerleau. In fact, under the House bill, a family of five would get some stimulus money if they earned up to $350,000, according to the Committee for a Responsible Federal Budget.

Simply put, sending money to nearly every American family to ensure that help gets to the much tinier fraction who actually needs it is not a terribly efficient use of resources. The payments end up being a pittance for higher-income, fully employed households, yet insufficient for the households that suffered large income losses.

The only upside of near-universal stimulus payments is that they can be distributed more quickly than unemployment benefits. But that is more an indictment of our broken unemployment insurance IT system (really systems, since every state and territory has its own) than praise of stimulus payments.

If there is something to emulate in our peer countries’ response to this crisis, it isn’t in the magnitude of their aid, but how smoothly their infrastructure functioned in getting targeted aid out quickly.