The US federal government is working on a $1.9 trillion COVID-19 relief package, which could include additional $1,400 direct payments to individuals. As lawmakers work through the details, Chicago Booth’s Initiative on Global Markets invited the members of its US Economic Experts Panel to express their views on what the aims of such direct payments should be, and who should be targeted for them.
On the question of whether additional spending should be focused more on relief than stimulus while there remains a considerable threat to public health from economic activity, a large majority of the panelists agree.
The experts are able to include short comments in their responses, and among those who agree or strongly agree with the statement, Larry Samuelson of Yale says, “The recession is a public health emergency, and stimulus without first addressing the health issues can be ineffective or counterproductive.” Kenneth Judd of Stanford adds, “‘Stimulus’ should not be the focus. Much of what is proposed is economic relief to those who are facing economic ruin.”
A couple of experts explain their interpretation of the statement. Carl Shapiro of the University of California at Berkeley notes, “Defining ‘safe and healthy’ in a broad manner to include economic security.” Daron Acemoglu of MIT states: “Interpreting ‘safe and healthy’ as enough money to prevent poverty for low-income households. Also aid for state and local governments is important.”
Jonathan Levin of Stanford adds a further consideration: “Agree on focus. Investment in testing and accelerating vaccination also welcome.” Similarly, Christopher Udry of Northwestern comments, “Transfers to low-income families are needed for safety and health. Vaccines, testing and tracing more important than spending for stimulus.”
Additional caveats include one from Robert Shimer of the University of Chicago, who mentions, “The only caveat is that disease prevalence may fall substantially before mass vaccination is achieved.” James Stock of Harvard observes, “Caveat: if those vaccinated (older, wealthier) start feeling safe we might start to see services demand return [earlier] than full vaccination.” Robert Hall of Stanford adds, “Economic activity is depressed mainly by supply restrictions,” and Peter J. Klenow of Stanford notes his joint paper with Charles Jones on trading off consumption and COVID-19 deaths.
Among experts who say they are uncertain, Joseph Altonji of Yale comments, “Spending should focus both on health, which will help the economy, and on the economy, prioritizing those in need.” Steve Kaplan of Chicago Booth says, “Hard to have confidence in anything with regard to the virus. Ideally want to have economic and school activity while keeping people safe.” Anil Kashyap of Chicago Booth notes, “Propping up zombie firms and giving people checks that just get saved is not good. Some other support could still be useful. Details matter.” And Maurice Obstfeld of the University of California at Berkeley concludes, “Health/safety for low-income a priority, but there likely remains some negative output gap.”
Among the minority who disagree with making relief a priority over stimulus, David Cutler of Harvard says, “These aren't in conflict now.” David Autor of MIT adds, “Infection rates and deaths are falling and vaccination rollout is accelerating. It's time to start recovery. Biden won't get two at-bats.”
The second statement focuses on whether the proposed stimulus checks should be targeted at households making less than $75,000 per year—and again there is a strong majority, with more than 90 percent of panelists in agreement.
Among those who say they strongly agree, David Autor notes, “Evidence is that households with higher incomes simply put the money in the bank. We don't need government handouts to spur personal savings.” Richard Schmalensee of MIT agrees: “High-income households are more likely to save the money.” And Raj Chetty of Harvard points to analysis he and colleagues recently did of the effects of the January 2021 stimulus payments on consumer spending.
Others refer to the different propensities to consume from additional income. Robert Shimer responds: “Wealthier households have been building up their savings and would likely do the same with any new ‘stimulus’ checks.” Aaron Edlin of the University of California at Berkeley notes, “We already have a pile of savings from the well off. Targeting money to those who spend is most likely to increase spending.” And Darrell Duffie of Stanford explains, “I'm assuming that the higher marginal propensity to consume of lower income earners is the dominant factor in making this comparison.”
Focusing on individuals and families who need relief, Larry Samuelson states: “The brunt of the pandemic has fallen on those at the bottom of the scale, and relief is most needed and will be most effective there.” Jonathan Levin comments, “Yes, but might think less in terms of stimulus multiplier and more about aiding at-risk families.” And Markus Brunnermeier of Princeton adds, “Targeting unemployed or households who suffered losses due to COVID shock would be even more desirable.”
Further caveats include this from Caroline Hoxby of Stanford: “I agree with the question as asked, but this is also a crude way of targeting compared to what could be attained by using available data.” And Carl Shapiro argues: “This seems very clear, but there is nothing magic about using $75,000 as the upper limit.”
Finally, among the experts who agree, William Nordhaus of Yale concludes, “Both on equity and efficiency grounds, this is appropriate approach.” And Anil Kashyap refers to wider concerns about macroeconomic policy: “We will have to pay off the debt and there are lots of pressing other needs. So conserving fiscal space is desirable.”
Two experts who say they are uncertain point to the same issue. Hilary Hoynes of the University of California at Berkeley notes, “The problem is that the phase out is based on *2019* income—many with higher incomes in 2019 could be in financial stress now.” Judith Chevalier of Yale adds, “I would be more inclined to agree if we had a mechanism to target based on actual current circumstances rather than 2019 tax income.”
All comments made by the experts are in the full survey results.