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Will $1,400 checks stimulate the economy? No, and here’s why not, say three prominent economists

by capitalizefinancial
March 23, 2021
in Economy
0
Will $1,400 checks stimulate the economy? No, and here’s why not, say three prominent economists

You hear it from the Biden administration, the Congressional Budget Office (CBO), and virtually all TV and press coverage: As long as Americans spend their “stimulus” checks, the economy will get a powerful boost. “We need to go big now, and we can afford to go big,” Treasury Secretary Janet Yellen recently declared on PBS, adding in a CNBC interview that “these checks will help jump-start the economy [by] giving people money to spend.”

The CBO hasn’t yet provided an estimate for how much the $1.9 trillion American Rescue Plan will grow the economy. But in a September report on the stimulus legislation enacted last March and April, it reckoned that those earlier emergency measures would lift national income by a total of 8.1% in 2020 and 2021, and that the second round of payments at $1,200 per person would supply over 40% of the firepower. It’s likely that the CBO will soon posit that the new blast of fatter checks will propel an even stronger advance.

But for three prominent economists contacted by Fortune, sending $1,400 to around 150 million individuals––$5,600 for a married couple with two kids earning up to $150,000––won’t stimulate anything. For these non-Keynesians, a group that includes a Nobel Prize laureate, the whole exercise amounts to a shell game that shifts the same billions from one part of the economy to another, specifically from savings that provide the corporate cash to build plants and buy forklifts, to spending on the likes of restaurants, clothing, and cosmetics.

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