No, the stimulus is not “just $600”
Social media discourse on the latest COVID package is undermining clear analysis of the US safety net
A second round of COVID relief finally made it through Congress this week. The $900 billion package weighed in at a hefty 5,000+ pages. There’s a lot in there, from broadband funding to airline payroll support. Politico provides the bullet points here.
The bulk of the bill, about $611 billion, contains three big programs — additional Payroll Protection Program funds for small businesses, a $300/week federal supplement for unemployment insurance, and a second round of stimulus checks, this time for $600.
You probably heard about the $600. If you spend any time on social media, you probably came across some tweets like the one below. It’s from former Clinton Administration Secretary of Labor Robert Reich lamenting the supposedly feeble response to coronavirus relief in comparison to other countries.
The problem — he’s just wrong. The more than $3 trillion spent on COVID relief so far accounts for about 18% of GDP, higher than France’s 16% and double UK’s 9%, according to an analysis by Turkish economist Ceyhun Elgin. While it’s true that European countries have generally higher levels of existing social supports, the level of unemployment support and federal spending is unmatched since World War II.
More directly to Reich’s tweet, unemployment supplements of $600 per week from March through July came on top of existing state programs. The combination of these two programs provided about 110% replacement of average income for unemployed workers in most states (up to 130% in some). This helped bolster consumer spending among lower-income households. That boost in spending has since waned as coronavirus cases rose this fall. Economist Ernie Tedeschi estimates the new $300/week supplement will replace, on average, around 85% of unemployed workers’ pay. Tedeschi’s entire thread is worth reading.
Why did the “just $600” travel so well on Twitter? A few weeks ago, I reviewed Robert Shiller’s new book Narrative Economics. The gist of the book is that economists should pay more attention to stories, because they drive more economic decision-making than the math-minded think. Narratives don’t exist in isolation. People interpret new information through existing stories. In this case, the narrative of the stingy American safety net in comparison to more generous EU nations has become common, especially in left-leaning circles. The universal nature of the $600 direct payments — even people who kept their jobs will get them — makes it easy to ignore the rest of the policy.
Beyond being simply misleading, the “just $600” narrative is counterproductive for the policymakers and organizations who would like to expand the social safety net more permanently. An honest analysis of unemployment supplements and their role in preventing a deep recessionary spiral could open more productive conversations on how states or the federal government might balance extended unemployment or even some form of universal payments with the needs of employers in a more fully functioning, post-pandemic economy.
So far, judging from Twitter engagement numbers, the posters looking to get their more nuanced takes out there are swimming upstream.
Chuck McShane is an economic researcher in North Carolina. This article originally appeared in his weekly newsletter “Growth and Dreams.”
