Stimulus Checks Aren’t Going to Save the U.S. Economy from Coronavirus

April 14, 2020 2:42 PM UTC
Stimulus checks worth $1,200 have begun arriving in bank accounts, but they won't be enough to save the U.S. economy from the coronavirus-inspired downturn.
  • Stimulus checks have begun arriving in people’s bank accounts, but they won’t be enough to save the U.S. economy from the coronavirus-inspired downturn.
  • The checks could pump up to $96 billion into the economy, but this isn’t even a tenth of what the coronavirus will cost the U.S.
  • Either the coronavirus lockdown needs to end, or the U.S. needs to introduce temporary universal basic income.

Stimulus checks are now arriving. Worth $1,200 to as many as 80 million Americans, the government hopes they’ll keep the U.S. economy afloat during the coronavirus pandemic.

The checks won’t save the U.S. economy from a sharp coronavirus downturn. And they won’t help Americans if the lockdown lasts for more than a month, which it will.

As such, Washington needs to do one of two things. Either it pushes for a quick end to the lockdown, which will put hospitals systems and lives at risk. Or it pushes to make the checks monthly, creating a temporary universal basic income (UBI).

Stimulus Checks are a Drop in the Coronavirus Ocean

According to estimates, between 50 and 80 million U.S. residents are eligible to receive the stimulus checks. Basically, if you’ve filed tax returns reporting an annual income of less than $75,000, you’re eligible. Also, you’re eligible if you receive various Social Security benefits.

Source: Twitter

No doubt “free” stimulus checks worth $1,200 are welcome on a personal level. But compared to the amount of money the U.S. economy is set to lose during the coronavirus crisis, they won’t have a substantial impact in macroeconomic terms.

Assuming that 80 million people receive the checks, this would in theory pump around $96 billion into the U.S. economy. Of course, not everyone will spend all the money they receive.

On top of this, the economy will lose trillions because of coronavirus. According to Bloomberg, forecasters are expecting GDP to plunge 25.2% in the second quarter. Compared to Q2 2019, when the U.S. economy generated around $5.3 trillion, this means GDP will shrink by $1.3 trillion between April and July alone.

But coronavirus is unlikely to stop politely for us in July, and some analysts are expecting an even bigger hit to the U.S. economy. Bridgewater Associates founder Ray Dalio is predicting that U.S. corporate losses from coronavirus will total some $4 trillion. And that’s just corporate losses.

JPMorgan is now predicting that it won’t be until Q3 2021 that the economy returns to normal levels. In that time, the U.S. economy will suffer an 11% cumulative loss of GDP.

So no, the stimulus checks aren’t going to save the economy from the coronavirus. Not even close.

U.S. Economy Needs Less Lockdown Or Universal Basic Income

The stimulus checks are a drop in the ocean. If the coronavirus lockdown ends at the beginning of May, then they might be enough. But signs suggest that the lockdown could continue for longer than that.

Even Donald Trump has warned that the U.S. coronavirus crisis could last until July or August. Similar warnings from other countries suggest much the same, if not much worse.

Clearly, a single check worth $1,200 isn’t going to be all that useful in the face of a long period of economic inactivity. Especially when some 16.8 million Americans (and counting) are unemployed.

Source: Twitter

So, what to do? Well, the first option is to end the lockdown early. That said, Tom Inglesby of the Center for Health Security at Johns Hopkins University has warned that millions of Americans would die. And there would still be “huge social and economic impact across the country.”

The only other option is to make the stimulus checks regular, creating a temporary universal basic income that lasts the duration of the crisis. Not only would this help millions of Americans survive, but it would encourage consumer spending at a time of significant slowdown.

UBI may come at a considerable price, but it would still be less costly than “unlimited” quantitative easing that would mostly inflate the stock market. In the context of a lockdown where millions can’t work, the main criticism levelled at UBI — that it would discourage work — wouldn’t apply.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.

Sam Bourgi edited this article for CCN.com. If you see a breach of our Code of Ethics or find a factual, spelling, or grammar error, please contact us.

Last modified: June 24, 2020 1:03 AM UTC

@_simonchandler_

Markets Contributor for CCN living in London, UK. Has a Bachelor's degree in History and Archaeology from Reading University in 2006, and a Master's in Philosophy from King's College London in 2011. Also contributes to Forbes and Digital Trends, among others. Email me | Follow Me on Twitter | My Website | Muck Rack