The package that Congress passed on December 21, 2020 – seems like only 50 years ago – is not technically a stimulus bill. It is an appropriations omnibus to fund the government for the coming year and, tucked between allocating money for public housing and making it a federal crime to give racehorses steroids (seriously, starting on page 2981), is a $900 billion pile to address the economic fallout from the coronavirus pandemic.
And nowhere in this 3,126-page stack of last year’s Christmas trees (that’s really where paper comes from, sorry) will you find the word “stimulus.” Rather, the operative section’s title refers to “coronavirus response and relief.” That is, it is intended to fund the medical efforts to contain the fatal disease while assisting those who have been most negatively affected by it financially.
It does some things well and other things less well. We’ll start with the good news.
One benefit is the $15 billion for passenger air carriers and $1 billion for contractors to exclusively be used for employee pay and benefits. Airlines, in turn, must agree to defer any furloughs or pay and benefit reductions through March 31, 2021, and recall employees let go since October 1, 2020.
There are other helpful, targeted relief measures in the new law, including:
- $25 billion in rent assistance,
- Extension of the 2020 CARES Act’s payroll protection program (PPP) for small businesses,
- $15 billion in grants to live venues that have been shuttered amid the pandemic, and
- Tax credits for paid sick leave.
Beyond that, though, this “relief” bill begins to look more like a stimulus bill. That is, it has less to do with giving a break to people who, through no fault of their own, were financially devastated by the pandemic, and more to do with pumping dollars into the economy to drive consumption.
… rode the six hundred
Have you read “The Charge of the Light Brigade” – the not-to-reason-why/but-to-do-and-die poem that describes the ill-fated final battle of a British cavalry formation in the Crimean War? Victorian poet Alfred Lord Tennyson described the horse soldiers as “the six hundred.” Since $600 per U.S. citizen is the number agreed upon for the pandemic relief checks, Tennyson’s forced rhyming of “the six hundred” and “someone had blundered” seems an interesting analogy for a couple of reasons.
To start with, $600 is an arbitrary figure. Democrats – and later President Trump – favored a $2,000 payment, but Senate Republicans held firm to the lower number. Not that $2,000 is any less arbitrary.
And yet, no amount within rational bounds would have much of a long-term effect on the economy. Benefits from the controversial concept of universal basic income would accrue – if at all – only from a steady month-by-month drip rather than a one-time payment. The same can be said for the $300-per-week supplemental unemployment relief, which the new law approves for only 10 weeks.
Both of these assertions are rooted in an economic model called the marginal propensity to consume. Part of John Maynard Keynes’s work, it suggests that people will spend just about every extra dollar you give them. But this was a controversial finding back in 1936 and has fallen well out of favor since. Most economists – including most Keynesians – are more convinced by the permanent income hypothesis, which monetarist Milton Friedman described two decades later. His theory posits that people will tend to squirrel away windfalls, and only consume what they’re sure they can afford because of the cash flows they can reasonably expect to see going forward. So a $600 one-time check is likely to get saved or invested, but a $50-per-month payment is likely to get worked into the family budget. In short, a lot of this relief money is going to find its way into college savings plans, and very little is going to be spent on consumer products.
But ours is not to reason why.
It’s important to note that this “response and relief” act is only intended to fund efforts through March. With Democrats in charge of both houses of Congress as well as the Oval Office, you can expect a new round of funding about that time.
And the Republican minority in the Senate might not be able to do much to stop it. While the Obama years were a clinic on how 40 senators can impose their will on the entire legislative process, it won’t be that easy this time. Incoming Senate Majority Leader Chuck Schumer’s caucus will be able to use parliamentary tactics – in large part invented by the GOP – to ram through spending bills, even though they might not be able to do much in the way of social engineering.
You can bet that Congress will consider $1,400 per person – if not more – in one-time payments to arrive at the total of $2,000 that early drafts of the December appropriations act called for.
Again, this won’t do much to target “relief” to those most in need, and it’s unclear if recent events have motivated lawmakers to shake hands across the aisle. Maybe we’ll see all the items on the Democrats’ wish list find their way to the White House for President Biden’s signature. Either way, there will be winners and losers among the stocks, bonds, commodities, currencies, and all other instruments available to you as an investor. So, it’s a good idea for you to discuss with a qualified financial professional where you should park your stimulus – sorry, “relief” – check.