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In addition to the extraordinary public health risk it poses, the coronavirus is having a major impact on the economy. The stock market has plunged. Industries like hotels, airlines and restaurants are suffering. Workers are missing paychecks, and some have already been laid off. This economic pain may be only the beginning of an extended slowdown that could potentially tip the country into recession.
Leaders in Washington have scrambled to curb the downturn. The Federal Reserve cut interest rates almost to zero and launched a multitrillion-dollar stimulus package to revive the stock market. Congress is currently debating a bill that would provide unemployment benefits, expanded sick leave and food assistance to some workers. The president has also floated the idea of a payroll tax holiday that would allow workers to keep more of their paychecks.
Several lawmakers have proposed a more direct approach: sending money directly to Americans. On Tuesday, the White House threw its support behind the idea. “We’re looking at sending checks to Americans immediately,” Treasury Secretary Steve Mnuchin said.
The idea would be an emergency version of universal basic income (UBI), a proposal that was at the center of entrepreneur Andrew Yang’s campaign for the Democratic presidential nomination. Yang’s “Freedom Dividend” proposed sending every adult in the country $1,000 a month. The concept of permanent UBI received pushback from both the left and the right. A one-time or short-term cash payout program, however, has gained popularity as a means to mitigate the economic fallout of the outbreak.
Why there’s debate
Advocates for cash payouts in response to the virus say they’re the most efficient and effective way to boost the flagging economy. Current proposals such as increased sick leave, tax relief and stock market stimulus could be helpful, some argue, but would take too much time to make a difference. A payroll tax also wouldn’t help those who can’t work at all during the virus crisis. Direct payments will put money into the hands of people who need it immediately. A significant amount of that money could then be spent on necessary goods and services, boosting the collapsing demand that’s driving the economic downturn. The payments would also help people living paycheck to paycheck stay afloat, which would reduce the burden on government services, some argue.
There’s significant disagreement on what form the payments should look like if they’re enacted. Some economists say they should only go to people with low incomes, while others argue that a universal payout is best. Republican Sen. Mitt Romney supports a one-time $1,000 payment to all U.S. adults. Democratic lawmakers like Alexandria Ocasio-Cortez and Tulsi Gabbard prefer a longer program that continues until the outbreak subsides.
Opponents of the idea say universal payments wouldn’t boost spending much because many people would decide to save the money or use it to cover bills. Others argue that the main thing plaguing the economy is a collapse of supply, rather than demand. Cash in the pockets of American citizens won’t do anything to reopen shuttered Chinese factories or prop up the price of oil, they argue.
Mnuchin said he hoped to be able to have cash payments sent out within two weeks. The details proposed direct payments, including how large they would be and who would get them, haven’t been announced. Majority Leader Mitch McConnell said the Senate will remain in session until a bill providing financial relief to Americans is passed.
People missing out on work need direct help now
“We also need the millions of people employed in in-person service jobs, and the millions of unemployed people (including those unemployed due to layoffs in this crisis), to have the food, shelter, and medical care they need to survive and stay healthy amidst the crisis. They need money, and the easiest way to get it to them is to send checks.” — Dylan Matthews, Vox
The payments should be limited only to the most needy people
“Congress should make direct cash payments — mailed checks or direct deposits — to low-income households in places with severe outbreaks. Hourly wage workers should not feel compelled to show up to work sick because they need to pay bills. Congress can help these Americans recover and keep other people healthy by financing their time away from work.” — Michael R. Strain and Scott Gottlieb, Wall Street Journal
Methods used in previous recessions won’t work in the current situation
“The Great Recession, in the late 2000s, saw a bubble slowly deflating as soon as house prices started to fall in 2006, which gradually dampened spending. Today’s has happened much quicker and is more pronounced, and so the economy will need a dynamic shock in the form of more money.” — Talib Visram, Fast Company
People tend to spend the money in smart ways that make a major difference
“Empirical evidence shows that cash transfers are generally spent judiciously, they can save lives and, if they are designed well, can help people get permanently out of poverty.” — Ugo Gentilini, Brookings Institute
The simpler the solution, the better
“What you need is a form of stimulus that’s maximally flexible and adaptable — and there's nothing more flexible and adaptable than straight cash handed out to citizens. It will boost demand going to the parts of the economy that are still functioning, and that have lost demand from the parts that have shut down.” — Jeff Spross, The Week
The money will quickly filter back into the economy
“It’s a one-time hit on the deficit, no doubt about it, but you don’t make it permanent. But you give a little something for everybody. Everybody feels confident. You know, $1,000 in your pocket, what are you going to do with it? You’re going to spend it.” — Geraldo Rivera, Fox News
Moves to save the stock market won’t help the economy
“This is not a financial crisis. … The concern here is what’s going to happen with the real economy. Now, I’m afraid pumping in more money to support the financial sector does absolutely nothing where the real problem is.” — Economist Andrew Ferris to CNBC
Cash payouts avoid many of the pitfalls of typical government assistance
“Not only does a UBI most directly ameliorate coronavirus pressures, but it also would do so efficiently. Without means-testing, the overhead costs of distributing a UBI would be minimal. Unlike unemployment insurance, a UBI offers no perverse incentives to remain outside the workplace.” — Tiana Lowe, Washington Examiner
Focusing on improving supply is a better strategy
“Putting more money in the pockets of every American, either by cutting payroll taxes or by mailing checks, would tend to juice the economy faster than cutting interest rates. But that assumes there are goods and services available for them to buy.” — Eric Boehm, Reason
The money will help people stay healthy
“In moments of potential crisis, like the current public health threat posed by coronavirus, it’s easy enough to imagine the additional monthly support helping people and families take better care of themselves as they lose income or business.” — Bryce Covert, New Republic
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