The Many Glaring Problems with the New COVID Stimulus Package

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After months of backroom negotiations and lobbying, leaders in Congress have finally reached an agreement on a second COVID-19 relief bill. The $900 billion package will likely pass this week.

Here’s a brief overview of what’s in the behemoth package—and a breakdown of the many glaring problems with it.

  • $600 “stimulus” checks for American adults who earned less than $75,000 in 2019 with additional $600 per household for each child
  • A federal $300/week add-on to existing state-level unemployment benefits and a renewal of provisions that expanded unemployment to new groups such as gig economy workers
  • $325 billion in grants and loans for businesses, largely funneled through the Paycheck Protection Program established in the first stimulus effort

The package notably does not include a large, general bailout for state and local governments, a Democratic priority, or a COVID-19 liability shield for businesses, a GOP priority.

The below graphic by the Wall Street Journal neatly visualizes where most of this nearly $1 trillion in additional taxpayer money is (ostensibly) going to go.

What I’ve outlined above gives you a good idea of what’s in the package. But to be clear, this is nowhere near an exhaustive list of what’s in the bill. The final legislation is likely to be hundreds if not thousands of pages long.

This brings us to the first glaring problem with this new relief effort. As Rep. Justin Amash has publicly lamented, it wasn’t properly debated or amended by Congress—it was negotiated in backroom meetings by the leadership from both party establishments. Why does this matter? Remember that Speaker of the House Nancy Pelosi tried to slip $350 million for the 50 richest ZIP codes in America into an earlier version of a second stimulus bill, mostly for rich liberal cities. We cannot trust politicians to dole out nearly $1 trillion in the dark.

Unfortunately, many members of Congress will vote on the package without having actually read it in its entirety.

Suffice it to say this is not a responsible or transparent way to spend nearly a trillion taxpayer dollars. Of course, that’s nothing new.

The first COVID-19 stimulus bill, the $2 trillion+ CARES Act, was corrupted by waste, fraud, and abuse. The federal government sent more than a million stimulus checks to dead people and many more to random European citizens. The expanded unemployment system it created lost more to fraud alone than the entire system paid out in 2019. And the Paycheck Protection Program was “swamped with potential fraud” as tens of thousands of ineligible companies received money and thousands more were overpaid.

None of these problems have been meaningfully addressed by Congress. So this latest stimulus effort just pours hundreds of billions of taxpayer money into fraud-rife programs without addressing the problem.

The third but hardly final glaring problem with this additional “stimulus” effort is the highly dubious effectiveness of its key initiatives.

The way the key relief efforts are structured makes it highly unlikely they will be very effective.

Consider the “stimulus” checks, for example. Congress plans to send $600 to each American adult who earns less than $75,000. However, according to the Wall Street Journal, legislators are using 2019 data to determine income eligibility. That means they’re using pre-pandemic income measures to determine who is eligible and who is not.

So, millions of people who lost their jobs or livelihood due to COVID-19 lockdowns will not receive checks because they did well back in 2019. Meanwhile, many millions of people who haven’t had their incomes disrupted and can comfortably work from home will receive taxpayer-funded “relief” checks.

That’s right: The aid is not targeted at all to actually go to those who need it. But the checks will still stimulate the economy by boosting spending, right?

Well… not really.

The Keynesian notion that consumer spending drives the economy is false.

To use a famous example, this thinking suggests that if a child breaks a store window, this “stimulates” the economy because money must be spent to hire a repairman, who then in turn will go spend that money elsewhere. This is a fallacy, because the money to pay the repairman would instead have been used to purchase something else that actually added value for the shop owner.

In reality, it is investment, not spending, that plays the most central role in economic growth. And investment comes out of savings, because banks loan out deposited money to investors. By definition, arbitrarily increasing spending reduces savings and reduces the pool of money available for investment.

Regardless, it is COVID-19, government lockdowns, and other restrictions that have put a stranglehold on the economy. Putting another $600 in some peoples’ pockets doesn’t change this underlying reality.

“Government checks are only valuable to the extent that there is enough actual ‘stuff’ (goods and services) available for those dollars to buy,” FEE’s Dan Sanchez and Jon Miltimore previously explained. “The more you lock down production, the more our stock of ‘stuff’ will shrink, and the more our living standards will worsen. No amount of zeros added to those government checks can change that.”

So it’s really unclear what good the checks will accomplish, either as a matter of “stimulus” or relief. Other than spending billions of taxpayer dollars and worsening the skyrocketing national debt, that is.

Now onto the federally augmented unemployment benefits. This does actually target money to those in need, at least in large part. However, it does so by explicitly tying that money to unemployment, disincentivizing employment. The original $600 federal supplement meant that 70% of the unemployed could earn more by staying on welfare than by returning to work.

The reduction of the federal benefit to a $300 additional supplement (on top of existing state-level payouts) mitigates, but does not eliminate, this harm. A sizable, if yet undetermined, number of people will still be able to receive benefits that fully or almost fully equal their previous earnings. (Federal minimum wage earners, for example).

Even many Republicans and conservatives have at least touted the bill’s replenishment of the Paycheck Protection Program with several hundred billion more dollars (ostensibly) in relief earmarked for small businesses. However, beyond PPP’s serious fraud problems, its efficacy is seriously in doubt.

The top 1 percent of benefiting businesses received nearly one quarter of the program’s total money, according to the New York Times. The program’s payouts included many suspicious allocations of funds to giant corporations and even politicians’ own business interests. For example, California Gov. Gavin Newsom’s business received a PPP grant 7 times greater than the grant received by other similar-sized companies.

The end result was a dysfunction program.

MIT economist David Autor studied the Paycheck Protection Program and concluded that “a lot of [the] cash went to businesses that would have otherwise maintained relatively similar employment levels.” He found that it cost $224,000 in taxpayer expenditure per job preserved, only preserving roughly 2.3 million jobs.

The supposed saving grace of this new stimulus bill is refreshing the PPP initiative with hundreds of billions of dollars in new funding. But the evidence suggests that doing so is more of a political win for politicians than a meaningful victory for taxpayers and struggling small businesses.

The government cannot create wealth out of thin air.

“The truth is that the government cannot give if it does not take from somebody,” Austrian economist Ludwig von Mises once explained. “It is not in the power of the government to make everybody more prosperous.”

So we must keep in mind that whatever benefits do come from this stimulus effort will mean either higher taxes or skyrocketing debt that future generations will have to pay off.

Many voters might understandably be glad that a gridlocked Congress finally “got something done.” Yet the countless glaring problems plaguing this massively expensive effort should temper that optimism. It all offers yet another reminder that when we rely on Big Government solutions, incompetence, inefficiency, and waste are all baked into the cake.

COLUMN BY

Brad Polumbo

Brad Polumbo (@Brad_Polumbo) is a libertarian-conservative journalist and Opinion Editor at the Foundation for Economic Education.

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EDITORS NOTE: This FEE column is republished with permission. ©All rights reserved.

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