(Bloomberg Opinion) -- The attack I made on Bloomberg Television on the idea of universal $2,000 checks as a Covid-19 response has lit up the Twittersphere, so I think it worthwhile to be clear about what I am arguing.
Certainly, I am not opposing stimulus or favoring austerity. For years I have been making the secular stagnation case for more expansionary fiscal policy, and I have often remarked over the last couple of months that “not passing fiscal stimulus is like not wearing a mask at a large indoor gathering — an insane risk.” And both in the immediate term, and on a permanent basis, I am all for strengthening the social safety net with measures such as enlarged Supplemental Nutrition Assistance Program benefits or an expanded Earned Income Tax Credit or child tax credit.
There can be no argument that the stimulus bill Congress passed should be implemented immediately, even though it is too late and too little. As I have observed, it fails to support the states and localities as they try to rehire teachers and health-care workers. It does too little to accelerate the availability of the testing necessary to put Covid-19 in the rearview mirror. And its one-month extension of the eviction moratorium and 11-week extension of unemployment insurance are clearly far too short-term.
The issue is whether spending about $600 billion on a one-time tax credit that would be worth $8,000 to a family of four and reach more than 85 percent of taxpayers makes good economic sense. Victims of Covid-19 disruption can and should receive generous targeted support, as should the poor.
The question in assessing universal tax rebates is, what about the vast majority of families who are still working, and whose incomes have not declined or whose pension or Social Security benefits have not been affected by Covid-19? For this group, the pandemic has reduced the ability to spend more than the ability to earn.
The data are striking. Total employee compensation is now running only about $30 billion per month behind the pre-Covid baseline. Measures in the congressional stimulus bill to strengthen unemployment insurance and to support business will add about $150 billion a month to household income in order to replace all this loss.
The question is whether there is a rationale for further tax rebate of more than $200 billion a month over the next quarter. This would represent additional support equal to an additional seven times the loss of household wage and salary income over the next quarter.
Some argue that while $2,000 checks may not be optimal support for the post-Covid economy, taking stimulus from $600 to $2,000 is better than nothing. They need to ask themselves whether they would favor $5,000, or $10,000 — or more. There must be a limiting principle.