Home Economic Trends Your Check Is In the Mail: How “Stimulus” Checks Are Spent –...

Your Check Is In the Mail: How “Stimulus” Checks Are Spent – Robert Aro (05/04/20201)

More than $379 billion has been sent out across the country in the form of stimulus checks over the last two months. CNBC reported on Thursday:

A sixth batch of $1,400 stimulus checks has gone out, bringing the total number of payments sent to date to about 161 million.

One report, by the Peter G. Peterson Foundation noted that if we combine the last three stimulus bills:

The federal government has provided over $850 billion of direct payments to taxpayers.

It raises an interesting question: What did everyone do with their stimulus money?

NBC attempted to answer this question. Yet, in doing so illustrated the problem with the question and policy itself, finding:

the majority of that money continues to be spent on groceries, rent and other monthly bills…

Vague. So here are more details:

nonessential spending (13 percent), paying down debt (32 percent) and investing (11 percent) since January, the number one reason for stimulus spending among all income brackets is monthly bills (45 percent).

It’s curious to see what spending is considered essential and which is not. Still, the bigger issue is the idea spending can be adequately tracked in order to illustrate where the stimulus checks have gone.

But there’s an interesting thing about money: once received or added to one’s existing supply of savings (or credit), how can one allocate where the newly received money goes afterwards? Does it matter if the person has savings or not? Consider two scenarios:

Someone with $5,000 in their checking account receives a $1,400 stimulus check. They immediately purchase a hunting rifle for $1,400 then invest $1,400 in the stock market. After receipt of the check and the two purchases, they now have $3,600 in their account. Was the stimulus check used for savings, as it was saved in the checking account first? Did it go to the firearm as it was the first purchase made after receipt of funds? Or was it used to invest in the stock market?

And what if someone is in a debt position? Consider the same scenario above, except they had $5,000 balance owing on their line of credit, and stocks and the rifle are bought in the reverse order. Do we say the stimulus check went to pay down the line of credit (debt), the stocks (investing), or the rifle (nonessential or essential spending)?

There are various combinations which involved the timing of payments and whether the check contributed to existing savings or reduction of debt; but it illustrates the difficulty in allocating the whereabouts of the stimulus checks.

In addition to being unable to allocate the funds, we cannot prove the checks were a “good idea,” for the country. Any such criteria would be arbitrarily based on the value judgments of the decider. Nor can we say nearly $1 trillion in stimulus payment to households was “the correct” amount, as it could have easily been $500 million or $2 trillion. Since stimulus checks are devoid of economic calculation, any stimulus amount is equally as valid as any other. 

One might prefer if exactly zero dollars of stimulus money was given. That would have saved another $1 trillion off the national debt and reduced future interest expenses. It would also mean less unpredictable price distortion in the market as the 161 million recipients would not have to decide whether they should spend or save this newly created money.

But what does it matter anyway? Per NBC:

There may be hope on the horizon for the millions who continue to struggle financially: Almost two dozen senators have urged the Biden administration to include recurring relief payments…

Unfortunately, when it comes to economic policy matters, it seems economics continues to take a back seat to policy matters.