Is the US economy perfect

With $ 1,400 Citizens Checks Out of the Crisis: Will Biden's Plan Work?

Dear taxpayer, here's a check for $ 1,400, please dispense it quickly and stay safe. In short, this message will soon be waiting for every US citizen in his or her mailbox. Because the government wants to lead the economy out of the crisis with 1.9 trillion dollars. Together with the two stimulus packages from last year, the aid amounts to five trillion dollars.

The past payments have worked, say proponents. The US economy contracted only 3.5 percent in 2020. In the euro zone, the decline was 6.8 percent, as the latest OECD data show. In contrast to Europe, Washington is increasingly relying on direct payments to its citizens. Has the US caught the better economic lever?

The new package is diverse. Every US citizen who earns less than $ 80,000 a year receives the aforementioned $ 1,400. A total of $ 400 billion has been earmarked for this. Another $ 350 billion will go to states and local authorities. $ 170 billion is budgeted for schools and universities. Unemployment benefits will be topped up by $ 163 billion, by $ 300 a week until September. Rent assistance, food expenses and other support round off the package. The funds for fighting pandemics have also been increased. Economists with whom STANDARD spoke to assess much of this as positive. The crux of the matter are the checks.

Different situation

Economists emphasize that the US has always reacted quickly. The size of the package of measures, on the other hand, cannot be easily transferred to Europe, as Klaus Weyerstrass from the IHS emphasizes. Payments to the unemployed, for example, are automatic in local welfare states; no additional package is required for this. If you were to add up all the individual dimensions of the EU countries, the difference to the USA would not be so great, the economist estimates.

What is rarely used in Europe are direct payments.

In the USA, the citizens' checks were having an effect: in the previous year, consumption increased in the month after the state aid arrived. In particular, poorer sections of the population spent more money. However, higher earners tended to put the money they gave aside.

Frictional losses

There are also other frictional losses with the aid funds: Experience has shown that a large proportion of the checks are also used by households with low incomes to pay off debts instead of consuming them, says Clemens Fuest, head of the Ifo Institute. But that does not mean that state consumer aid should be increased. "Purchasing power built up during the crisis, which will be discharged after the end of the pandemic. That is why the program is economically unnecessary," says Fuest.

In addition, some US citizens prefer to invest the aid funds in the markets than to go shopping: A Deutsche Bank survey of 430 private investors showed that they want to invest an average of 37 percent of the funds directly in shares. The checks are also not socially accurate, is a caveat. Many Americans who have not suffered any loss of income from the pandemic are being paid.

Less leeway

Philipp Hauber from the Kiel Institute for the World Economy believes that direct payments are not generally wrong: "The US economy recovered better than expected in the second half of the previous year. Generous checks for households were the right thing a year ago, at the height of the crisis Answer, today the program is overdosed to this extent. "

Better too much than too little, one might argue. But one shouldn't forget the political dimension. The aid was passed without a single vote from the Republicans. "Spending so much money on the economic stimulus package could still take revenge for Biden. If he needs funds for climate policy or infrastructure, there is likely to be greater resistance in Congress to further burden the state budget," says Hauber. Puddle instead of spill may have been the wrong motto for Joe Biden.

Stock exchanges on the rise

The impending economic stimulus package gave the stock markets a boost this week. After Biden signed the law on Thursday, Asian stocks rose sharply on Friday. (Leopold Stefan, March 12th, 2021)