$2,000 checks are good

Unleash the Sanders!

So plotted Senate Democrats, who have fueled Vermont's socialist senator with a healthy serving of Cabot Extra Sharp, clad him in Darn Tough armor, aimed him at Senate Republicans, and pulled the trigger. Now that a super-majority in the House of Representatives passed a bill giving $2,000 checks to most Americans (topping up the $600 payment included in the recent pandemic rescue package), Bernie Sanders will reportedly filibuster the veto override of the recent military funding bill, with the backing of the Democratic Senate caucus, until Senate Majority Leader Mitch McConnell agrees to a vote on the checks. He could break the filibuster, but it will take up the rest of the year.

Presumably, the idea is to put pressure on McConnell and the GOP candidates in the upcoming Georgia Senate runoff elections — and just possibly get more money into the hands of the American people. Yet some liberals are hesitant or outright against the checks. "There is no good economic argument for the $2,000 checks," writes economist Larry Summers in Bloomberg. Paul Krugman is more measured in The New York Times, arguing that a better focus would be "on enhanced unemployment benefits for the millions of workers who, thanks to the pandemic, have no income at all." In the Washington Post, Catherine Rampell frets that checks are "not a terribly efficient use of resources."

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These objections are wrong. The checks are good and the Senate should pass them with all speed.

To start with, it's important to note these checks won't be going to the wealthy, because they're already means-tested. Indeed, because they are necessarily based on people's 2019 income, many people who should be eligible now (due to job loss) will be left out. It would be smarter and simpler to give them to everyone and recoup the payments to the rich on the back end through taxation next year.

More importantly, neither Summers, nor Krugman, nor Rampell note the fact that unlike the expanded unemployment insurance they say is a better option, checks include the large number of low-income people who are not eligible for unemployment because they do not work. As Matt Bruenig has shown many times, such people account for a huge portion of the poor (and especially the very poor), because poverty is overwhelmingly driven by people being unable to work. In 2016, roughly 70 percent of poor people were children, elderly, disabled, or caring for others — people who will mostly get checks. A cool $2,000 would be a great boon to poor people ill-served by America's crummy welfare state.

And when considering the middle and upper-middle class people who don't "need" the money, the fact is the top 1 percent have been absconding with the lion's share of income growth for the past 40 years. A $2,000 check will barely make a dent in that rigged income distribution. It's fine.

There is also a great political-ideological benefit here. Krugman at least grudgingly admits that the immediate politics are favorable because the checks are so popular (registering an astounding 78 percent approval in a recent poll), but the surrounding discussion might also start dissolving Americans' prejudice against a social-democratic welfare state. People in this country have long had capitalist ethics beaten into them from birth — the idea that "you shall earn your bread in sweat" making profits for business owners — but it turns out that getting free money from the government is very nice! Now, a proper welfare state for normal, non-pandemic times would be aimed mostly at nonworkers, but the principle of free money is the important thing. Once we have accepted the idea that a primary task of the state is cutting checks to the masses, the only question is who should get them. A sensible conclusion is near-universal payments now, more categorized ones later (besides, everyone is a non-worker at some point in their lives).

But the most frustrating argument here is the abrupt downplaying of the growth and employment catastrophe of the last 12 years, and the gigantic danger of returning to mild depression. "There is the possibility of some overheating, particularly if the economy's potential supply remains constrained by COVID protection measures," writes Summers. But as I have calculated (cribbing from economist J.W. Mason), growth from 2008-2019 was less than half the average from 1945-2007. As a result, total U.S. output in 2019 was something like 15 percent below where it would have been had the previous trend been followed. That's a gap of about $3.3 trillion, bigger than the economies of Virginia and California put together — before the pandemic struck. That was more than a decade of missing full employment and production; an economic disaster that helped produce Trump.

A major reason for this disaster was the ingrained fear of inflation (the "overheating" Summers is talking about) among economists scarred by the 1970s. The conventional wisdom before 2008 was that wage increases should be viewed with suspicion, lest they touch off a wage-price spiral, and the Federal Reserve should start hiking interest rates before inflation was seen, lest the dread inflation expectations get baked in. Except in reality, one cannot actually know with any certainty where full employment lies — and if you get it wrong, you will strangle jobs for no reason. Back in 2015, for instance, the Federal Reserve was estimating the economy could only handle unemployment of about 5.4 percent, which is why it started raising interest rates that year (albeit slowly, and it later reversed course). Except, whoops, it turns out late 2019 had an unemployment rate of 3.5 percent and not so much as a whisper of inflation.

So on the one hand, you have the possibility of moderate inflation, and on the other, the possibility of indefinite mild depression. Obviously the second option is far, far worse, which is why in 2015 Krugman argued that we should keep spending "until you see the whites of inflation's eyes." We should be absolutely certain we've hit full employment rather than making half-baked guesses about how many jobs the economy can produce. (Indeed one estimate suggests even this rescue bill will not be big enough.)

In this bleak context, $2,000 checks are a golden opportunity to make sure Americans' wallets are nice and fat in 2021 so that the economy will pop back to real full employment when everyone is finally vaccinated — undoing some of the post-2008 damage, driving labor demand into the most disadvantaged demographics (like people with criminal records), and boosting President Biden's popularity. A quick return to 2019's economy, if not better, is the one thing that might allow Democrats to hang onto the House and maybe even take the Senate in the 2022 midterms. Moreover, a bit of moderate inflation would have benefits — helping nominal debtors, and allowing the Fed to raise rates without hurting employment, thus giving it some room to cut them again should recession strike.

So keep calm, congressional Democrats, and go get 'em, Bernie.