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MNI (Washington)
WASHINGTON (MNI)

The U.S. needs a more targeted second round of stimulus checks if Congress wants to drive spending and boost economic activity, Bureau of Labor Statistics visiting scholar Michael Weber told MNI.

Another round of checks like the first one would be "to some extent a waste of taxpayer money" he said. Individuals and households would pay off debts and increase savings rather than spend, said Weber, also a finance professor at the University of Chicago.

Only 15% of check recipients mostly spent their stimulus money or were planning on mostly spending it, according to a paper co-authored by Weber, also a faculty research fellow at NBER. Another 52% used it to pay down debts while the remaining 33% mostly saved it.

"In terms of actually stimulating aggregate demand, the program was less effective" than policymakers intended, Weber said in an interview. "Some other more targeted policy interventions might have been more effective," like a recent sales-tax reduction seen in his native Germany.

Bigger Check, Smaller Spending

The checks boosted spending at grocers and personal care stores already booming early in the pandemic due to stockpiling, while struggling merchants of discretionary products like durable goods, furniture and electronics "didn't see any money flowing in," he said.

Those arguments come as Republicans and Democrats have been deadlocked over extending a new stimulus package including key benefits that lapsed last month, with no new major talks scheduled. Fed officials have already urged Congress that fiscal action is vital to an economic recovery showing signs of fraying as states struggle to clamp down on virus outbreaks.

People who lost jobs or income in the pandemic spent a larger fraction of stimulus money than those who were more financially secure, Weber's research showed. Consumer spending also appeared to decline as the size of the check increased, making it less successful than similar initiatives in 2008 and 2001, according to the paper.

Individuals making up to USD75,000 annually qualified for the one-time payments of USD1,200, with an additional USD500 provided for each child in the household.

Helpful Default Shield

Stimulus checks can still be useful in driving consumption during a crisis, according to Weber's research, and the lesser effectiveness of today's measures reflects a pandemic that kept consumers away from storefronts.

Government stimulus has still played an important role since April, Weber said, shielding the economy from a wave of defaults that crippled the U.S. economy during the global financial crisis.

"If the main goal was making sure people don't default on their mortgages and their credit card debt, then you could say it was actually very effective."

MNI Washington Bureau | +1 202-371-2121 | brooke.migdon@marketnews.com
MNI Washington Bureau | +1 202-371-2121 | brooke.migdon@marketnews.com

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