Tuesday, January 05, 2021

The $2000 Relief Payments Are Imperfectly Targeted, but We Can Live With That

by Neil H. Buchanan

Remember when the big political story was whether the Senate would authorize an increase in relief payments from $600 to $2000 per person?  That is, do you remember what life was like literally only a few days ago?  Not remembering that now-dead story can be forgiven, because we are all back to being terrified about the treasonous actions of Donald Trump and his parasites.  If we do indeed remain a semi-functioning constitutional democracy going forward, however, the fight over the relief payments will matter very much in our upcoming policy debates.

This column, then, is an expression of optimism.  We might soon, I dearly hope, be back to arguing about legitimate differences over policy matters.  More interestingly, we might soon be back to waging an important intramural fight among non-Trumpers over the future of neoliberalism -- the incremental, technocratic, intellectually defensive approach to economic policy that is somehow both appealing and disastrous -- and its uncomfortable tension with progressivism.  Let us discuss.

I should clarify that the debate that I am revisiting here has nothing to do with what actually killed last week's possible increase in the one-shot relief payments.  That happened because Mitch McConnell, who I hope (but do not expect) will soon cease to be the Senate Majority Leader, refused to give the proposal an up-or-down vote.  I have no doubt that he mouthed some excuses for doing so, but there is no substantive reason for him to do things beyond the fact that he always does everything he can do to block help for non-rich people.

That, then, is why the Senate never passed the House-passed proposal, at which point it would have awaited Trump's promised signature.  My interest, however, is in a very pointed and consequential debate between what can best be described as centrists and progressives.  And although I identify as a strongly progressive person, I readily concede that there are aspects of neoliberal thought for which there are very persuasive arguments.

Indeed, what makes the debate over relief payments so interesting is that the roles seem to be reversed, with neoliberal centrists arguing that it is the self-styled progressives who are in fact favoring regressive outcomes, that is, promoting policies that comfort the comfortable.  Specifically, the $2000 payments would have gone not just to struggling unemployed people or those working but with low incomes, but to people with incomes in the low hundreds of thousands of dollars.  The argument from the neoliberals is that it never makes sense to throw money at comfortable people, and it makes even less sense to do so as part of a relief package that is a response to the economic pain caused by the coronavirus pandemic.  What progressive person could disagree with that?

Given that so many upper-middle-class people are doing quite well economically, even in the midst of the broader economic pain being experienced by so many less fortunate Americans, why indeed would we not be more careful to target relief toward the truly needy?  The best version of this argument on offer is from Paul Krugman, whose December 17, 2020 New York Times op-ed, after recounting a heated exchange between Senators Bernie Sanders and Joe Manchin regarding whether to provide support to non-struggling people, summarized the point this way:
"Well, on most issues I’m a lot closer to Sanders than to Manchin, the most conservative Democrat in the Senate. But in this case I’m sorry to say that Manchin is right. The economic pain from the coronavirus has been very unevenly distributed: A minority of the work force has been devastated, while those who have been able to keep working have, by and large, done relatively well. Overall wages and salaries have bounced back quickly
"So if there’s a limit on the amount of aid that can be given, it’s more important to help the unemployed — and, in particular, to sustain that help well beyond the 10 weeks reportedly in the current deal — than to send checks to those who have been able to keep working."
Importantly, Krugman goes on to ask: "But why is there a limit on the amount of aid?"  As he notes, this is all a replay of the Republicans' usual but-what-about-the-horrible-deficits stance that intimidates too many Democrats, which is by far the more important point here.  Republicans will, even if they lose both Georgia runoffs today, try to use anti-debt hysteria once again to drag down the economy under a Democratic president.  That successful strategy harmed tens of millions of people during the Obama years, and it could do so again under Joe Biden's presidency.

So Krugman is saying, correctly, that there is no need to be stingy, meaning that he would be willing to support an overbroad policy so long as it covers those who need to be helped.  I agree with that, but my arguments go beyond that limited point.

Back when Congress was working on the first COVID-related economic relief package last Spring, I wrote columns on Verdict and here on Dorf on Law  arguing that Democrats should simply accede to Republicans' insistence on adding regressive, stroke-the-rich provisions to what became the CARES Act.  My argument was quite simply that Republicans knew that they could hold the rest of the country hostage to their demands, and there was no point for anyone else to pretend otherwise.  Better to toss a trillion to the super-wealthy as part of the price of doing business.  Do I like that?  Of course not.  But it was the reality -- and it still is, given that Republicans insisted on sneaking regressive things into the most recent relief bill like full tax deductibility for business meals.

Krugman also noted in his December 17 column: "The best argument I can see for broader payments is political — people who haven’t lost their jobs to the pandemic may be more willing to support economic relief for those who have if they also get something from the deal."  In one way, that is wrong.  No one is going to withhold support (or refuse to allow a bill to go to the Senate floor) in order specifically to send more money to the top 1-through-5 percent of the population.  No Democrat is going to say (even privately): "The political price for my support is to give money to the upper-middle-class, because they are the people whom I am here to help."  By contrast, Republicans are consciously and ruthlessly solicitous of the desires of billionaires, not people who make $250,000 per year.

In another way, however, Krugman is correct.  Indeed, a central aspect of the neoliberal-progressive divide is progressives' belief that political outcomes are more stable and durable if there is widespread buy-in on policies.  This is why people like me so strongly resist attempts to add (or tighten) means-testing to Social Security and Medicare, which continue to be wildly popular programs precisely because people do not view them as much-reviled "welfare."

But what if it were possible to guarantee political support for means-tested policies?  Would it at that point not be a better idea for progressives to throw in with neoliberals and simply aim all support payments to those most in need?  Even if the answer is yes, all that says is that if we can leave aside politics and do the right thing, then we should so.  Notably, however, even this approach is limited by the standard "leaky bucket" notion of public policy, wherein administrative costs go up as we target policies more and more precisely.  Perhaps we would be better off providing benefits much more broadly, even to people who do not truly need them, to save on bureaucratic waste.  Among many examples, that is the libertarian-fueled argument for universal basic incomes.

More to the point, what exactly is so bad about some not-needy-but-not-megarich people getting some benefits from imprecisely-targeted policies?  If an upper-middle-class professional suddenly were to receive a $2000 payment, she would probably not change her spending patterns at all, because there are already too few safe places for her to spend her disposable income.  That means that giving relief checks to upper-middle-class professionals will not stimulate spending and create jobs in a Keynesian way, and that is undeniably a missed opportunity.

On the other hand, when that person does not spend money, she saves it.  Like most people who are lucky enough not to have lost their jobs in the past year, her savings have skyrocketed even without a relief check.  Money from the government would go right into her deposit account.  This is an important point, because "national saving" equals (setting aside foreign trade) the sum of private saving and government saving, which is the same as the difference between private saving and government borrowing.

Therefore, if a person receives a $2000 check that the government financed by borrowing from the private financial system, national saving goes down by $2000.  If she saves that $2000 rather than spending it, national saving goes back up by those same two thousand dollars.  The net change in national saving equals zero.

This is a very important point, because the anti-deficit scolds are always worried about "crowding out," that is, the government borrowing money that would have been borrowed by presumptively-virtuous private businesses keen to expand their operations and upgrade their technology.  But if the borrowed money simply shows back up in the private financial markets (via a bank's receipt of the $2000 deposit), then the deficit has not crowded anything out.

But wait, have I proved too much?  After all, if super-wealthy people are given huge tax breaks (as they were in the 2017 mess of a tax bill that constitutes the only so-called accomplishment of the Trump years), they are no more likely to spend that money that is my upper-middle-class professional, which must mean that they also save everything that the Republicans shovel their way.  Is it acceptable, then, to have the government borrow to give to the rich, knowing that the money will show up again in the pool of borrowable funds?

The answer to that question depends in part on the income that people can receive from investing the money that the government sends their way.  Put simply, extra-wealthy people have better opportunities to earn higher returns than are available to people in the 1-5 percent.  That is why inequality even at the very top has become so bad, with even the top 0.1 percent vastly outpacing the 0.1-1.0 percent.

If the question is whether it is acceptable to throw some money at the not-obscenely-rich but not the obnoxiously rich, then, there is still a way in which benefits do help the super-comfortable even more than those nearest them on the scales of income and wealth.  Even without that earnings difference, however, it is simply not as galling to think that someone earning $250,000 per year has received $2000 that she does not need (and thus will simply increase her net worth) than it is to give it to someone whose income is in the millions.

Moreover, we are talking about two very different kinds of policies.  The $2000 payments in the bill that McConnell killed were, in fact, going to be subject to an income-based phaseout, with no checks going to people with incomes above $310,000.  (There is always a balancing act when it comes to phaseouts, of course.)  One could argue that the phaseout should have been steeper, but the marginal effects of this are rather small, with a family of four earning $300,000 per year receiving a total of $500 rather than the $8000 total for a four-person poorer household.

By contrast, the Republicans' policy proposals (most definitely including the 2017 tax bill) are quite deliberately aimed at the already quite wealthy.  That is what trickle-down economics is!  The few extra dollars in unspent funds received by upper-middle-class payments under the plan that led to the Sanders-Manchin argument could surely be put to better use, but they amount to not much in the grand scheme of things.  Republican tax cuts provide trillions directly to those least in need.
 
We are, therefore, seeing neoliberals chide progressives for overbroad policies, with some justification.  Even so, the worst that one can say about the overbreadth is that some Audi-driving professionals will save a bit more money, transferring net saving from the federal government to a successful CPA or attorney.  Plus, this is not an ongoing policy, because no one would propose doing it again when the economy is healthy.

In my next Dorf on Law column (this Thursday), I will pick up on a broader anti-progressive critique by neoliberals.  For now, however, I will stop by saying that the $2000 relief payment proposal was indeed imperfectly targeted.  The consequences of that error -- if, indeed, it is an error -- are, however, quite limited.  We could have lived with that, and the people who truly needed it will need it even more when Congress is forced once again to mitigate some of the damage from Republicans' failure to govern.

1 comment:

hardreaders said...

This is quite fascinating indeed. In some ways, it's a bit of a role reversal from the norm. The usual situation is the neoliberals chiding the progressives for letting the perfect be the enemy of the good. In a similar vein, NLs accuse progs of being too doctrinaire and refusing to compromise. But here, for a change, it's the NLs advocating the "perfect" targeted relief, while the progs argue for the "good" of casting an overwide net.

You can see some parallels with the debate over whether to introduce a scheme of free college tuition. The complaint there from NLs, as I understand it, is that the children of those "Audi-driving professionals" are likewise getting an unnecessary free ride (Audi pun somewhat intended). Of course, one big difference, as you allude to, is that free tuition would be an ongoing policy, not a one-off like here.

On the issue under discussion though, I tend to come down on the side of you/Sanders, not Krugman/Manchin. In one sense, K/M are right in that they've correctly identified who is suffering disproportionately in the pandemic. But do they seriously think Sanders doesn't know that too? Of course he does. And for all the reasons you gave, who really cares what else happens, as long as those most-suffering folks do at least get relief.

Specifically w.r.t. crowding out, I have always viewed that argument as a total joke. Even someone who got at least a C in Macro 101 knows it's a nonissue outside highly exceptional circumstances, which AFAIK haven't ever come close to existing in reality. And it's even more of a farce these days when you have companies like Apple that sit on oodles of cash, but only ever seem to use it for share buybacks. Likewise banks would rather chase high returns in things like MBS or whatever the current fad is (and then of course end up out over their skis) than do something as old-fashioned and boring as make actual loans. Bottom line, the only time I ever worry about crowding out is if I'm riding the Tokyo subway. Everyone knows (or should) that demand drives the economy. And if a business can show demand for its products/services, it shouldn't have great difficulty getting loans.

One last observation on broadening the base vs. means-testing. I completely agree with you that means-testing should be reviled because it lets Rs frame it as "welfare" or "entitlements" that only go to the undeserving shifty "poors" or "those people". But I think there's at least one more reason to despise it too. Once you have such a regime in place, the Rs will constantly be looking for ways that people can be disqualified for the most petty, trumped-up reasons. "fRaUD!!!!111" is all the rage now for Rs in the election context of course, but that's also been a historical favorite for DQs in means-testing as well. And there are many others. We see examples in the Medicaid work requirements, the public charge rule, etc. etc. etc.

PS it's almost midnight on the East Coast and the dual Senatorial contests are still nail-biters (fingers and toes) in Greater Stankonia. Whatever happens, I just hope it's not a split decision. That might actually be even more frustrating that R victories across the board.