Researchers have found that targeted stimulus payments benefit us all

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After all, making sure everyone has the money they need to survive is good for the economy.

Key Point

• Research has long shown that helping the poorest among us with regular stimulus payments almost pays off through increased GDP.
• Stimulus payments were being studied long before the COVID-19 pandemic.

Since the first stimulus checks were deposited in bank accounts across the country, researchers have studied how the funds were used and whether they made a difference in the lives of those who needed them most.

In response to the global pandemic, the United States has injected trillions of dollars into the economy. Those funds thwarted stimulus checks, expanded unemployment benefits, expanded child tax credits, and other targeted spending. The goal was to prevent a deep and prolonged recession, and it worked. The recession brought on by COVID-19 only lasted her three months, the shortest in U.S. history.

Pre-pandemic photo

Even before COVID-19, there was talk of regular targeted stimulus. Massachusetts Institute of Technology PhD students Joel P. Flynn and John Sturm, along with Christina Patterson at the Chicago booth, believe these are the most effective ways to revitalize the economy and help those in need. It found that providing Americans with $2,000 in stimulus packages on a regular basis.

To understand how the researchers arrived at this conclusion, it is helpful to know the term “marginal propensity to consume” or MPC. MPC represents the amount of additional income a person spends on the purchase of goods and services. People with low MPC are much more likely to invest or save extra money. People with high MPC are more likely to spend extra money.

It may be tempting to believe that people with high MPC lack self-control, but the truth is more nuanced. According to researchers, these are the people with the least money in the bank. They are the ones who worry about housing and food costs. They are the people most affected by inflation and other economic changes.

Actual findings

It’s no secret that the IRS was tasked with sending stimulus checks to all eligible recipients and promptly receiving those checks in the mail. This means that all types of people received stimulus funding, both high and low MPCs.

Academics from the Kellogg School of Management, Columbia Business School, Booth School and the University of Southern Denmark found that households with more than $3,000 in checking accounts tended to hold stimulus checks when they came in. . Low MPC.

Meanwhile, households with checking accounts under $500 spent almost half of the first stimulus checks within 10 days. Funds were used for food, school supplies, daycare, rent, and more. Those most in need of the money put it back into the economy almost immediately, helping to avoid a deep recession. During that time, more than 3 million American children have been lifted out of poverty. This group had the highest her MPC (consumption propensity).

What legislators must face

Unfortunately, looking for the most needy among us is not what Congress is best known for. Even if you do, the other half will fight tooth and nail to stop your progress.

As the gap between rich and poor becomes more pronounced in this country and more people are pushed into poverty, Congress will one day question how best to help the poor. I have to deal with the problem.

Researchers have also found that providing help to people with high MPC almost pays off. Their estimates suggest that if the government remitted his $2,000 to each worker above his median MPC, he would increase gross domestic product (GDP) by $0.96 for every $1 spent. It has been.

In addition, policy makers must consider: Spending in one industry or region affects workers not only in that region, but throughout the supply chain.

Groups with the highest and lowest MPC scores

Those with the highest scores are the most vulnerable among us and most likely to be affected by an economic catastrophe. , had an annual income of less than $35,000. Arkansas, Mississippi, and South Dakota have the highest MPC scores among states. His MPC scores in Connecticut, District of Columbia, and New Jersey were the lowest.

As Americans, most of us grew up learning the importance of being independent and learning to “pick yourself up”, but maybe it’s time to rethink those feelings. All segments of our society have no access to intergenerational wealth and little chance of ‘uplifting themselves’.

If stimulus payments tell us anything, it’s how quickly millions of people can get out of poverty.