March 5, 2021 Reading Time: 4 minutes

Congress is now poised to pass a $1.9 trillion stimulus package. This is following the $900 billion Covid relief deal in December, which followed the $2 trillion stimulus package in March. In total, the federal government has pumped $4.8 trillion into the economy over the past 11 months. The money has gone to support businesses, to extend and augment unemployment benefits, and as direct payments to households. 

The amount the government has paid out is unprecedented. Adjusted for inflation, we have spent 20 percent more than the U.S. spent on World War II – and the U.S. was involved in that war for about four years. On a dollars-spent-per-month basis, over the past 11 months, the federal government spent at a rate that is, adjusted for inflation, five times its rate of spending during World War II.

Has this unbelievable spending done any good? From one perspective, that’s almost impossible to say because we don’t know what the world would have looked like without the spending. But from another perspective, it’s much easier to say. Rather than trying to imagine what the U.S. would have looked like without this massive spending, imagine instead what the U.S. would have looked like had the government just divided that $4.8 trillion among U.S. households. What would that have done? There are 123 million households in the U.S. Given income cutoffs, the stimulus checks have been going out to around 80 percent of those households. Had the government simply divided that $4.8 trillion evenly among the 80 percent of 123 million households, each would have received a check for almost $50,000.

Now think about what the United States would look like right now if 80 percent of households had received a check for $50,000. For one thing, and for the first time in the history of the human race, a country would have entirely eradicated poverty. The poorest 20 percent of U.S. households would have seen their standards of living skyrocket to the middle class overnight. A single full-time worker would have received the equivalent of a $24 an hour raise. A full-time $7.25 an hour worker would have suddenly found himself the equivalent of a $30.80 an hour worker. That’s enough to make the most ardent “Fight for $15” advocate blush.

Critics will say that we spent the stimulus money the way we did because we had to prop up businesses. After all, handing households $50,000 checks does no good if there are no businesses left from which to buy things. But, had we given the money to households, households would have turned around and spent the money, or saved it thereby making it available for businesses to borrow. The money would have ultimately propped up businesses by propping up households. And that is exactly, though in reverse, the argument the government itself made in justifying the Payroll Protection Program in the first place. The government designed the PPP to hand stimulus money to businesses so that the businesses could pass it on to workers. If it works in that direction, it would work in the other direction just as well.

In evaluating whether the $4.8 trillion stimulus was a good idea, simply ask yourself whether we would have been better off had the government simply cut households $50,000 checks. If you’re not boiling mad right now, you haven’t been paying close enough attention.

Of course, this is nothing new. The government has been wasting our time and money for decades, and the War on Covid is only the second most expensive war our government has waged (World War II being the third). The most expensive – by far – is the War on Poverty. The price tag there is $23 trillion and counting.

Since the War on Poverty began in 1965, the U.S. poverty rate has been a pretty steady 10 percent (plus or minus 3 percent), consistently trending neither up nor down. To look at the numbers, one might argue that we’re doing our best to fight a really strong enemy because, despite spending $23 trillion, we’re just managing to hold poverty at bay, which brings us all the way back to the question of what would happen were we simply to make direct payments to the poor. If, instead of spending $23 trillion constructing and feeding over one hundred poverty programs for more than 50 years, what if the federal government had simply cut people checks? What would have happened?

For $23 trillion, not only could the government have eradicated poverty, it could have eradicated the entire lower class. If instead of feeding poverty programs, the government had cut every household among the poorest 20 percent a check, it would have launched the entire bottom 20 percent into the middle class – in every year from 1965 through to the present.

So why is it, then, that the federal government seems never to consider the option of replacing government assistance programs with direct payments? In the Covid crisis, and in the broader war against poverty, this would have solved a vexing problem as efficiently as possible. And therein lies the rub. Politicians aren’t all that concerned with solving problems efficiently. They seem always to prefer expanding the power they wield, and the government programs they create expand their ability to micromanage our lives. 

Politicians make grandiose claims about their various and sundry programs because those claims resonate with the people who receive government largesse. Not surprisingly, those claims resonate even more with the entrenched, ever-growing federal bureaucracy. But in the end, people receive pennies on the dollar compared to what they could have received had we decided just to write a check. 

In the end, our government has become a tool that politicians use to turn national problems into political power, so it should come as no surprise that they are not interested in solving problems at all.

James R. Harrigan

James R. Harrigan

James R. Harrigan is a former Senior Research Fellow at AIER. He is also co-host of the Words & Numbers podcast.

Dr. Harrigan was previously Dean of the American University of Iraq-Sulaimani, and later served as Director of Academic Programs at the Institute for Humane Studies and Strata, where he was also a Senior Research Fellow.

He has written extensively for the popular press, with articles appearing in the Wall Street Journal, USA Today, U.S. News and World Report, and a host of other outlets. He is also co-author of Cooperation & Coercion. His current work focuses on the intersections between political economy, public policy, and political philosophy.

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Antony Davies

Antony Davies

Antony Davies is the Milton Friedman Distinguished Fellow at the Foundation for Economic Education, and associate professor of economics at Duquesne University.

He has authored Principles of Microeconomics (Cognella), Understanding Statistics (Cato Institute), and Cooperation and Coercion (ISI Books). He has written hundreds of op-eds appearing in, among others, the Wall Street Journal, Los Angeles Times, USA Today, New York Post, Washington Post, New York Daily News, Newsday, US News, and the Houston Chronicle.

He also co-hosts the weekly podcast Words & Numbers. Davies was Chief Financial Officer at Parabon Computation, and founded several technology companies.

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