As many are taking today's GDP report as a reason why Congress needs to act and provide more economic relief from the pandemic, it is worth reading beyond the GDP numbers in the report. A medium thread ... /1

While GDP was down 9.5% (a record), personal income was up by an even larger record amount. /2

https://www.bea.gov/system/files/2020-07/effects-of-selected-federal-pandemic-response-programs-on-personal-income-2020q2-advance.pdf

In fact, thanks to the #CARESAct, Congress pumped about 3 times as much money into people's pockets as they lost in wages and salaries. (Annualized basis $2.4T vs $795B; converted to the quarter is roughly $800B sent out, $265B lost). /3

These numbers (and the $750B added to savings in the quarter) suggest that people have the money for at least another 5-6 months of a job market like Q2, longer if we are now doing better (which we probably are by some amount). /4

Thus, the argument that money is needed to stimulate or support the economy doesn't really seem to have much justification. Rather people should be focused on the more micro level, not macro. That is, who got the money? /5

Just because Congress gave away way more money than needed doesn't mean everyone was made whole. Lots of people who kept their jobs and can safely work from home got $1200 checks. They are ahead! /6

Other people lots jobs and are now receiving unemployment (hopefully), perhaps after some delays. Due to the federal bonus payments and differential wait times, some of these tens of millions of people are ahead, some are about even, some are behind. /7

There are good distributional arguments to be made about what we are doing, though sadly we don't seem to have the ability to do things much better in that regard. Thus, some argue for sending more money just to ensure nobody is losing, even if that means most people "win." /8

Personally, I have heard from lots of businesses that the bonus payments are keeping people away from work, so the disincentive effect is real and has already begun to occur. /9

Further, we should note that in many respects our reaction to this recession is completely different from any previous one (now maybe that makes sense given that the government mandated this one, ...). /10

In the past, unemployment insurance did not fully replace anyone's income and wasn't expected to. Why now? If your answer is because there are no jobs to be had, the data don't support that argument. /11

In the last recession, the median time unemployed stayed above 4 months for 5 years !!!! The pandemic has only been going on for about 4 months total. If topping up UI makes sense now, why not in most other recessions? /12

I also worry about the unfairness of rewarding those who are not working while not rewarding those who are risking their health and safety by continuing to work at out-of-home jobs. /13

In the long run, we need a new system where the federal government can quickly and accurately provide benefits to every adult citizen and legal resident (assumedly electronically to an EBT card or bank account), and probably a mechanism to tie payments to income changes. /14

In the meantime, just my opinion, but the best option is more PPP style programs: pay the business owner to keep paying laid off employees. That solves the problems of matching payments to incomes. /15

Short of that, I think universal #basicincome, while not perfect, would be a better, fairer system than what we are doing now. Perhaps using such a policy in recessions could be a way to test it?

Anyway, just my take on today's numbers and policy dilemma. 16/16