Stimulus Checks are Bad for the Economy
Written by Managing Editor on March 19, 2020
By Jesse Sumpter
President Trump is seeking $850 billion to $1 trillion in stimulus measures for the economy. As part of this proposal, the President has suggested sending stimulus checks to individual Americans. One proposal suggested two rounds of direct payments to taxpayers: one check on April 6 and a second check on May 18. Lawmakers have mentioned checks in the amount of $1000 and others have said more than that.
On Tuesday Politico noted, “At a time when Washington is bitterly polarized over almost everything —including other stimulus proposals that would target beleaguered industries or low-income workers—airlifting cash into American households is one of those rare concepts that almost every politician can embrace, even though it smacks of the big government liberalism that Republicans mock, even though every dollar gets added to the deficit.”
When both parties agree on an idea, it should be a big red flag for conservatives. As Politico mentioned, this proposal is big government liberalism. While it is true that the economy is in a dangerous free fall, stimulus checks are not the solution. These checks look like a quick fix, but a quick fix is not what we need in the midst of economic turmoil like this.
We need thoughtful and intelligent entrepreneurs to step up and love neighbors. That is how we rebuild the economy.
Stimulus Checks are Debt
A stimulus check is not free money. There is no such thing as free money. It is a direct loan from the government to the American people and we will pay for it now or later. There is no way around that.
Henry Hazlitt reminds us: “The government’s funds all come from taxes. Even the much vaunted ‘government credit’ rests on the assumption that its loans will ultimately be repaid out of the proceeds of taxes” (p. 47, Economics in One Lesson).
In order to give out stimulus checks, the government is taxing Americans and then giving those taxes back to Americans. While this might provide a short term boost for those people who receive the money, the boost will not last. In fact, most of the money given to these people will be a simple waste.
The first thing people should know when managing a household is not to take out debt when in the midst of a crisis. If my paycheck is uncertain, why would I want to take on debt. I might not have enough to cover my monthly expenses and now I am thinking about trying to pay off a loan too? That is a terrible idea. But this is what the government is doing. They are offering Americans a loan while the economy is in a dive. Hazlitt explains, “All credit is debt. Proposals for an increased volume of credit, therefore, are merely another name for proposals for an increased burden of debt” (p. 41). In the midst of economic uncertainty, we don’t want another expense, we already have enough.
Instead of giving out stimulus checks, the government needs to cut spending. The government is already in deep debt so we should not be entrusting it with more money. This is being irresponsible. Hazlitt rightly says: “This is another way of saying that the government leaders will take risks with other people’s money (the taxpayers) that private lenders will not take with their own money” (p. 42).
The key is to see that stimulus checks are not the solution to economic issues. If they were the solution, then the government should be proposing to send larger amounts to individuals, like $100,000 or more. Why only $1000? This number is camouflage for the bad idea that it is. The proposal of $1000 sounds like it might help but it is small enough not to reveal how fake it is. The reality is that the government cannot solve economic problems by printing more money. That is not how wealth is created.
Wealth is not found in money. Money is merely a measure of wealth. True wealth is found in talent, in innovative ideas, and in meeting needs. The true solution then is innovative and thoughtful businessmen who are creating and producing. But stimulus checks actually hurt innovation rather than help it.
Stimulus Checks reduce Production and Innovation
I remember in 2008 when the U.S. government tried the stimulus check plan. My wife and I had just gotten married a few months before and I was doing our taxes. I still have the letter that we got in the mail about the Economic Stimulus Act of 2008. “Do Not Throw Away!” the letter said on the front. I didn’t throw it away. In fact, I still have the letter.
I remember we each got a check for $600 so together we got $1200. I remember getting the money. That year, we earned about $20,000 so that check was about 6% of our income. That was a pretty big chunk of change in my mind. The funny thing is, I don’t remember what we did with it. Did we save it? Did we spend it? I guess we spent it. I don’t have it now and I know I didn’t save it.
Therein lies the problem with the stimulus check plan.
When that $1200 check came to me, it was not my money. I got a check in the mail and I did nothing to earn it. The value of working for $1200 was taken away from me. The money just landed in my hands. The principle of Proverbs 20:21 applies to this: “An inheritance gained hastily at the beginning will not be blessed at the end.” The principle here is that gaining wealth quickly is not helpful because the person receiving it does not understand the value of what he is receiving. It is good for the person to slowly grow in wealth and money. To receive a large check in the mail is to distance the person from the true value and meaning of the check. This distance encourages irresponsibility with the money.
This connects to the bigger problem which is that a stimulus check undermines true innovation and production. Hazlitt says, “The government spenders forget that they are taking money from A in order to pay it to B…they forget the effects of the transaction on A. B is seen; A is forgotten” (p. 37). This means that when people receive checks for $1000, someone else is not getting that money. The money in a free economy normally moves in an undirected path and some of it allows for businessmen to work on innovation. But when the government steps in and stops that natural process, the money is directed somewhere else. What would have happened with that money if the process had continued uninterrupted? That question is ignored and forgotten.
What this means is that this stimulus check interrupts production opportunities. Hazlitt says, “At some point these maladjustments have removed the incentive to produce, or have made it actually impossible for production to continue.” (p. 173)
Matt Williams at How to Build a Tent posted on Twitter the other day: “I’ve been asked several times what side hustle or business can you start while at home during the #coronavirus. One way to think of business ideas is to look at what people are doing themselves. For example DIY hand sanitizer. How about batch making home made hand sanitizer?”
What Matt is talking about here is looking for needs. That is where great innovators and businessmen excel. They see a need and they meet it. Or they imagine what other people might want and they create value there.
But the incentive to find these needs and meet them is wiped out with a stimulus check. Why create something when people get a check in the mail for $1000? The stimulus check removes incentives to create solutions. Instead, people have easy money in hand and they go other routes.
In the midst of a crisis, there are lots of opportunities to meet needs which means there are lots of opportunities to start businesses. This is not to take advantage of people in need but to help meet needs in a faster and better way. Competition and good business do that. It also drives prices down to what people can actually afford and pay. But a stimulus check changes all those dynamics as well.
A number of business ideas come to mind: a doordash business, grocery delivery service, homeschool materials, etc. Many people are stuck at home and need something to do. Businesses that work on sending materials and supplies (like games, crafts, and other resources) through the mail are meeting an important need.
True Charity and Care
The final thing to note is that the government does not practice true charity. True charity happens between people. The second great commandment is to love your neighbor as yourself. That is something that people obey when they love other people. Notice it is given to people–it can apply to nations as a whole, but it is still something that happens at the local level: between people.
This means that true charity is something that people do for other people. A stimulus check is not charity. It is not caring for people. True care happens when people use their own gifts and resources to help others.
True charity only happens when people know each other. The Federal government cannot know people directly and so an abstract gesture, like a stimulus check, does not solve the real problems that people have.
People need other people. They don’t need money. The real solution in the middle of economic turmoil is people who know how to love their neighbors as themselves. People who know how to care for others will take care of each other and help each other.
Money can help but it is not the most important thing. Proverbs 11:4 says, “Riches do not profit in the day of wrath, but righteousness delivers from death.” Riches are not the solution. We need innovative and caring people who love others and who are good and responsible. Stimulus checks get in the way of true charity and true economic stimulus.