Question

What are the main arguments made by opponents of government “stimulus” spending? How does Wolfson address each of these points?

How is this question especially relevant in spring 2020?

Howard Wolfson is an Economist

Answer 1

Stimulus spending is done by the government to put together a struggling economy. The objective of a stimulus package is to revive the economy and prevent or reverse a recession by boosting employment and spending. This theory is rooted in Keynesian economics, which argues that the impact of a recession can be lessened with increased government spending.

A stimulus package is a coordinated effort to increase government spending and lower taxes and interest rates in order to stimulate an economy out of a recession or depression. In other words, the goal is to increase aggregate demand through increased employment, consumer spending, and investment. It can either be in the form of a monetary stimulus or a fiscal stimulus. A monetary stimulus involves cutting interest rates to stimulate the economy. At lower interest rates, people have more incentive to borrow as the cost of borrowing is reduced. The government opts for a fiscal stimulus by cutting taxes or increasing its spending to revive the economy. When taxes are cut, people have more income to spend and this boosts economic growth.

Wolfson believes that the recovery requires growth in real earnings not just more borrowing. Thus, the tax cut influences the people to buy more.

The U.S. Senate voted to approve a $2 trillion stimulus bill on March 26, 2020, to backstop the economy from the economic impact of the coronavirus. Mr Wolfson said the £12.5 billion measure had been a "missed opportunity" and suggested income tax cuts would have been a better way to increase consumer confidence as people would have more disposable income.The main problem is confidence, people are worried about their jobs. If money is received directly, let's say by way of an income tax cut, then that would have helped boost public confidence."

The U.S. Senate voted to approve a $2 trillion stimulus bill on March 26, 2020, to backstop the economy from the economic impact of the coronavirus. In March 2020, several countries including the United States, scrambled to coordinate stimulus packages in response to the global coronavirus pandemic. This included cutting interest rates close to zero and providing stabilization mechanisms to the financial markets.The $2 trillion relief bill will send money directly to Americans, greatly expand unemployment coverage and make a number of other changes affected by the coronavirus pandemic

The plan wraps in far more workers than are usually eligible for unemployment benefits, including self-employed people and part-time workers.The bottom line is those who are unemployed, are partly unemployed or cannot work for a wide variety of coronavirus-related reasons will be more likely to receive benefits.