DENVER, Colorado — On Monday, the federal government began depositing money directly into the bank accounts of Americans.
The people receiving those funds are likely wondering why and what they should be doing with it.
We took our questions to three professors of three different Colorado schools.
Tony Cookson is a professor at the Leeds School of Business who has studied what individuals do when they receive a wealth.
Sloan G. Speck is a professor at the University of Colorado Law School who spoke to the tax law aspect of the stimulus package.
Jack Strauss is a Finance professor at the Daniels College of Business and the Miller Chair of Applied Economics.
(Editor's note: Answers have been edited for context and clarification)
9NEWS: What is the government hoping to accomplish by putting this money directly in the hands of the American people?
Cookson: This policy is intended to provide relief. People are experiencing hardship, maybe losing their jobs, maybe losing money that they had invested and its sort of hard for all of the traditional safety nets to sort of capture this.
Speck: Another reason for having these payments is to stimulate demand. So, if you put money in people’s pockets, they’ll spend the money on the economy and that will jump-start the economy and help prevent a recession or make that recession milder. That’s the theory behind these payments.
Strauss: I’m sure the stimulus money was a political move. Otherwise, it would have been better targeted to those people who experienced a significant loss of income or those people who also lost their jobs. That could have been much better designed. Instead, by handing a lot of people some money, they’re hoping that voters will remember come elections. It’s not clear who the voters are going to appreciate, either democrats or republicans because both parties supported this stimulus. The large part of the reason is that during an emergency, they had to do something.
What are the unintended consequences of this program?
Speck: I think given the speed with which they went out, this is a big win for us as the American people. So, this was a good thing to do.
So, there is an opportunity cost of the immediate funds. Longer-term, maybe you worry about inflation. That historically has not been our problem over the last 15 years. So, there are costs. Ultimately, this is money that has to be paid back by someone. It’s not clear that’s going to be a cost that should be the most pressing concern for people right now.
Strauss: The unintended consequence is that most Americans are still working so they’re getting an extra check. Then they're told, ‘you know, you should spend but not spend right away.' This is causing the budget deficit to explode. This is going to imply higher interest rates in the future. The Federal Reserve is trying to print money to stimulate the economy which may cause higher inflation in the future.
How should people spend this money?
Cookson: It’s going to depend a bit on someone’s situation. If you’re having a hard time putting food on the table, I wouldn’t use that first dollar to pay down credit card debt. A good rule of thumb is, if you would have put it on a credit card in the first place, you probably need to put it toward the really urgent expenditures.
Strauss: It’s meant to keep your lights on and your bills paid. If you’re still employed, what you should do is support your local restaurants and takeout. You can give to food banks, you can give to charity, or you can set up a savings account. The government is intending the money not to be spent right away. It’s designed for survival.
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