Is The US Government's Economic Recovery Plan "Over- Ambitious?"
Is the new US government's newly launched economic recovery plan overly-ambitious? Is it probably too big? While some experts and analysts think this is the case, others don't quite agree. For instance, Jonathan Parker, who serves as Professor of Finance at the MIT Sloan Management School, poses a pertinent question: 'What should be foremost in our minds as we define the much-touted US government's recently announced stimulus package? Are we in a situation where we need to effect an economic shutdown until we receive the eagerly-awaited coronavirus vaccines, or should we try to stimulate the national economy right away? Professor Parker is a renowned researcher and an expert in government stimulus issues for several decades. "Well," the scholar concludes, "I'm convinced and believes it's actually the former."
Speaking about the issue, Ms. Esty Dwek, who's the Natixis Investment Manager's head of global market strategies, had this to say: " We generally expect that the equity market will stumble as investors begin to face up to the possibility of higher individual and corporate tax rates that the Biden administration is likely to push through later in the year. She, however, adds that the existing necessity overrides the long-term interests. "Of course," she was quoted saying, "as you know, there's widespread worry about the impending inflation. However, I personally don't think this will happen soon."
Joining in this positive note, the Schwab Center Vice- President of Trading and Derivatives, Mr. Randy Frederick, notes that President Biden's stimulus plan "is directly in line with the widespread expectations of the market." "Likely," Mr. Frederick said," other packages on infrastructure and priority spending will soon follow the stimulus plan." This is excellent news to suffering sectors of the economy that have borne the coronavirus pandemic's brunt for more than a year.
Further, on the issue, it's worth noting that researchers don't quickly agree on the question of whether those who receive the government stimulus checks will actually spend it immediately. For example, the New York Federal Reserve Bank carried out a survey in December 2020, asking people what they'd do with a sudden 10% boost in income. Interestingly, just 19% of the respondents indicated that they'd either spend or donate the money. Even more interesting, the rest of the respondents said they'd either invest, pay debts or save. This means they won't spend immediately.
Yes, there seems to be a potent argument to target the lowest income segment using other methods- boosting the food stamp program and increasing unemployment benefits. "Moreover," according to another scholar, "it's advisable to provide a full credit on earned income tax. Once this is done, the stimulus payments will work best for the primary target groups." He says that stimulus payments can only boost growth if people are slow to resume spending even after the expected massive vaccination rollout.
In a recent analysis of the government stimulus program, researchers from the Brookings Institution said that the greatest boost to the gross domestic product would come from giving aid to most financially vulnerable families. On its part, the JP Morgan Chase Institute recently-in December 2020- scrutinized 1.8 million customer checking accounts. This is usually the first place where households or families receive and spend their money.
The researchers discovered that those who earned the lowest incomes showed the most significant gains in their findings. Regardless, they had the fastest depletion as well. On the other hand, the highest earners (or households that make over $68,000) tended to hold assets and build on them. This research concludes that the poorest people were likely to spend their paychecks as soon as they received them.
But what do some of the most recent statistics really say? Interestingly, The GDPNow Tracker indicates there was a 7.5% growth pace in the 4th quarter. This seems to be quite impressive. Moreover, the job situation in the US appears to improve tremendously by the day.
The verdict? Many analysts claim that recent data- like what's illustrated above- has continued to defy expectations and changed everything that seemed to be true only a few months back. So, is there a need for such a hefty cash infusion going into trillions of dollars, one year after the Coronavirus pandemic engulfed the nation?
Well, the Jury's clearly out.