What would economists say about my Funemployment spending?

May 4, 2020 10:17 AM

We are due this week to receive our stimulus $2,400, and co-incidentally, my additional weekly $600 in unemployment benefits will begin this week. Yay! But, the dark shadow of Adulthood glooms over all.

I plan to spend my half of the stimulus, plus my weekly funemployment on making back payments to the IRS (I already am paying a pittance on a monthly spending plan with them) and zeroing out my credit cards. I should be all caught up on everything by July 1.
I suspect the powers that be want me to jump on the Nordstrom website and spend, spend, spend. But am I not still contributing to the tax base with the above plan? Economist-minded thinkers, please weigh in.

posted by BostonTerrier to Work & Money (12 answers total)

Look, this is not a real analysis, but screw the economists. Take care of you, you don't have a real influence on the economy as one normal person/family.
posted by possibilityleft at 10:23 AM on May 4, 2020 [51 favorites]

I would in no way feel any obligation to buy stuff instead of paying off debt, even if that is what they hoped you would do. It doesn’t do the overall economy any good in the long run for you to go deeper into debt to buy unnecessary stuff.
posted by jkent at 10:25 AM on May 4, 2020 [10 favorites]

This money isn't about economic stimulus, it's about keeping things from actually falling apart. If paying off your debt allows you to keep your home and stay fed and clothed until you are employed again, it is doing its job.

But it sounds like your question isn't about what you should do or even what the government wants you to do. Is your question really "in what ways is paying down debt different than spending new money, from the perspective of the national economy?" If so, I don't know the answer but would be interested.
posted by gideonfrog at 10:28 AM on May 4, 2020 [14 favorites]

Response by poster: "in what ways is paying down debt different than spending new money, from the perspective of the national economy?"

Yes, this is exactly what I meant to ask. Thanks for the re-phrasing!
posted by BostonTerrier at 10:32 AM on May 4, 2020

Look at it this way you pay of your bills & then the people you pay pay people & those people go to Nordstroms & spend spend spend. Money circulating is money helping the economy, the money you pay off your bills doesn't cease to exist it is no different, it just goes to the bottom line of a different company, that will then pay workers & shareholders with it and they will fuel the economy. You can kill two birds with one stone. Budget yourself a $100 or something to buy a treat then pay off your bills.
posted by wwax at 10:35 AM on May 4, 2020 [4 favorites]

Paying down debt shrinks the money supply, taking it on creates money. If you have serious concerns about inflationary pressures and want to make inflation less likely, but at your own disadvantage (assuming you can service the debt either way), pay debt. However, you aren't the government or the Fed, so do what makes sense financially for you.
posted by wierdo at 10:36 AM on May 4, 2020 [2 favorites]

There is generally a misconception that spending money is somehow always good. In a stable, generic economy, saving is good because it increases investment, which makes the future economy more productive. Instead of paying for a massage, you save the money. The bank lends the money to a company that hires that person who would have given you a massage and that person helps build a factory that makes more stuff next year. (Obviously way oversimplified, but still holds generally: Saving=Investment=Consume less stuff now but consume even more stuff later.)

In a regular recession, people aren't working - either giving massages or building factories - because there's not enough demand, for massages or the stuff factories make. Then policymakers want to increase spending. Saving more won't help because firms aren't going to build more factories when they aren't even running the ones they have at full speed.

This time is different. The reason demand is down is because lots of kinds of spending will result in death. We WANT a recession, because it's better than the alternative. To set ourselves up for a recovery, we don't want to tell people to spend more money; we want to make it safe to spend money. The best economic policy is a good health policy (testing, etc.)
posted by Mr.Know-it-some at 10:56 AM on May 4, 2020 [3 favorites]

I would almost definitely do what you are planning to do in your situation, but the pro-stimulus economists will probably tear up at this question, because you're killing their multiplier, man. They want you to go spend your money on goods and services as soon as you get it, which will go to business owners paying wages, who will then have more money to spend on goods and services, creating a virtuous cycle, and just as importantly, a relatively faster benefit to the broader economy. Money paid to the IRS is going to go to the treasury, and the government was going to spend that money anyway, so not a huge effect in the short term. The money that goes to your credit card company might help them from tightening their standards for credit cards, but that isn't going to give them as much bang for the buck in the short term either.

Basically, the quicker you can get your stimulus check into the hands of another working class consumer, the bigger the multiplier effect (so the theory goes). If you put that money into retail or services, a relatively large chunk will quickly go to some worker involved, who in turn is likely to spend a large portion of their wages on more goods and services. If you put it into servicing debt, or god forbid, just save it, that money doesn't get to another consumer nearly as quickly.
posted by skewed at 11:02 AM on May 4, 2020 [1 favorite]

I mean, if they were that worried about it they could always forgive your debt. Or send you a bigger stimulus.

In general I'm on the side of thinking about societal impact and acting accordingly where I can. But given the amounts you're talking about, plus unemployment, it sounds like the situation is such that should put on your own mask first.
posted by trig at 11:12 AM on May 4, 2020 [3 favorites]

I am a citizen in both Canada and the US.

I guess my Canadian-informed perspective is that government crisis/benefit spending is there to help make sure the populace is okay and their basics are met - food, shelter, medical care, old age security, and so on. Here the "stimulus" money is called CERB - Canadian Emergency Response Benefit. It is there so that people don't lose their homes or go hungry or get mentally unwell (pro tip: homelessness makes you mentally ill more than the reverse) because they aren't working because their businesses are shut down for public health reasons.

(I am one of those people! My work is UNSAFE right now for people to do and closed by emergency health decree, even though my organization is trying to pivot to online. If we could be open, we would be.)

It is true that because I am not facing homelessness I may buy a pair of pajamas as well as beans and rice, or I may even buy cheese and sausage. I thank all tax payers, corporate and private, for these benefits. But I understand that my benefit is not "stimulus" it is necessity.

The reason you think you should spent it on fun stuff is because your government is not providing enough for you to live on.

What I expect in exchange for my contribution to these benefits, as my lifetime tax contribution is far more than I have taken in maternity benefits, etc. which by the grace of God I will be PAYING FOR the rest of my working life through taxation, because this is an international crisis, is this: people in my country are okay.

I expect my government to fund benefits for people, not fund business.

I get that the two are related, but here it is again: I expect my government to take my tax dollars and fund things that benefit people. Sometimes that's a business, or an arts grant, or international development. Absolutely. But right now it's cold hard cash to those of us who can't work because our particular workplaces spread COVID-19, and then we can use it for basics. If we happen to end up Okay, we can use it for other things. Either way, my friend, all of us taxpayers are going to end up in debt in the end.

Anyways, I am very happy if you spend your and my tax dollars getting out of debt. Many studies will show that this will position you to take a better job in the future, to sleep better and be healthier, and to make good decisions.
posted by warriorqueen at 11:17 AM on May 4, 2020 [6 favorites]

Best answer: In the short term paying off your debts now will not help the economy as much as spending money at small business now.

In the long term paying off your debts now will help the economy more because less of the money you spend this year will go to finance institutions and more will go to small businesses.

The short term that you are discussing is very short indeed. Your choices of where to spend money before July first are limited. Many businesses are closed so you won't even be able to help now anyway. Your hairdresser and the little shop that sells knitting wool and the little bistro that are all closed now can't use your business until they are allowed to re-opon. However there may be a lot of businesses that re-open in July and desperately need to make up lost sales. If you pay off your debts now you will have MORE money to spend on July. It is unlikely that spending money in July and August will be too late to help the economy. The short term good for your household is the long term good for the economy.
posted by Jane the Brown at 2:14 PM on May 4, 2020 [2 favorites]

Back in the day, maybe post 9/11, the gov't sent $200 checks to each household to boost the economy. The economy was not boosted because just about every used it to pay off existing debt. As I understand it, the current program was for people who needed help buying food or paying rent.

It's not your fault if the gov't sends out money with unrealistic expectations of how it will be spent. It's your money now. Do what makes the most sense for you.
posted by SemiSalt at 5:04 AM on May 5, 2020 [1 favorite]