Who Needs Free Candy?

Global equities (figure below) will be happy to see the curtain close on this week, not because anything went wrong, but rather because the rally seems to be losing some of its joie de vivre. Better to escape safely into the weekend than risk an “accident” with the casino open.

Stimulus is moving ahead stateside. Legislation providing for nearly $600 billion in assistance was advanced by the House Ways and Means Committee, which green lighted $1,400 stimulus checks and monthly tax credits for households with kids. A hodgepodge of House committees are working towards piecing together a version of Joe Biden’s full proposal. A vote in the House on the package of measures is expected later this month.

The money is coming. But where will it go? Hopefully into the checking accounts of the middle class and the mouths of the poor. I mean, not literally on that latter bit. You can’t eat money although, as Pablo Escobar is rumored to have learned, you can burn it to keep your family warm when you’re on the run (no one knows if that famous story is actually true, by the way).

Bloomberg cited the Urban-Brookings Tax Policy Center in their coverage, noting that at least as far as the stimulus checks and child tax credits go, “about two-thirds of the benefits would go to households making up to $91,000 a year” with just 11% trickling up to the top 20% of taxpayers.

Ideally, almost none of the direct monetary benefits would go to the top 20% of taxpayers, assuming there’s not a solid rationale for giving people with plenty, more. Presumably, that’s wasteful, to the extent those benefits could be doled out to the poor and lower-middle class.

But getting this “right” is much more difficult than critics make it sound. “Just give to the people who need it,” is the habitual refrain from the peanut gallery. Now if only we had a reliably accurate catch-all definition of “people who need it” we could just disburse the benefits accordingly. Unfortunately, it’s not that simple. “When it comes to free money, are you a person who needs it?” isn’t a checkbox on any tax forms. And if it were, everyone would check it. This is like asking a room full of first-graders “Who needs free candy?” Well, everyone, of course!

The quandary is as follows. A durable fiscal impulse is seen as necessary to break the cycle wherein central banks are forced to perpetually shoulder the burden of sustaining economic momentum, with the inevitable result being financial asset bubbles and widening inequality. Paradoxically, though, clumsy fiscal stimulus may be serving to inflate some of those bubbles even further.

“There is recognition even in financial media that central banks are institutional ‘stonk’-bubble blowers,” Rabobank’s Michael Every wrote Friday. “There is matching recognition that the solution for reflation lies with fiscal, not monetary policy,” he added, noting that,

Yes, we are likely to see a major short-term fiscal boost –in the US alone– with suggestions the White House’s stimulus package could be worth many thousands of dollars for the average US family – for a year. Then the old crunch comes back again unless US labor has magically gained power over global capital. How, exactly?

This all suggests that if fiscal fervor (as it were) recedes with the virus sometime later this year, we’ll likely end up right back in the same old conjuncture, with everyone (save Progressives) becoming some kind of fiscal hawk. Meanwhile, the economy will remain nowhere near full employment even on an economist’s definition, let alone real full employment, where that means that literally everyone who wants a job has one.

In the meantime, it seems as though too many Americans have come to believe they can make a living trading stocks. They can’t. That won’t work for long. I can promise you it won’t. And to the extent fiscal stimulus is encouraging that among people who have either been rehired or found a new job that pays enough to cover monthly expenses plus providing some respectable level of disposable income, we’ll need to tweak the parameters going forward.

Obviously, that’s not a reason to ditch fiscal stimulus. America is just years behind the curve when it comes to answering basic questions that government used to care about a half-century ago. Questions like: “How do we ensure everyone can live a dignified life?” “How do we ensure that children aren’t experiencing poverty?” “How do we improve the safety net?” “If we want to provide some kind of pseudo-UBI that acknowledges everyone doesn’t need it, how do we ensure it gets to the right people?”

These questions should have been answered decades ago. Instead, America spent most of that period creeping further down the road to supply-side insanity, while simultaneously sacrificing society at the alter of unbridled, unchecked capitalism. Now, the US is trying to answer basic questions in the middle of a pandemic — i.e., under extreme duress. Usually, decisions made under extreme duress aren’t the best decisions. But they have to be made, by definition. That’s part and parcel of being under duress.

In any event, how about markets? “The only data of note [Friday] was U. of Michigan consumer confidence numbers, and there’s also the prospect of a long weekend in the US and, of course, Chinese Lunar New Year quietness,” AxiCorp’s Stephen Innes said. “A continuation of the range trading beckons… until something significantly changes.”