Money does not grow on trees — stimulating the economy during the coronavirus pandemic

UAB political science experts provide details on stimulus checks and advice on how to use them during the public health crisis.

Man depositing check by phone in the restaurantThe global economy has significantly decreased due to the novel coronavirus spread — affecting all households, large corporations, entrepreneurs and small businesses.

Unemployment insurance applications jumped to 3.28 million last week, a rate that the United States has never seen in the 50 years that the government has offered unemployment insurance.  

In an effort to help keep the United States running efficiently without a more devastating impact than the public health crisis has already caused, the government has passed an emergency bill to provide  stimulus checks for some Americans.

People are wondering how much will be given, what the qualifications are and how should they spend theirs — whether it is better to put the money back into savings or shop local to help support their favorite businesses.

Here is what you need to know 

Peter Jones, Ph.D., assistant professor in the Department of Political Science and Public Administration at the University of Alabama at Birmingham, says that if you have already filed your 2019 taxes, then your stimulus check will be based on your 2019 income, and if you have not, it will be based on 2018.  

“The leglislation is called the Coronavirus Aid, Relief and Economic Security Act — CARES Act — because it isn’t designed so much to stimulate the economy, but to prevent the economy from going into deeper recession,” Jones said. “Congress included $500 billion to help Americans pay for bills and basic necessities and another $877 billion for corporations and small businesses to meet payroll and pay business costs.” 

In hopes that this will slow the economic damage of the public health crisis, Jones says, the government is hoping to see a decline in unemployment benefit applications and a steadying of the rising unemployment rate.  

“I suspect we will see another bill aimed to stimulate the economy at some point in the future, but that probably won’t be for a while,” Jones said. “Until the stay-at-home orders are lifted and businesses are back to running full strength, there’s not much boosting we can do with the economy.” 

Emergency savings, retirement funds and giving

Get the latest COVID-19 information at uab.edu/coronavirus.

For individuals, Jones recommends building up your emergency fund in case the public health crisis lasts longer than expected.

“Use this money to help save at least a month or two of expenses — rent, food, etc. — up to six months if you can,” Jones said. “After that, if you have a secure job and have a solid savings, then you should donate your check to a food pantry or somewhere else helping with basic services.” 

Jones says if you are wondering whether to put this into a Roth IRA or bulk up your 401(k), then you are probably financially sound enough that you could make a HUGE difference for someone who just got laid off.

“In fact, $1,200 is roughly what someone who earns minimum wage earns in one month – before taxes – so you’d be helping a minimum wage worker with a month’s worth of expenses,” Jones said.

Robert Blanton, Ph.D., chair of the Department of Political Science and Public Administration at UAB, agrees with his colleague Jones and says the intent is to try to keep the country from going into a deep recession and to help people get by until things return to normal.

“If someone is in a situation where they actually have to wonder what to do with the money, then the best thing to do would be to find a worthy cause and donate it,” Blanton said. “That’s the best both morally as well as economically — people who are needing this to survive will definitely spend it. In economics terms, it would have a higher multiplier effect.”