Personal income in the US shot up a record 10.5% in April

I like to also view this as an opportunity for a more efficient resource allocation in the long run. In my view you are trading off short term stability vs. long term efficiency. To be more clear: In Germany we have a vast amount of people who think the government should guarantee most parts of their life, especially their job. Most people will stay at the same employer for their whole life, also because it is relatively hard and costly to lay people off. This leads to very static structures and wrong incentives. People even believe they are trading their time for money and not their productivity for money. I believe it can be healthy letting a shock through to that system from time to time so that a more optimal allocation can be attained. Trying to micromanage to soften a shock only introduces bias to the system reducing its natural variance, leading to a less efficient allocation.

This works because European countries are very corporatist. There is a high degree of labour organisation and governments, unions, and employers often work together to maintain say, employment rather than responding to market fluctuations.

This is why German unions say in the early 2000s during Germany's "sick man of Europe" period, negotiated stalling pay raises to maintain employment.

In the US (and also often here on HN) this will just be described as inefficient, ignoring market signals or something like it. I don't think it's even possible to coordinate the economy like this in the US.

We did this though. The small business loans are fully forgivable if the business uses it to pay employee salaries.

The US way was much smarter...although not smart either in ways.

In Europe, you have companies that are functionally insolvent, that will never trade profitably again, and which are being paid not to close. I know of companies where I am that are starting to look at letting hundreds of people go...those people were paid for two months by the govt.

And why? A good chunk of these people needed no help at all. The point of an unemployment system is that you focus payments on people who actually need help (btw, you can run an insurance system too...but some European countries that went this way don't have the tax base or economic structure for a true, income-substitution system). It is a typically European solution which is why some countries in the region regard 10% unemployment as a huge triumph.

What most European countries have done is fire all the bullets in their gun in the first 10 seconds of a battle that will go on for a long time...this is particularly foolish given how much debt some of these countries need to roll over this year.

Also, the US "money for everyone" program was equally stupid for the same reasons.

> But, then I suppose it would be an obstacle to companies using the opportunity to permanently trim staff. Hmm.

At least not for smaller businesses. Remaining fixed cost and no income are still often enough to give a reason for layoffs, in some case also a true and honest reason.

It's more like doing so doesn't fit well with (parts of) the way the US handles employment.

I think generally those European schemes involved paying people less than if they were working normally. The UK one was 80% of people's normal paychecks, others were worse, some were presumably better. That detail seems to have been mysteriously omitted from a lot of the US media coverage.

Anat Admati, https://www.gsb.stanford.edu/faculty-research/faculty/anat-r... a professor of finance and economics at Stanford, who specialties in debt leveraging in finance took really hard shot at the US government policy using the same line of reasonign. https://www.mercatus.org/bridge/podcasts/05062020/anat-admat...

>I was shocked and dismayed by the level of accountability and by the way it targeted throwing money at places that less need it and not spending it on places that do need it or in the most direct ways. If you want companies not to fire employees, you can look at examples in Europe like Denmark or England or Germany. You take over the payroll. You do not say to a hotel chain "Oh, do me the favor and don't fire the people." Just say "You know what? You can go and renegotiate your debt contract, you can renegotiate your rent," which is what every small business has to do anyway, "We will pay your employees right now, because they can't work, okay?"

...

>There are a lot of people suffering in the economy that were just living paycheck to paycheck, and that includes small businesses. So the way they target the support even for small businesses is so cumbersome, is so inefficient, is so misused and abused and is so poorly governed, it's really, for somebody who's interested in governance in general for all institutions, private and government, I was shocked and dismayed by the level of accountability and by the way it targeted throwing money at places that less need it and not spending it on places that do need it or in the most direct ways

> So some colleagues and I organized a letter, signed now by over 230 academics from law, economics, and finance, saying that this targeting to large corporations is completely misguided,

This was a proposal made by Republicans, in the form of a payroll tax cut (since the first $120K or so of income in America gets taxed 7.5% on the employer side).

> Much simpler to coordinate payments to a smaller number of endpoints, none of the hassle of trying to process orders of magnitude more unemployment claims, etc.

Or simply have your tax agency send the cheques or direct deposit (like Canada), instead of going through banking middle-men:

* application time <10 minutes

* e-deposit in <5 days

Many US states make in hard to apply for unemployment benefits on purpose:

* https://www.vox.com/policy-and-politics/2020/4/24/21225254/c...

* https://www.politico.com/states/florida/story/2020/04/03/its...

* https://www.marketplace.org/shows/the-uncertain-hour/unemplo...

I'm not saying I'm very confident of it, but it could be the US policy is significantly better even if by accident.

Look at it this way, people always hate to change jobs. Particularly in a time of disruption. But a time of crisis is exactly when people need to change what they are doing for the good of society. So maybe it is exactly the right thing to do, to provide a safety net for people out of work, rather than try to keep everyone doing what they were doing before.

This is really an illuminating moment. A lot of people have been saying that this crisis really enforces the reasoning for UBI, but that's not quite true. It's more accurate to say that the crisis really enforces that the government should have infrastructure in place for helicopter money, or paying arbitrary citizens cash.

That's not even a controversial idea. The post office is meant to deliver mail to any American home (the value of the post office is probably much larger than any subsidy they receive (which is unfortunate in a small way, most of the post office budget problems are pension based. They can get away with it because they really are not worth failing)). The post office was also a nationwide bank for awhile.

I also think that subsidizing payrolls was the better way to approach this problem. The PPP was a limited pool of money and favored businesses with the best relationship with their bankers. A simple approach of "I will pay you 25% of your annual income based on last years taxes plus inflation" is much easier.

This is the bargain we've made though isn't it? The US is more OK with creative destruction. The question is how creative the destruction from covid is. How quickly do you need to liquidate a restaurant's assets to improve capital allocation?

The answer to that might be "quicker than people form restaurants." Which suggests to me that just replacing service worker income is probably more efficient.

The other angle is that firing people means businesses lose organisational knowledge. Even in relatively low skilled jobs, replacing your workforce means you'll spend a lot of money on retraining or lost efficiency. Keeping workers on the payroll means you have a much better chance of rehiring your experienced employees.

Incidentally the same is true for companies: keeping structurally healthy businesses afloat means society doesn't have to deal with the loss of organisational knowledge.

The different approaches taken by the US and Europe might reflect priorities in the respective societies.

On the other hand, the US did spin up a payroll program, which seems to just have been rather unsuccessful, with lots of money going to big businesses. So this may just the effect of a less competent government.

The federal government is giving unemployed people 600 per week (31,200 a year) on top of state benefits regardless of their income so anyone making less than that is making more on the federal government alone. That is why total income has gone up.

I think is interesting and surprising even if it doesn’t inform opinions about next steps

I'm not sure why this is getting downvoted. The second paragraph literally says that:

>The rise was mainly due to government payments to help Americans cope with the fallout of the Covid-19 global pandemic

I'm agreeing with you - but isn't that the whole point of a stimulus? Boost short term economy and therefore hope, even if the gains are not long-lasting, the money floating around both helps people pay their bills and motivates them to make purchases?

There is still a couple more months of increased UI. Surely, it will be a huge fall after that, but in a much better place than if there were minimal or no increased benefits to begin with.

I would love to see another half-sized measure - but don't think the fact that it will fall in the future almost proves its usefulness.

Meanwhile lots of people lost their health insurance. You wonder who came out ahead. It's the old confusion between revenue and profits again.

> Seasonally adjusted annual rate

This means that if the trend were to continue for a year, the amount of personal income would be that figure. GDP is always an annual figure.

It's not clear if "personal income" is just cash or includes benefits (like health care).

It's also possible that people who are laid off / furloughed are dipping into their retirement funds, because the administration gave guidance that doing so right now would not be penalized for those who are economically impacted (please don't do trust me and verify with your accountant).

The federal government is giving unemployed people 600 per week (31,200 a year, 15 an hour on a 40 hour work week) on top of state benefits regardless of their income so anyone making less than that is making more on the federal government alone which is why total income has gone up.

National income is ~= national GDP

GDP is almost just a fun figure for economists to use in back of the napkin math.

So could a couple make $9000 a month, or more with children?

It’s very likely that the majority of that cash is being used to pay rent and pay off credit cards, while a percentage is being held as cushion for the very uncertain near future.

You can get angry about it, but I don’t know how productive that is when the majority of this money was sent in equal payments to everyone below a fairly generous cutoff level.

Lastly, it’s hard to see a stimulus effect in consumer spending when stores are closed and there are supply side constraints.

The truth is most households spend almost exactly as much as they make every month, and the fear of the virus combined with the lockdowns basically blew a gaping hole in many people’s income with no easy way to fix it. The cash transfers are basically the government applying pressure to that wound to prevent it bleeding out. It buys some time.

Whether or not we’ve used that time well and are prepared to handle what comes next is a very different question.

It could also be that the extended benefits were a way to keep low income people content. At least where I live, most of the layoffs have been minimum wage positions, like wait staff, sales associates, etc. Even if they aren't spending the stimulus money, it could at least help them feel safe, reducing the chance for civil unrest.

You may enjoy those 3 months, but then? Chances to find a stable job in a shrinking economy?

> isn’t triggering the desired effect of a stimulus package

That's why Congress people were careful not to call it a stimulus.

The payment was to pay people to stay home safely without (hopefully) losing their livelihood. It wasn't about stimulating demand for the economy.

Yes, there are worries about deflation if consumers don't spend like they did before (although consumer spending in the USA has been out of control for too long).

> If they announce an extension of the bonus unemployment I will definitely ask to be laid off

I was talking with an expat friend of mine that lives in APAC. He was considering moving back stateside if he got laid off, but he calculated the cost of healthcare and realized it was like taking a 30% pay cut.

Remember to calculate the cost of health care (or health insurance) before you take that action. Also, there's no guarantee your state will still have a non-empty Unemployment or MedicAid fund in the future. Remember that state revenues drop as employment and consumption drop.

Employment is in freefall! The countermeasures deployed are pretty much what we want.

Considering the uncertainty that the population has to grapple with along with the loss of benefits, it's probably better to err on the side of providing slightly higher assistance by some stats — which is where we're at. But in any case precise calibration of the assistance package is an unrealistic goal.

> Isn’t this the exact opposite of what we want? If a stimulus results in […]

As both Bernanke and Krugman have observed, what has been implemented to date is not stimulus but disaster relief.

The economy has been put into a coma on purpose, and the money is not to get it going, but to allow people to survive in the short term (rent, food). Once the lockdown(s) are eased off, then a stimulus may be needed to get things rev'ing again.

Hard to say since ppl are also spending less right now

Long.

Because before they can start saving basic needs (home, food, health i.e. mediciens) need to be satisfied and especially the lower percentages might not be able to do so every month with what they earn. Especially health cost might stack up (e.g. a delayed dentist visit because it can't be afforded) and some get more then linearly more expensive when stacked up (small problem with tooth escalated, interests etc.).

So it's not absurd to assume that in the lower percentages of the population getting 110% income will get them at best 10% of a income savings and likely only after some month already passed. With that they would need 60!! month to build up that savings.

Now I can't say where the this stops, is it the lower 5%,10%,20%,30%,40% no idea. But it's gradual.

Also the gap between poor and rich has become quite absurd in the US, so this can make make people much less wealthy then you might think end up in the middle 80%.

Why not just create a simplified welfare state ? Claim benefits for up to six months no questions asked.

Here’s a hand-wavy estimate. Last year, the personal savings rate in the US was about 8%, so at that rate it would normally take 12.5 years to accumulate 1 year’s income worth of savings, or 6.25 years to save 6 months. If you earned 10% more and saved all of it, and didn’t change anything else about your spending or saving, then your new savings rate would be 16.3%, which would mean it’d take a little over 3 years to save for 6 months. If you previously weren’t saving anything, but you started saving all the extra income from a 10% raise, then your savings rate would be ~9% and it’d take you 5.5 years to save 6 months’ worth of income.

No one's pay went up. 40 million people lost their jobs, the majority of who made very little money. The average went up because low wage jobs were vaporized