Expert Pitch

Coronavirus Stimulus Legislation Should Target Individual Needs First: Maryland Smith Expert

University of Maryland, Robert H. Smith School of Business

Roland Rust, a Distinguished University Professor in the Robert H. Smith School of Business at the University of Maryland, can expand on his commentary below, that coronavirus stimulus legislation must prioritize the needs of individuals, rather than the economy as a monolithic and impersonal entity. 

Rust also is an International Research Fellow of Oxford University’s Centre for Corporate Reputation and was founding Editor of the Journal of Service Research and served as Editor of the International Journal of Research in Marketing. Contact him via rrust@rhsmith.umd.edu.

Rust’s commentary:

The coronavirus has crippled the economy, eliciting the usual knee-jerk response from the government--a stimulus package to boost demand.  This effort is doomed to failure if implemented indiscriminately. 

The reason is that the economy is not just the GDP, it is people.  For ordinary economic difficulties, putting money in peoples' hands does stimulate the GDP, because people spend more. 

The current situation is quite different, however.  Let us consider a restaurant as a metaphor for the economy.  Because of the virus, many governors have shut down restaurants and other high-traffic retail locations. 

Many of the people working at restaurants -- and an unprecedented number of people in the gig economy -- are hourly workers with few benefits and little or no safety net.   

If a wealthy person receives $1,000 from the government, that will have little or no impact on that person's spending--in fact, even the wealthy person will be less likely to go to the restaurant, which means the overall result from the government's spending will actually be negative. 

The hourly worker at the restaurant, however, will be greatly helped by the $1000, and will likely spend all of it, resulting in a net increase in spending. 

For political reasons, some politicians may not wish to focus their economic stimulus efforts on the working poor, but that is where they will get the best bang for their buck. 

The tendency by politicians to equate the GDP with the economy loses sight of what comprises the economy, which is a heterogeneous population made up of people in a wide range of economic conditions. 

It is time to base economic stimulus policy on the needs of individual people, rather than thinking of the economy as a monolithic and impersonal entity. 




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