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        Inside the Push to Make Everyone Friends at Work

        Strategies for Onboarding in a Hybrid World

        Strategies for Onboarding in a Hybrid World

        How do sustainable supply chains improve the continuity of supply and protect the environment?

        How do sustainable supply chains improve the continuity of supply and protect the environment?

        3 Ways Boston University’s Online MBA Is A Disruptor In Business Education

        New Immigration Data Point To Larger U.S. Workforce Issues

        A Risk Management Nightmare at Silicon Valley Bank

        How CFOs are navigating the debt ceiling standoff

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        Demotivating Effects of Relative Performance Feedback on Middle-Ranked Workers’ Performance

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        S1:E1 CVS Paying the “Pink Tax” on Certain Products and the Evolution of the Electric Vehicle Industry

        AI: What is it and how will it impact business?

        Is Creativity in Advertising Dead in the age of AI?

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        How Higher Ed Can Contend with Learning Platforms

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        How Companies Deal with Disruption

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        Money: It’s created. It’s destroyed. But what is it?

        Money: It’s created. It’s destroyed. But what is it?

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        Should Companies Refrain From Making Political Statements?

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        The Right Amount of Cards, Cash and ID to Carry in Your Wallet

        Inside the Push to Make Everyone Friends at Work

        Here’s Why Experts Say Russia and China’s Attempts to ‘De-Dollarize’ Global Markets are Going Nowhere

        5 ways Russia’s been sidestepping Western sanctions and keeping its economy alive, from switching to the Chinese yuan and dabbling in ghost trades

        Strategies for Onboarding in a Hybrid World

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        3 Ways Boston University’s Online MBA Is A Disruptor In Business Education

        New Immigration Data Point To Larger U.S. Workforce Issues

        A Risk Management Nightmare at Silicon Valley Bank

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          A Better Approach to Customer-Centric Messaging and Engagement

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          To Encourage Patients to Fill Prescriptions, Fix Copays

          To Encourage Patients to Fill Prescriptions, Fix Copays

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          Is Tesla’s Era of Dominance Coming to an End? What Experts Say

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          We Have a New COVID-19 Relief Bill. Now What?

          byInsights Editorial Team
          March 17, 2021
          in Business Policy & Markets, Newsletter Spotlight
          16
          A A
          We Have a New COVID-19 Relief Bill. Now What?

          President Biden recently passed a $1.9 trillion stimulus package for COVID relief. Michael Salinger, Jacqueline and Arthur Bahr Professor and Department Chair, Markets, Public Policy & Law, explains what makes this bill different from previous stimulus packages, what the bill provides, and issues to watch moving forward.

          By Michael Salinger

          The Covid relief bill is much different from previous government stimulus packages for which the main purpose was to stimulate aggregate demand. The current slack in the labor market, as evidenced by both a relatively high rate of unemployment and low labor market participation rate, is not because of a failure of aggregate demand but, rather, an idling of a substantial portion of the productive capacity of the economy due to the Covid crisis. The economy’s stock of airplanes, airports, hotels, sports arenas, theaters, gyms, hair salons, some medical offices, and restaurants, to name a few, are either idled or necessarily operating at less than peak capacity. This is not because people do not have the money to spend on these items. It is because the virus has caused them to be either shut down or forced to operate below the capacity for which they were designed. Once the rate of vaccination makes these activities safe again, we will not need a fiscal stimulus to bring the economy back. Rather, there may be enough pent-up demand that will lead to inflationary pressures.

          Rather than viewing it as a Keynesian boost to aggregate demand, the Covid relief act should be viewed as having three main purposes. One is to provide resources to speed recovery from the epidemic itself. A prime example is the aid to schools to help them reopen. Getting children back to school is essential for getting their parents back to work.

          Another is to prevent bankruptcy and therefore preserve the capacity of both businesses and state and local governments that the crisis hit particularly hard.

          The third is an effort to address the problem of income inequality that has become an increasingly nettlesome problem for the economy and to expand the social safety net. About one-quarter of the $1.9 trillion is for payments of $1,400 to individuals earning up to $75,000 per year, single heads of households earning up to $112,500 per year, and couples filing jointly earning up to $150,000 per year.  People near the top of these thresholds do not make them rich by contemporary standards, but neither are they the working poor in obvious need of an income subsidy. I suspect that the real explanation for why the thresholds for receiving support are so high is that the politicians wanted to increase the fraction of the population that supports the bill.

          Going forward, the big issues to watch are what features become permanent and how we pay the cost. Some of the provisions, such as those relating to expanding health insurance subsidies and making the child tax credit refundable make sense as permanent changes.

          As for the expense, tax increases will be necessary. The risk of inflation is real. Some increase in inflation is desirable as the Fed has had trouble hitting its 2% inflation target. Having lived through the inflation of the late 1960s and 1970s, the distortions that inflation creates, and witnessed the economic pain that was necessary to bring it under control, I do not think that we should ignore the risk of letting the inflationary genie out of the bottle.

           


          About Our Expert

          Michael Salinger, Jacqueline J. and Arthur S. Bahr Professor in Management and Department Chair, Markets, Public Policy & Law
          Research Interests: Industrial economics, antitrust policy, and regulation of business
          Education: PhD, Massachusetts Institute of Technology, BA, Yale University

          Tags: COVID-19Michael Salinger
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