Will lower benefits raise fear?

Posted by: Paul Donovan

28 Jul 2020

Daily update

  • US Republicans unveiled fiscal stimulus proposals, which cut unemployment benefits and send out another USD 1,200 to most American adults. Most of Europe does not need to do a separate stimulus program for benefits as these are already part of their welfare systems. Talks with Congressional Democrats are ongoing.
  • There are two economic consequences of the proposed benefit cuts. Obviously, those out of work will experience a fall in income. Those in work may experience an increase in fear of the consequences of unemployment. If fear does increase, the USD 1,200 would likely be saved rather than spent. Central bank policy cannot change this fear – it is a fiscal policy problem.
  • US consumer confidence data is due, though why anyone is bothering is something of a mystery. As survey data, it has all the normal problems associated with such measures, plus the additional bias of strong political partisanship.
  • The UK government is considering an online sales tax to protect the high street. It is not known if the UK government is also considering a tax on cars to protect horse-drawn carriages. Policies that try to preserve the past in the face of structural change did not work well for the UK in the 1970s.

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