Authors: Chen Jianing, the subject map from: IC photo
With the development of the epidemic, in order to stimulate the economy, some countries have opened the road of “spreading money to fight the epidemic”-directly subsidizing eligible people.
The following is the basic situation of “spreading money to fight against epidemic” in some countries:
What are the pros and cons of this “spreading money” approach? Is it a good policy? This article attempts to analyze from the perspective of economics.
Spreading money is a slow-release agent to deal with economic downturn
As of now, there are no special drugs and vaccines for the new crown epidemic. The treatment plan is mainly symptomatic treatment, that is, using various medical methods (such as a ventilator) to maintain the patient’s normal vital signs and wait for it to heal itself.
In fact, the global economy affected by the epidemic also faces the same problem. Before the epidemic is completely controlled, there is no “special effect drug” in the face of global panic, production shutdowns and economic downturns.
In this case, “spreading money” as a slow-release agent against the current economic downturn has been adopted by many countries. Specifically, there are three positive effects of “spreading money”:
1. Stimulate the economy and boost consumption
As we all know, consumption, investment and net exports are the troika driving the economy. The net export segment is showing signs of slowing down due to the suspension of the global industrial chain.
According to the data of the General Administration of Customs, the total value of China ’s foreign trade imports and exports in January-February this year was 4.12 trillion yuan, a year-on-year decrease of 9.6%, the trade deficit was 42.59 billion yuan, and the surplus was 293.48 billion yuan in the same period last year. The epidemic in Europe and the United States began to erupt in March, so the figures are similarTo some lag.
In addition, in order to cope with the needs of the epidemic, some countries have imposed restrictions on the export of basic living materials. At the end of March, countries such as Vietnam, Thailand, and Russia have successively restricted the export of agricultural products.
In terms of investment, it is usually the two legs of “government investment” and “private sector investment”. Due to the impact of the epidemic on the capital market and the impact of risk aversion, private sector investment has dropped sharply, and only the remaining “Government investment”.
Of course, governments of various countries have also adopted more active fiscal policies to boost the economy, such as the US $ 2 trillion fiscal stimulus plan just issued by the United States, and China’s recent “new infrastructure” plan with a total investment of 34 trillion yuan.
With both net exports and investment being affected, consumption has high hopes as the third troika driving the economy. On the one hand, consumption accounts for a relatively high proportion of GDP in mainstream economies. Residents in the United States, Japan, Germany and Germany account for more than 50% of GDP, and China and South Korea also account for about 40%. Effective consumption stimulus can easily have a positive impact on the economy.
On the other hand, the purpose of stimulating consumption can also be seen from the details of the “spread money” policies of various countries. Subsidies in most countries show the characteristics of “small amount dispersion”-a wide coverage of the population, but the amount of subsidies issued to a single person is limited. For example, Australia grants a one-time subsidy of 750 Australian dollars to eligible citizens. The subsidy standard in the United States is $ 1,200 for adults and $ 500 for children.
For a single subsidy target, it does not make much sense to use this money for saving and investment, but it is valuable to respond to the unexpected needs in the epidemic situation through consumption procurement. Japan is even more direct, supporting discounts and merchandise vouchers to support the catering and tourism industries with sharply reduced turnover.
At the same time, some regions in China have adopted their own consumption stimulus policies based on their own characteristics, as shown in the following table:
2. Transfer payment to help vulnerable groups
Transfer payments to help vulnerable groups is another role of the “spread money” policy. Affected by the new crown epidemic, the suspension of production and work also directly affects the income and life of salaried people.
Taking the United States as an example, according to data released by the US Department of Labor, affected by the spread of the new coronary pneumonia epidemic in the United States, the unemployment rate in the United States rose to 3.5% in March from 3.5% in the previous month, the highest since January 1975. The largest monthly increase. The non-agricultural sector cut 701,000 jobs, marking the first reduction in non-agricultural sector jobs since September 2010.
At the same time, before the inflection point of the epidemic arrives, the situation in the US job market is expected to continue to deteriorate. In this case, for the low- and middle-income families in the United States, a subsidy of $ 1,200 per capita can be described as a gift.
In the subsidy policies of other countries, the shadow of “transfer payments to help vulnerable groups” can also be seen. For example, the British government pays 80% of the salary (up to £ 2,500) to people who are affected by the epidemic and cannot receive pay. South Korea provides disaster subsidies to 70% of downstream families, including the middle class. Income Canadians, Germany is small and micro business owners and self-employed.
In China, the subsidy programs in Nanjing and Hangzhou also provide special care for people in need.
3. Supplementary monetary policy
In the face of the economic downturn and liquidity dilemma caused by the epidemic, countries have adopted more active monetary policies. On March 15th, the Fed announced an emergency rate cut to zero interest rates, and launched a quantitative easing plan with a scale of 700 billion U.S. dollars, and then the central banks of many countries followed up urgently.
As of March 20, Beijing time, at least 35 regions in the world have announced 57 interest rate cuts in 2020. In addition, the Fed has reduced the deposit reserve ratio of thousands of banks to zero.
Undoubtedly, these loose monetary policies have a positive effect on alleviating the financing difficulties and liquidity difficulties of enterprises. However, zero interest rate and zero reserveThe gold rate also limits the room for further monetary policy. In this case, the “spreading money” policy can also be regarded as the release of a currency and the release of liquidity.
Everything has limitations
Since the “spread money” policy has so many advantages, why is it not used by more countries? Because everything has limitations, as a good medicine to alleviate the economic downturn, the “spread money” policy also has the following side effects:
1. Increasing the government ’s financial burden
In essence, “spreading money” is to use government revenue to subsidize residents, and has higher requirements for the government’s financial strength. Considering that the issuance of subsidies will inevitably increase the government ’s financial burden, only a “substantial family” government can achieve effective financial subsidies without affecting the stable operation of the economy.
Taking the United Kingdom as an example, it is estimated that the wage earners affected will be around 10 million. The maximum amount of subsidy is 2500 pounds per person. The maximum amount of subsidy is 25 billion pounds. In 2019, the central government ’s fiscal revenue in the UK was 759.3 billion pounds, and subsidy expenditure only accounted for 3.3% of annual fiscal revenue.
At the same time, relative to the UK ’s broad money supply (M2) of 2.45 trillion in February 2020, the £ 25 billion subsidy is only equivalent to 1% of its size, and its impact on inflation is very limited.
For the economically underdeveloped countries, it will be difficult to implement the “spread money” policy. On the one hand, the fiscal revenue of these countries is already limited, and the increase in the fiscal deficit and debt scale caused by “spreading money” may affect the country’s credit rating and the sustainable development of the economy. On the other hand, in the absence of financial revenue support, large-scale spread of money may also lead to hyperinflation.
In practice, it can also be found that most of the current “spread money” policies are developed countries with strong economic strength, and the domestic consumer coupon subsidies are mainly developed cities such as Shenzhen, Nanjing and Hangzhou.
Among them, Hangzhou ’s strategy is even better, that is, joint merchants work together, the government invests 500 million yuan, and the merchants match the preferential quota of about 1.18 billion yuan, and finally realized 1.68 billion consumer coupons.
2. Diminishing marginal utility, policy adjustment space is getting smaller and smaller
About the principle of diminishing marginal utility, you can use the example of thirsty drinking water to illustrate, for a thirsty person, let him drink the first glass of water, such as Jihanhanfengganlin, drunk. Then, if he was asked to drink a second cup, he might be able to drink it, but it felt normal. After that, it may be uncomfortable to continue to let him drink the third and fourth glasses of water.
Similarly, the first wave of subsidies, such as drinking water, has the best effect with the least side effects. The effect of the second wave of subsidies is followed by increasing side effects. The effects of the third and fourth wave of subsidies are getting worse, and the side effects are becoming more and more obvious. In this way, with the development of subsidies, although it can have the effect of relieving the crisis, but later, the policy adjustment space for the administrators is getting smaller and smaller.
Taking the previous UK subsidy policy as an example, the first wave of £ 25 billion, accounting for only 3.3% of annual fiscal revenue and 1% of the broad money supply (M2), has no effect on fiscal revenue and inflation and inflation Big.
But assuming that the effect is good, the government decided to make several waves of subsidies. By the fourth wave, when the cumulative subsidy amount has reached 13.2% of the annual finance and 4% of the broad money supply (M2), it will have to Considering its impact on fiscal deficits and inflation, the related side effects also limit the government’s continued adoption of subsidy strategies.
3. There are distribution costs
In addition to the above side effects, how to effectively and effectively distribute small amounts of subsidized subsidy funds to the hands of each recipient will also test the implementation efficiency of the government and financial institutions.
With the aid of a developed third-party payment system, China has realized the efficient issuance of consumer vouchers. For example, Hangzhou and Shenzhen Luohu both introduced electronic consumer vouchers, and directly subsidized the subsidies into Alipay and WeChat of target consumers.
For countries and regions where third-party payment is not so developed, the distribution of related subsidies is also a time-consuming and labor-intensive task, which virtually increases the cost of policy implementation.
The right one is the best
Finally, back to the original question, is “spreading money to fight the epidemic” a good policy? The author believes that it is impossible to generalize, and it is best to refer specifically to the situation in each country or region.
For economically developed and financially rich countries or regions, based on their own characteristics, reasonable development of subsidy strategiesPromoting consumption, stimulating the economy, helping the weak and improving social welfare have positive significance.
However, for countries with underdeveloped economies and tight fiscal budgets, blindly spreading money may further drag down the economy and even cause the risk of hyperinflation. Under such circumstances, it may be a better choice to use limited funds for core tasks such as quarantine, protection, isolation, and treatment.
This article is from Suning Financial Research Institute, author Chen Jianing (Senior Research Institute of Suning Financial Research Institute)