Occam's Razor

Obviously, our nation is going through a crisis at the moment. With a real unemployment rate probably at twenty percent, and with about one third of renters not paying their rent (probably because they can’t afford to do so), things are pretty awful. It’s made more awful by overburdened state unemployment systems that are rapidly running out of money, and so many newly unemployed people finding it impossible simply to file for unemployment. Phone lines and unemployment offices are jammed.

So sure, I get it. Lots of people need to be bailed out by Uncle Sam because this pandemic is not their fault so they don’t deserve to be thrown into poverty. There have been three bailout bills already, which seemed more focused on bailing out businesses than people. We got our $1200 per person one time deposit of free money.

There is talk that new legislation should give each taxpayer $2000 each per month to do things like pay the rent and buy food. I suspect a lot of these people would make more unemployed than employed. That’s not to say these payments are overly generous. $2000 a month is just $24,000 a year. Assuming you could get this for a whole year and had no other income, you are making twice as much as you would in poverty. But our poverty level is surreally low: $12,760 for an individual in most states, and that won’t even pay your rent. So $24,000 a year is probably something close to a living wage. Well, no, not really. If a $15/hour minimum wage law took effect, it would amount to $31,200 a year. $24,000 amounts to $11.53/hour with a forty-hour workweek. By the way, the official minimum wage in the United States is just $7.25/hour or $15,080 a year, which is above the official poverty level, but obviously not enough to survive on, which is why at least until recently lower wage people shuffled two or three jobs each.

The proposals though are to give everyone earning less than $130,000 a year $2000 a month. For married couples like us, we’d get $4000 a month. As best I can tell there doesn’t seem to be any “buts” in the proposed legislation. Not everyone of course is unemployed. I’m betting if you make $100,000 a year, you are not one of them. It certainly is possible, but it’s unlikely.

It gets absurd though. My wife and I are retired. We each have a pension and I also draw from Social Security. My wife isn’t old enough yet to get social security. I also have a reasonably hefty 401K to supplement our income. Oh, and we don’t have a mortgage. It’s paid off, along with our cars. I do some consulting put it’s purely voluntary, and it’s not a huge amount of money. Anyhow, we are both effectively retired and completely debt free with well padded bank accounts. Yes, I am aware how unusual this is and how lucky we are. But unless our pension system gives out, we have no financial worries for the rest of our lives. Yet, the proposal is still to send us $4000 a month.

It’s crazy. I certainly understand and support the general idea that most people aren’t like us and live paycheck to paycheck. But if your family is already making $100,000 or more a year and you remain gainfully employed, you shouldn’t need much if anything in the way of government subsidies. The cap should be much lower, and the amount should be reduced for those with higher incomes, if they get money at all.

What did we do with our first stimulus checks? We gave it away to people who needed it. We both have friends in need. I gave my $1200 to my friend in need, and my wife gave her $1200 to her friend in need. Both needed it a lot more than the $1200 each they got.

Giving it away though wasn’t a hard decision. We obviously hadn’t earned it and we didn’t need it at all. We were doing exactly what the government should have done if we had something resembling a functional government: putting the money where it would do someone who needed it actual good and would also be quickly spent and stimulate the economy. Throwing money indiscriminately at a problem like this is so incredibly wasteful. In our case, the money would have gone into our already well-padded saving account, or maybe used to buy some undervalued stocks that will hopefully translate into a more well-padded investment portfolio when stocks recover.

Oh, and speaking of stocks, we were proactive there as well. If you follow my blog, you’ll see I moved stocks to bonds near peak market in February. In March when stocks were cheap I moved some money from bonds to stocks. And today, looking at the absurdly inflated value of stocks with an official 14.5% unemployment rate and a real solution to the pandemic at least a year away, I captured some of those gains by moving them back to bonds. We’ll see if I’m right and another market mini-crash is on the horizon.

I literally can’t think of a way to spend it. We have two paid off cars, one bought for cash a year ago, the other bought in 2011. I’m obviously not going to take on a home construction project, at least indoors, not with COVID-19 rampant. And our house is less than five years old anyhow. It was built to suit our needs. I can’t go to the mall and buy stuff; it’s closed, as are most stores. I could buy stuff online, but we don’t really need anything and in any event it would be hard to spend $1200 each per month online to buy stuff. I’m not sure where we’d put it. I can’t take a vacation. There is nowhere to go and even if I can get there, I’ll be eating takeout. There’s not much else to do but ride this thing out in the comfort of our nice paid-off home.

I’ll be gob smacked if this proposal moves forward as is. If we’re going to get $4000 a month on top of our already super comfortable lifestyle, I’m not sure what we’ll do with it. We may give it away to those who need it more than we do again.

But really, smarter legislation is needed. Before getting a payment, under penalty of law you should have to assert that you need the money. You should document your unemployment situation, your dependents, and your approximate monthly expenses and provide a range of your saved assets. You should sign your statement, probably electronically using maybe your IRS PIN numbers. Then you should qualify for one of these payments. When your employment situation changes, you should be required to re-file within thirty days to reduce or eliminate your payments.

I’m all for helping those who need it, but I’m against this wholesale rape of the U.S. Treasury from those like me and doubtless many millions of others that don’t.