Getting Individual Stimulus Right

By Rowland Goddard

The past 6 months have pushed many Canadian and American families to their breaking point. For some of these families, individual stimulus plans have been one of the big reasons they have been able to stay afloat. It is no secret that many people were out of work for either all or the majority of this summer. The Canadian unemployment rate got as high as 13.7% in May and the American rate soared to 14.7% in April. Some households were fortunate to have enough savings or forms of passive income to absorb the blows of this economic downturn, but many do not have this security. The question to be asked then is: how does Canadian individual stimulus compare to the American package, and which country got it right? 

First we must bring into context how governments raise funds for stimulus, where this money goes, and both the current and lasting impacts on the economy. To raise funds, the Canadian and American governments borrow money from investors. They do this by issuing debt in the form of bonds. This is appealing to the investor because it is considered a very safe investment, and good for the government when interest rates are low- which they currently are. The interest rate in Canada slid from 1.75% at the start of 2020 to 0.25% in April. The story is similar in the United States. Both governments are borrowing enormous sums of money, so it is important that the yield on the bond is low so that they are able to pay the principal plus interest back when the bond matures. 

Where the Canadian and American governments then differ is the way in which they disperse the raised funds. Canada has a neutral approach where money is spread out between small businesses, individuals, and sectors. America, on the other hand, has taken a top-down approach. They have prioritized their businesses in hopes that money trickles down to the Individuals. This has not proven to be effective. 

People out of work in Canada have relied on the Canada Emergency Response Benefit (CERB) up until recently. Throughout the six-month period that CERB was in effect, the government paid out $81.65B to 8.9 million Canadians. This program gave a steady income of $2000 a month for those who qualified. Canada has recently revised its means of dispersing individual stimulus; they have reduced the requirements to be eligible for Employment Insurance (EI) and created 3 separate programs for those who still do not qualify. This is meaningful for families in need because under EI, they will receive more than they did under CERB. 

In the United States, the picture is much more bleak. Although American corporations have stayed afloat, the people are sinking. The inability to accept a stimulus package has left many families in an economic freefall. This is evident by the rising use of food banks, amongst other indicators. It is still unclear whether or not a stimulus plan that would spend between $1.8 and $2.2 trillion will get passed before the election. The Trump administration and speaker Nancy Pelosi continue to disagree on how funds should be distributed. Pelosi wants more money going towards the American people whereas Trump wants to continue prioritizing businesses. 

Both of these approaches to stimuli have their advantages and disadvantages depending on where you stand. In the coming months we see whether or not the American government has done enough to support the families in need, and in the long run we will realize the long lasting effects of keeping an economy afloat during a global pandemic.

Photo by Jason Leung on Unsplash

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s