Photo: RetailWire
Do retailers need ‘trickle up economics’ to beat COVID-19?
Retailers, including Home Depot, Lowe’s and Target, have pointed to a temporary boost in April sales as Americans cashed the COVID-19 stimulus checks they received as part of the federal government’s effort to boost consumer spending. The reality, according to new research, and those who think the program failed to deliver the stimulus needed, was that much of the money received went straight to paying mortgages, rent and other bills.
Thirty percent of respondents to a YouGov survey said they paid bills after receiving their checks from the Internal Revenue Service. Fourteen percent put the money into emergency savings, 10 percent bought essential items, such as food, and eight percent used it to help pay down debt. Many others were part of a group of 19 percent who either did not receive a check or did nothing with the one they did receive.
“It’s alarming to look at how many Americans used these funds to keep a roof over their head and pay for necessities considering the federal government has not provided clarity about another round of stimulus payments being provided in the near future,” stated the YouGov report as per MarketWatch.
The YouGov research is not the only evidence that staying afloat, vs. engaging in discretionary spending, is the focus of a large percentage of people.
A separate MarketWatch article highlights research conducted by economists from leading universities, including Columbia, Northwestern and the University of Chicago.
“Given the size of the 2020 stimulus checks, we might have expected large impacts on categories like automobile spending, electronics, appliances, and home furnishings,” the economists wrote. “Instead, it seems that individuals are catching up with rent and bill payments as well as engaging in spending on food, personal care, and nondurables.”
Many argue that the federal government needs to provide further stimulus payments to help not only keep the 40.7 million-plus Americans financially afloat who have filed for unemployment benefits since the coronavirus outbreak, but to jump-start consumer spending, which accounts for roughly 70 percent of the nation’s gross domestic product.
Mark Cuban, the billionaire entrepreneur, tweeted last week that the effort to boost businesses up with loans and grants, popularly known as PPP, has failed to deliver what the economy needs.
“The only thing that will save businesses is consumer demand. No amount of loans to businesses will save them or jobs if their customers aren’t buying,” Mr. Cuban wrote on May 17.
The owner of the NBA’s Dallas Mavericks and one of the stars of ABC’s “Shark Tank” tweeted, “It’s time for trickle up economics” as he advocated for a federal jobs program that would include training Americans to take part in a national effort to track, trace and test for COVID-19.
He also recommended that every household in America receive a check for $1,000 every two weeks with a stipulation that it be spent within 10 days or the funds would expire. Such a program would cost taxpayers about $500 billion as it helped stimulate demand for non-essential services and products, “hopefully helping to keep most businesses alive” long enough for the public health issues to be addressed and economic growth to return to a semblance of normality.
- If you received $1,200 from the federal government as a stimulus payment, what did you do with the majority of the funds? – YouGov
- The No. 1 thing Americans are spending their stimulus checks on — even more than shopping at Costco, Walmart and Target – MarketWatch
- This is how fast Americans are spending their stimulus checks — and here’s a breakdown of what they’re buying – MarketWatch
- Mark Cuban – Twitter
- Lowe’s and Home Depot get a boost as customers stay-at-home – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: Do you agree with Mark Cuban that American businesses such as retailers that are dependent on consumer spending need some “trickle up economics” to rebound from the damage caused by the coronavirus pandemic? What other types of federal government action, if any, do you think is necessary to keep the likely COVID-19 recession from further hurting retailers, small, medium and large?
Poll
BrainTrust
Cathy Hotka
Principal, Cathy Hotka & Associates
Ralph Jacobson
Global Retail & CPG Sales Strategist, IBM
I agree with Cuban’s general idea – U.S. consumers drive the economy. The U.S. economy is like a jet flying at high speed and the engines just shut off – the plane is gliding at a high rate, but it’s gliding, not flying. Even before the COVID-19 pandemic, most Americans barely had enough cash to pay for a $400 unexpected expense – is it at all surprising that stimulus money received was being saved or spent on the essentials? More stimulus money will likely be required to keep the plane flying, but stimulus money alone won’t drive consumer demand.
Sorry I don’t see how throwing money to people like you’re Oprah — You get a check, and you get a check, and you get a check — will create demand. Until and unless the public feels safe going out and we trust the information we are getting, we have to wait. Just busting another hole in the federal budget isn’t the answer.
Maybe the large numbers of unemployed could be used not only for contact tracing but also to clear the massive backlogs in many states’ unemployment insurance applications, along with the backlogs at the IRS. This would put real, and sustainable, money into people’s pockets — the original $1200 check is a Band-Aid that might represent one or two weeks of income in a typical middle-class household.
PPP is mostly trickle-up – since the 80 percent of payments go towards payroll for existing employees for 10 weeks. To that extent it slowed down the unemployment. Excess unemployment assistance is given too, which is trickle-up. Stimulus payments too is trickle-up, though covered less than four weeks salary for a typical family.
Regardless of trickle-up or trickle-down, the underlying dynamics don’t change. Consumers are just not feeling confident to spend on non-discretionary stuff. They are saving up or paying bills. Additional money will not result in a lot of additional spending in the short term. Even upper middle class folks are increasing their savings, cutting down on optional spending.
Mark Cuban’s idea might have some benefit, but the government cannot keep spending stimulus money. Demand needs to come from consumers. They will start spending money when they are comfortable in their own future and they feel safe in shopping.
A payroll tax cut would be the quickest and easily stimulus from the Federal Government. It is a simple withholding change allowing employees to keep more after-tax income. It can be modified and curtailed at any time.
Confidence will have nothing to do with people buying when they don’t have money. They will start to spend money when they have it and only then. When they do so the economy will be stimulated. A payroll tax cut does not help anyone who does not make a lot of money or any at all. A payroll tax cut will be whittled away without people even knowing that they have it.
The stimulus checks were an emergency measure that was necessary during a time of crisis. Some people who received them desperately needed them for essentials and basics. Others did not really need them and could afford to spend the money on luxuries. A more focused program would have been better but, given the necessity of time, it would have been too complex to implement.
Going forward, we should not continue to splash money around. It needs to be more targeted, focusing on those really in need. We also need efforts to get the economy moving which may mean payroll tax cuts and other stimuli for businesses. However, these must be absolutely targeted and ringfenced. We don’t want government money inflating profits, buying back shares and other such things.
It’s about confidence, not checks. Sure, the checks are a safety net and helped keep families afloat. But we can’t just keep printing and borrowing money. The health crisis must be addressed and solved, not wished away. Unfortunately, I think we are still in the early innings of this health crisis. When it’s safe, safe as defined by science and not politics, jobs and demand will return. Jobs and paychecks have to drive the recovery.
Our society has the peculiar idea that giving money to the wealthy generates wealth for the working class. Cuban is exactly right. We need a New Deal-style program that provides ongoing income, and that addresses not only COVID-19 but also our alarmingly crumbling infrastructure.
It is a very peculiar idea that giving money to the wealthy generates wealth for the working class. History and data contradict this idea. Why it holds on, I don’t know. You give the wealthy a dollar and they spend 30 cents. You give those who need it, a dollar and they spend a dollar. It is easy to see which boosts the economy more.
People who have money are afraid to spend if their continued income is at risk. People who don’t must use support payments for essentials. Cuban’s idea of “expiring funds” is intriguing, but will only benefit the broader economy if it causes business owners to bring back more workers than they otherwise would have. That is a stretch when the stimulus is (presumably) temporary. The only answer is safely reopening the country as quickly as possible. China’s economic trends show how effective that will be.
Trickle-down certainly doesn’t work. Almost all of the funds that might be distributed in a trickle-up model will be spent. Until there is work for people to go back to, the only way to keep a downward spiral from getting worse is to put money directly into the hands of people who will spend it. That will get the economic flywheel spinning and employment restarted. I do suspect though that the economy is going to have to move away from some of the services jobs that may not ever come back. Infrastructure spending is a good second choice — financed at the lowest interest rates ever. Sure hope we don’t have to wait a year for Washington to figure this out.
Very well said in a lot fewer words than I said it.
I agree with little Mr. Cuban generally states as he gets more and more air time on business channels simply for his “the sky is falling” comments that only drive TV ratings. Just take this latest example. Give $2,000/month to every household and you’ll see that this not only will cost well in excess of $500 billion if continued for a number of months, but also will encourage people to stay away from work and continue to receive unemployment benefits because that income is more than their $10 per hour wage. Crazy.
Keep it simple: 1.) Open businesses now. (Hang up clear shower curtains or Shoji screens in restaurants, etc. to separate patrons’ tables and eliminate the need to reduce capacity), 2.) Require shoppers to wear masks, 3.) Remind everyone with a drumbeat messaging program to “stop touching your face,”, 4.) Require workers to return to work if work is available, as opposed to staying on unemployment, 5.) Leverage automated ticket selling systems for theaters, stadiums, etc. to electronically block all surrounding seats around each set of seats sold.
Full-size trucks, RVs and other big purchases are selling out right now. People are spending their money if you just give them the chance to do so.
Bottom line, provide temporary financial support to those truly in need, and allow the rest of us to shop freely. Life is all about common sense. It’s a shame few politicians are blessed with it.
OK, go ahead, let the red thumbs downs fly my way!
I could not agree more. How many times do we have to watch “trickle down” strategies fail before we change the play? Mark Cuban recently outlined a great plan to get money into the hands of consumers that has to be infused back into the economy rather than just saving the money and not helping to activate the economy. Look at what China has been doing. They have been giving consumers a special 45 percent off coupon weekly that can only be used with restaurants or other retail situations. The coupon is good for four days only and then is void. A new one is issued every week for the immediate future. In Mark Cuban’s scenario, the government would issue consumers money (I added the debit card idea) that can only be used specifically to activate our consumer-based economy. The debit card idea makes it hard for anyone to use the money for anything else.
We need to get back to normal! God, I hope not. Exactly when did conspicuous consumption, a term initially used to describe greed, become an economic goal? “Two-thirds of our economy is consumption — we need to get the consumer buying again!” B.S.
A company’s focus needs to shift back from stockholders to stakeholders, labor needs to better organize, and finance needs to be better regulation, meaning not more complex, but simple (see Glass-Steagall). Capitalism is not the best system, but its the best so far (Churchill). Yet we don’t even have capitalism, we have a corporatism/cronyism, that the pandemic will likely only fortify, with the big getting bigger — this has been a windfall for Amazon, Walmart, Kroger, CVS big pharma, big tech…
Perhaps we should think in terms of using this crisis to forge a new, better system, similar to how past pandemics improved city infrastructures, with better sewage, aqueducts, parks, etc.
““Given the size of the 2020 stimulus checks, we might have expected large impacts on categories like automobile spending, electronics, appliances, and home furnishings,” the economists wrote. “Instead, it seems that individuals are catching up with rent and bill payments as well as engaging in spending on food, personal care, and nondurables.” Are you kidding me? The size of the stimulus checks are nothing in regard to people’s needs. People who are trying to keep their heads above water.
$2,400 doesn’t buy a new a car. Especially for someone when the average credit card debt is over $6,000 (the U.S. average). And we are not even talking about rent, mortgage or food.
Maybe the economists are looking at the checks that were sent to companies and thinking that the companies will make everything OK. (Boeing got a check and announced they are laying off 16,000 workers.)
Mark Cuban is right. And it is very simple. Just look at the equation for GDP. C+I+G=GDP. C-Consumers only spend money if they have it. I-Investment by companies. Companies only invest if they have demand. Where do they get that demand? From consumers. G-Government spending. If government puts money in consumers’ hands, and it is spent, that money is multiplied seven to nine times. That is the only thing that boosts the economy.
We have a blueprint. The New Deal. It put people to work doing things that today we appreciate and use. At one time the U.S. had the best infrastructure in the world. Most built under the New Deal and enhanced in the 1950s and early ’60s. But it is no longer the best or second best or even 10th best. The major countries and even some of the minor countries in Asia and Europe have infrastructure that are leagues better than the U.S. And each year, other developed countries are improving and the U.S. continues to fall behind.
The YouGov study underscores something most of us already knew: our government is not doing enough to help stimulate the American economy during COVID-19. The one-time payout covers about two weeks of work for most, when many people lost their jobs or were furloughed and are only now beginning to get sporadic hours.
A biweekly stipend would be wonderful, but I don’t think it’s realistic. An income-based stipend that takes how much consumers are making NOW (not 2 years ago) into account makes a lot more sense. And as far as trickle up economics are concerned, how about we hire a nonpartisan funds monitoring team to ensure federal resources are being allocated to the individuals and businesses that actually need them, instead of reinforcing GOP-funded big boxes?
What a horrible idea! Simply giving people money for nothing does not improve their situation, particularly when they have already proved themselves inept at handling day-to-day expenses. It will also invite inflation as more money chases the same resources, thus further cutting into the value of their money.
The economy doesn’t need to be stimulated. Consumers were already spending beforehand. What needs to happen is businesses need to be allowed to open and people need to be allowed to work again. Throwing money at a problem the government created by shutting everything down won’t solve the underlying issue.
Wait, wait: people used (the) money to keep the roof over their heads … and that’s “alarming”? Some people need a serious reality check, so I’ll provide it for them:
What might be interpreted here as whining because some individual store didn’t meet its comp-sales goals, or didn’t get the boost it feels it was owed, isn’t helpful.
Mr. Cuban should focus on the NBA, but thanks for sharing.
This one makes my blood boil a little — not because regular folks didn’t need the lifeline from the stimulus checks, but because the economists actually believed they would spend the cash on cars and other high-ticket items!
If recent experiences prove anything it is this: Those pundits need to climb down from the ivory tower and take a first-hand look at how millions of minimum-wage earners actually live. Most of their stimulus checks went to rent, groceries and power bills.
“Trickle down” has always been a condescending philosophy, and the notion that the working poor are all inept at handling money is despicable.
That said, certainly it is in the national interest to protect our industries and the people they employ from economic harm. Rather than continue to slather the powerful with gobs of cash, I’d use government contracts to harness their initiative toward invention, infrastructure, new job creation, and diversification from highly-refined commodities. If that sounds intrusive, so be it.
James, you sound serious about this 🙂 BTW, I agree 100%.
I agree with Mark Cuban’s key point — consumer demand is what will drive the economy, Yes, one could argue that opening stores and businesses need to happen first for consumers to spend, but before that, consumers need two things:
1) To feel secure in their own financial situation. That includes “simple” things like rent, mortgage payments, food, all before they run off to buy expensive smartphones, cars, or jewelry. (To think that economic experts are shocked about this is more telling than anything else).
2) To feel safe that their own health and the health of others around them will not be compromised. And yes, if that means seeing people wearing masks, then that’s what it will take. No amount of stimulus of any kind is going to change this sentiment.
Without those two things, consumer demand won’t be there. Expecting a trickle-down approach to work is foolishness — it hasn’t worked any time before it was tried, why should it now? The stimulus checks to consumers likely covered no more than a couple of weeks for most people. Giving big businesses free money to help them survive hasn’t caused any of them to pass the dollars down to their employees, did it?
As other have pointed out here, the New Deal is an example of the right kind of “stimulus.” It’s not easy, it’s complicated, and it requires proper oversight and management, but it solves multiple problems — gets the unemployed working for a decent wage, delivers contracts to businesses to keep them running (and the surrounding services businesses that will see new orders from those newly working employees), and could even fix aging infrastructure. Talk about a win-win-win.
There just are no easy solutions to a very complex problem brought on by a once in a lifetime health crisis. To expect you can solve that crisis with a quick fix is just not going to happen.