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There's an Unorthodox Stimulus Proposal Gathering Steam on Social Media

By Sean Williams – May 24, 2020 at 5:51AM

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This $500 billion "use it or lose it" plan is unlike anything we've seen before.

A little over three months ago, the coronavirus disease 2019 (COVID-19) wasn't even on the radar for most Americans. It was simply another serious illness that was expected to be contained and dealt with, as we'd previously seen happen with Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome, and Ebola.

But COVID-19 proved different. It wound up taking just weeks for the coronavirus pandemic to shut down nonessential businesses across most states, as well as put more than 36 million people out of work. All told, up to a quarter of U.S. workers might be unemployed before the economy officially hits its trough.

A messy pile of one hundred dollar bills and a U.S. Treasury check next to the Capitol building.

Image source: Getty Images.

The CARES Act was a good start, but it doesn't do nearly enough for most Americans

Knowing full-well the implications of shutting down large swaths of the economy to slow disease transmission, Congress passed and the president signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law on March 27. This $2.2 trillion relief package is the largest in U.S. history, and it aimed to support multiple facets of the economy.

For example, the CARES Act provided $500 billion for distressed industry loans, close to $350 billion for small business loans, $100 billion for hospitals, and apportioned $260 billion to expand the unemployment benefits program through July. This expansion allows approved unemployed beneficiaries to receive an extra $600 per week for up to four months.

But the hallmark component of the CARES Act is the $300 billion set aside for direct stimulus payments. All told, the Treasury Department expects more than 150 million Americans to be eligible for an Economic Impact Payment (as these stimulus payouts are officially known), with more than 140 million Americans already being dispersed $239 billion, as of May 18. 

The issue is that, for many stimulus recipients, a maximum payout of $1,200 per individual or $2,400 per married couple filing jointly, along with $500 per qualifying dependent child, was simply not enough. A 2,200-person Money/Morning Consult survey from April found that 74% of survey-takers had spent their stimulus money in four weeks or less.

Thus, it's not a matter of whether additional financial assistance is needed at this point, but what that next round of stimulus should look like.

A parent seated on the couch, with his children sat beside him.

Image source: Getty Images.

A wild new stimulus proposal is making its rounds on social media

On Capitol Hill, more than a half-dozen second stimulus proposals have been put on the table since the beginning of April. These proposals include everything from stimulus payouts that could reach as much as $10,000 per household on a monthly basis to rent and mortgage forgiveness for up to one year.

However, the newest stimulus proposal that's gaining steam comes from billionaire entrepreneur and Dallas Mavericks owner Mark Cuban. In a series of tweets on May 17, Cuban laid out his vision for what stimulus 2.0 should look like.

While noting that the Paycheck Protection Program (i.e., the aforementioned small business loan program) was a "great plan" with "difficult execution," Cuban doesn't view the PPP as a success. Rather, he believes the best way to help America and businesses is with "trickle-up economics."

First, Cuban called for a federal jobs program that would train and hire millions of workers to test, track, and trace COVID-19, as well as support the at-risk population, including those who would need long-term care. In Cuban's view, guaranteeing federal jobs would put a dent into the currently ballooning unemployment rate.

Secondly, Cuban is calling for an interim spending program whereby 128 million households would get a $1,000 check every two weeks. The catch, though, is that these checks would need to be spent within 10 days or the payout expires. Cuban called it a "use it or lose it" program in his tweets and suggests it would cost approximately $500 billion.

Here's the full series of tweets from Cuban:

Would this actually work?

Of course, the real question that needs to be asked is whether Cuban's unorthodox stimulus approach would actually bear fruit.

In one respect, examining stimulus from the demand-side of the equation does make sense. In other words, the Federal Reserve has done everything in its power to keep lending rates low and credit accessible for businesses that need it. But this does little good if consumers are too scared to spend their money. Under a use it or lose it program, consumers would have no choice but to put this capital to work, otherwise they'd lose their temporary stimulus. This should lead to a rise in durable and non-durable good consumption.

But as Cuban notes, there are a lot of questions with such an idea. Perhaps the biggest of all is how the federal government would track spending. I'm not going to lie, it sounds like a logistical nightmare. Even if the federal government issued prepaid cards as opposed to checks, I'm not exactly certain how they'd ensure that the stimulus funds are being spent and not just withdrawn for personal use at a later time.

Another point of contention is the 10-day spending period mandated by Cuban. Spending data would suggest that those who need stimulus money the most (i.e., low-and middle-income individuals and families) are spending what they receive and not stuffing it under the mattress. Forcing spending within a very short period of time might prove unnecessary.

Checkout counters packed with customers inside of a Walmart.

Image source: Walmart.

Lastly, it's uncertain if Cuban's program would really save small businesses. Obviously, consumers should have the right to spend their money as they see fit. But during this pandemic we've seen large retailers like Amazon and Walmart flourish, with small businesses taking it on the chin (since many are closed). There's nothing within Cuban's argument that offers confidence that these dollars would wind up being spent locally in small businesses.

Keep in mind that what Cuban has proposed is far from official. But it's certainly garnering attention on social media, and even among some members of Congress. It could be only a matter of time before a demand-side stimulus package is put on the table for discussion.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Sean Williams owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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