US policy makers have taken extraordinary measures to keep citizens and the economy healthy during the COVID-19 epidemic, including quickly implementing the most expensive economic stimulus in the country’s history. Yet a survey suggests that none of this effort—not the health advisories, lockdown orders, payouts to households, nor interest-rate manipulations—made the American public feel much more optimistic about their own futures or the economy at large.
Facts about COVID-19 and news about related policies this past spring did not significantly change workers’ level of concern about losing jobs, suggests the study by University of Texas’s Olivier Coibion, University of California at Berkeley’s Yuriy Gorodnichenko, and Chicago Booth’s Michael Weber.
The researchers administered the survey in April 2020, when much of the nation was under lockdown orders aimed at preventing the spread of COVID-19. The participants were a subset of households in the Nielsen Homescan panel, which consists of roughly 85,000 households nationwide that track their daily spending. Participants were given different combinations of information about the severity of the pandemic and the various policy responses both before and after answering questions about their expectations for income and spending.
Unemployed workers, when told of ongoing actions by the Federal Reserve, Congress, and the Centers for Disease Control and Prevention, became less optimistic about landing a job.
Meanwhile, Fed promises to depress interest rates did not materially change people’s spending plans. Households were no more or less likely to buy cars, large appliances, or houses after hearing of the new monetary policy, the research finds.
Even the stimulus checks that likely benefited most of the survey’s 13,771 participants did little to sway economic expectations. Households, the researchers write, “do not view this policy as having a materially important effect on their expected income growth.”
Respondents generally thought that COVID-19 was much more contagious and deadly than CDC advisories have stated, the research finds. But being presented the facts did little to change their expectations about their own income, the unemployment rate, mortgage rates, or inflation over the next 12 months.
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How Effective Were Stimulus Checks in the US?Although learning the facts about the virus made unemployed workers significantly more optimistic about finding a job, the effect was wiped out when paired with news on government policies meant to mitigate COVID-19’s economic impact, the study finds.
The results have striking implications for economic researchers and policy makers who expect households to respond quickly and rationally to economic shocks, whether those shocks are natural or imposed by policy. Standard macroeconomic models used to predict policies’ economic impacts, for example, are based on assumptions that a Fed promise to keep interest rates low will powerfully influence consumer buying decisions.
The findings suggest that US consumers do not believe the Fed, Congress, or health officials have much control over the employment rate or the economy generally, however. Health information—such as the rate of COVID-19 spread, or the need for millions of people to stay home for weeks to reduce it—is viewed as extraneous to job prospects, the cost of living, and economic growth. Consumers generally dismiss news from policy makers as irrelevant to their own financial futures.
Olivier Coibion, Yuriy Gorodnichenko, and Michael Weber, “Does Policy Communication during COVID Work?” Working paper, June 2020.
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