Grand Economic Experiment

 

This ought to be an exciting time and opportunity for economists. I know, I know, exciting and economists are terms rarely used together in the same sentence; but you must also consider that ‘exciting’ is a relative term and like everything needs to be understood in context.

Anyway, back to the Grand Economic Experiment! (GEE!). If the article’s topic doesn’t automatically convey what the GEE! Is then it is prudent to explicitly define it. GEE! is a voluntary selection by each state as to which experimental group they wish to belong. The groups differ in those that are choosing to end the COVID Unemployment Federal stimulus months earlier than required; and the other group are the states that are continuing to provide the Federal stimulus payments for the unemployed. That is what GEE! is at first glance. The reason that GEE! is a natural experiment is that this choice by the states is being done voluntarily and was not intentionally considered in the context of an economic experiment. But since each state is by default in one or the other group, we wind up with a ‘natural’ economic experiment, GEE!.

There is even a ‘natural’ hypothesis that is being tested. Again, those electing to join the “End Early” group are postulating that their states will be economically better off with that decision; while the other states are deciding or defaulting to the “Stay To The End” group. The Stay group’s hypothesis is that their economies will perform better by retaining the stimulus payments.

Now, if all other things were equal, this would be a classic experiment; but of course, everything else is not equal so there will be lots to factors and variables to consider and to tease out of the data. But the GEE! will occur and data will be generated, so there is no reason or excuse for economists not to use the data to see what we can learn from the GEE!

For example, do the states that End Early recover employment level quicker as predicted by their political leaders as the reason, or part of the reason, for why they are ending early. Alternatively, do the Stay To The End states’ economies do as well or even better with jobs recovery? That would be one reasonable question to try and answer. It won’t be as easy to answer as one might think since there are those pesky differences among the states not just between the two groups but within each group itself.

Then there is the issue of jobs/unemployment is not a singular or required measure of the economic performance of any given state. If the gross domestic product of a state goes up statistically more in one condition than in another, which can be one measure of economic performance, does that mean or require that its jobs/unemployment data must coincide? [Note: It does not. A state’s economy may be much better off and yet its jobs/unemployment could be comparatively average or even below average.]

This is why we are looking at a GEE! moment. There are many things that we (via the economists) could learn as long as we collect, analyze and explain what has been observed and hopefully learned. Consider the two hypotheses that are underlying the choices each states’ governor is making. To know who made a good choice and why, and who made a bad choice and why; we need to see what happens.

Do the extra unemployment payments to go to the states produce more economic value than an offsetting economic milestone that jobs/unemployment brings; or on the other side, are more jobs created with corresponding unemployment decreases causing those states’ economies to recovery and grow better?

In Stay To The End states, the stimulus money will go into those states’ economies, and some, most or all will be spent in those states. That spending will be to local businesses, which than is used to resupply, to grow business, hire employees, and those expenditures repeat at some rate. Producers in those states may thus sell more of their produce since more funds are in circulation.

In the End Early states, that stimulus money will not be used as it isn’t available. However, without those funds more individuals are expected to have to find jobs to sustain their and their families lives. This will produce its version of the economic cycle. People will earn money, spend it, and a similar cycle to that above will occur.

Which group will do better? We don’t know, yet! That is why is it the GEE!. The experiment may be so complex and there may be so many uncontrolled variables that the basic question will never be answered; but we might learn somethings and since the GEE! is happening anyway, we should avail ourselves of the opportunity to learn what we can. If there are winners and loser, we can hope to prevent creating more losers in the future and instead creating more winners.