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Monday, March 20, 2023

Federal Stimulus Checks Could Elude Americans In Its Present Form

The after-effects of the pandemic continue to be felt more than two years after it first crossed the shores of America. The government responded with a series of measures that provided immediate support to citizens through stimulus checks, and also prevented the economy from sinking into a prolonged recession. But the measures taken by the federal administration have also invited criticism of too much money being pumped into the economy. It led to inflation that has crept up to reach record levels, the highest since 1981.

By the end of 2021, two developments served to send Americans back to the despairing days of the early stages of the pandemic. while the last of the expanded Child Tax Credit payments were paid in December 2021, it also marked the rapid rise in the price of foods, other essential commodities, gasoline, utilities, and home rent.

Stimulus Check
Stimulus Check
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This round increase in prices left millions of Americans despairing and most were back to the stage they were right after the pandemic lockdown was declared.

The first and second stimulus checks were just enough for most Americans to provide for their families, stave off impending mortgage defaults, clear their utility bills, and pay their home rent or mortgage payments. But the third stimulus check under the American Rescue Plan Act of March 2021 signed by President Biden changed all that.

The economic impact payment or the 3rd stimulus check was different in its scope and reach and changed the lives of millions of Americans. The payments began to go out just a couple of months after the second stimulus check payments were distributed in January 2021.

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And this move changed the expenditure pattern of the money that households received from the Biden administration. While the first and second stimulus check money went towards covering immediate expenses and past debts, by the time the third stimulus check arrived, Americans had worked their way past the immediate economic crisis in their lives.

The third stimulus check under the Rescue Plan came at a time the economy was opening up and people were gradually returning to work. The generous amount of up to $1,400 helped Americans save a substantial percentage of the amount they receive in paying off their debts, investing, and also buying non-essential items.

For the first time, millions of Americans who have lived paycheck-to-paycheck all their lives suddenly found that they had excess money in their hands. For many, the amount was a bonus as many were earning at pre-pandemic levels by then.

This sudden influx of money into the hands of millions led to a spurt in the demand for products. People could still not travel or spend money in restaurants. Naturally, the excess money was spent on buying goods that they would have not bought even in normal times.

This move had two effects. While it kept the economy buoyant on the back of a spurt in the demand for goods, it also led to an imbalance in demand and supply as the former outpaced the latter. This led to a severe shortage of many goods and people lapped up whatever caught their fancy.

With the supply chain severely disrupted even since the pandemic, many goods were already in severely short supply. The opening up of the world economy ensured that goods consumed in America were produced in multiple countries before ending up here. And it would be many more months right into 2022 before that could be set right.

This shortage coupled with the spike in demand led to an artificial shortage that was balanced by a spurt in the price of such goods. And once the prices rose, it would be months before they showed a downward trend.

And the inaction by the government did not help matters either. The federal administration did not want to take the obvious methods to cool down the overheated economy. Increasing interest rates could hurt the fragile economic situation.

The economy had just managed to avoid a prolonged recession, and it had the stimulus check a lot to thank for. Now taking contrary steps was something that the administration did not want to contemplate at the early stages.

The Recovery Of The Economy Was Marked By An Admirable Fall In The Unemployment Rate

The US economy rapidly recovered once the pandemic lockdown was gradually withdrawn. The brief recession melted away as Americans began venturing out once again leading to a spurt in demand and a fall in unemployment. It led to the most number of jobs being gained on record in a year with the US adding 6.4 million in 2021 alone.

The prevailing unemployment rate of 4% remains and is still above the pre-pandemic levels when it stood at 3.7%. but it should decrease further. But it was also an indication that the economy was showing signs of overheating.

Stimulus check
stimulus check

Even the omicron variant of the pandemic did not stop the rapid fall in the unemployment rate. Even in the middle of the surge around 467,000 new jobs were added, over thrice the initial estimates of analysts. Additionally, there were more job openings than available workers and a section of the workforce continued to remain wary of joining the workforce before the pandemic had died out.

On the other hand, around 6M people could not work or had lost hours over the previous month as the pandemic disrupted normal business operations across sectors. The incredibly fast rise in the infection rate due to the highly contagious Omicron variant, fortunately, reversed just as quickly and the situation rapidly moved towards normalcy.

Stimulus Checks Take Partial Blame For The Rise In Prices

The $1,400 stimulus check under the Rescue Plan of March 2021 and the parallel funds pumped into the economy has taken much of the blame for the record inflation. But it was the only way to save millions of Americans from starvation and penury. This is one vital fact that the Republicans are refusing to acknowledge. Understandably this is an election year and the truth will naturally be the first casualty. It is a straight game of one-upmanship and this will continue into the next year before the federal administration can take definite steps to arrest the slide.

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