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Sunday, September 25, 2022

Could Further Stimulus Checks Hurt The Economy? States Move Ahead With Inflation Relief Payments For States

The US government made massive stimulus check payments in the months immediately after the pandemic struck in March 2020. The payments continued through 3 rounds of stimulus checks and many other support measures that helped people traverse the worst natural calamity to befall mankind after World War II.

The payments were immediately effective as they went directly to the hands of citizens, bypassing bureaucratic barricades. People do exactly what they were promised, and it helped people put food on the table, pay for their utilities and rent, and even save a part of it. This even as millions found themselves without a job suddenly.

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The payments, both the direct stimulus checks, and the funds paid to states, other statutory bodies, and businesses across the nation, helped them pay salaries and retain jobs and continue to produce goods after the initial phase of the pandemic passed, and even during the pandemic.

Even as the whole economy remained almost shut down, the nation did not go into a deep recession and even the stock market reached an all-time high shortly after the sharp drop during the initial weeks of the pandemic.

The Stimulus Checks Were Not Without Its Drawbacks

But despite its role as the savior of the economy during the difficult months of the total lockdown, the stimulus checks were responsible for some of the ills that the economy faces today. While some have directly blamed the stimulus checks for the record inflation that threatens to unravel the progress the economy made in the last two quarters of 2021.

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The early days of the pandemic showed a marked tilt towards an economic depression. For months together, workers were either forced to stay at home without a job or were compelled to work for fewer hours, drawing a fraction of what they earned during normal times. Many businesses shut down completely, and never open.

Under such circumstances, stimulus checks were desperately required for families and businesses. Without the immediate support offered by the payments, the economy would have slid out of control into total deflation and the recovery would have taken years.

From the standpoint of the common citizens, the money from the stimulus checks meant that people could provide for their families despite being without a single source of earnings.

A large percentage of Americans live paycheck-to-paycheck. Even the disruption of a single payment can upset the apple cart and through families onto the street and prevent families from even putting food on the table.

In such a scenario, the stimulus checks arrived as a savior. The support that it afforded citizens is borne out by the study released by the American Census Bureau. Data released by the body shows that around 11.7M people were able to stay out of the clutches of poverty in 2020 alone thanks to the stimulus checks.

Most experts do not dispute the necessity of the initial stimulus check payments of $1,200 in 2020. But many believe that the subsequent stimulus checks were partially the reason behind the record inflation that threatens to unravel the good done by the initial stimulus support both to the economy and the common people.

The urgency of sending stimulus checks quickly to a majority of the population also led to the stimulus payments falling into the hands of people who did not deserve it. Many Americans continued to get their normal salary throughout the pandemic, and they did not deserve to be paid the stimulus check amounts. Many individuals and families received the full support of the payments which were as high as $10,000 or more for many families of four.

Add to that the weekly unemployment payments and the child tax credit stimulus check, it is apparent a substantial percentage of the stimulus checks reached the wrong hands.

A Rise In Consumer Debt

Even though in the initial stage of the pandemic, consumers used stimulus money to pay off high-interest debts, the trend has seen a reversal since. Around $83B of credit card and other high-cost debts were paid off in the initial weeks. But Americans are back to their old ways with the end of the stimulus checks.

Total household debts including home mortgages, student loans, and auto loans have hit a record $15.84T, by the beginning of 2022. The New York Fed among others says that credit card debts would continue to rise through inflation. They believe that it will go wy above the present level of $841B.

Analysts say that there is every chance that total credit card debts will touch record highs soon. It would mark a sharp reversal from the swift drop that occurred in 2020 and even in the first quarter of 2021. It is a clear indication of how strong an influence the stimulus checks had on the economy.

Unfilled Vacancies

A curious labor statistic that was noticed during the pandemic was how jobs remained vacant. It initially fell at the onset but has since gone up swiftly to near record levels. Even in the middle of major economic expansions, job vacancies have more than doubled since the second quarter of 2020.

While a part of this could be explained away as the reluctance of workers to risk their life and health during the pandemic. People also had to stay away from jobs to take care of their sick family members, While others remained quarantined for long periods when they and their families were affected by the virus.

But there is also no denying the role of the stimulus checks in keeping people away from jobs. The slew of stimulus checks, the waiver of various debts, or their postponement all led to many workers losing the urgency to return to work.

A Different Viewpoint

But not all economists and politicians agree that the stimulus checks had an overall negative effect on the economy or that they had a major influence on the current inflation. Many say that instead, the stimulus check payments were too low and brief to generate the present inflationary highs. 

Former presidential candidate Andrew Yang says that the money lasted in the hands of people for a couple of months and most had spent it by the second quarter of 2021. So it was a very minor factor in the present inflation. The inflation began to rise later at the end of the third quarter and picked up pace in the last quarter of 2022.

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