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Wednesday, August 10, 2022

Federal Stimulus Checks Could Become A Reality If Recession Comes: But Would Additional Payments Help The Economy?

The pandemic and the accompanying economic downturn led to the series of stimulus checks which helped lift close to 150 million households out of certain poverty. The initial shutdown of the economy after the pandemic crossed the borders into America led to an unprecedented downturn.

The stimulus checks approved by Congress immediately in the first quarter of March 2020 unleashed the largest flood of federal money ever into the American economy. Around $5T went to households, small businesses, the health care industry, the aviation sector, state governments, and educational institutions across the country.

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And this financial jump starts helped the US economy recover more quickly than it otherwise would have from the severest downturn after the Great Depression. Thanks to the support, the pandemic recession was the shortest on record, lasting just 3 months.

The stimulus check money and the other support measures ensured that businesses were ready to reopen immediately after the economy reopened. People had money to bring food to the table, pay their rent and utility bills, and ensure they did not default on their loans. Their kids did not go hungry, their credit ratings were intact, and they did not end up homeless.

It was a huge learning process for the American government on how to avoid a long-term recession, and they succeeded admirably. But the full impact of the CARES Act and the American Rescue Plan Act remains undetermined. The economy went through a roller coaster ride with a brief period of boom in the last two quarters of 2021.

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But then inflation began to rear its head in the last quarter of 2021. It has remained moving up ever since and has reached record figures that were last seen in 1981. This has handed opponents the stick to rally against providing help, blaming the present situation selectively on the third stimulus check signed by President Biden in March 2021.

The Stimulus Check And Recession

While the recession is hard on large sections of the population, this is not the first time that the US has faced one, and it has admirably ridden out of it each time. It has been an unceasing occurrence in the economic history of any nation and the US is no exception. Since WW II ended, Americans have faced 13 recessions with an average span of 10 months each. And each recession has been followed by a resurgent economy that has rebounded admirably.

But it is not easy for families, especially in the low and middle-income category, to confront a recession. It is a constant worry about paying your bills and retaining your job. It was the reason that the administration sent out stimulus checks in 2001 and again in 2008. The only difference was the number of stimulus checks during this pandemic and also the scale of the support which covered every aspect of the economy.

Many conservative economists and the opposition Republicans have taken an I-told-you-so stance and have said they knew that the nation was headed towards a recession when the third stimulus check was announced. But they fail to give a convincing argument of the alternatives that lay at that moment.

Stimulus Checks Have Added Advantages During Recession

Stimulus checks and similar direct support to the economy have multiple advantages over other forms of aid during a recession. Once the stimulus payments reached the hands of citizens, research indicated that beneficiaries immediately spent at least 50% of the money. This quick spending helped the stressed economy through a sudden infusion of cash and helped to cushion the fall that happens normally during an economic recession.

Offering Stability To Employment During A Recession

The pandemic is also a keen witness to how the stimulus checks kept many Americans employed. Despite record job losses, policymakers and economists realize that it would have been way worse without the immediate and direct support of the federal administration.

In the absence of these support structures, families would have been left with little money to expend, leading to an even larger number of job losses. It is worth noting that the unemployment figures immediately after the shutdown was declared spiked close to 15% and went down marginally once the first of the stimulus checks reached individuals and families.

With money in their hands, individuals and families could afford to spend freely on food, other essential consumer goods, utilities, and services. These industries received a major unexpected boost during the pandemic and could both maintain steady revenues. This also helped protect jobs in these industries.

Stimulus Checks Helped Fill State Gaps By Republican States

Republican-ruled states have a record of giving the least benefits to constituents. Traditional Republican-ruled states such as Alabama, Florida, Tennessee, Mississippi, and Missouri have the worst record for unemployment benefits. These Republican states have made it tough for residents to receive unemployment benefits.

And during a recessionary phase, these states offer the least assistance that is desperately needed for economic stability. During the pandemic, it was President Biden’s intervention with the American Rescue Plan Act that helped the economy of these states stay on an even keel and stimulated the economy.

Republicans Remain As A Stumbling Block For Further Stimulus Support

While most economists agree that in the event of a recession, which seems inevitable at this stage, stimulus checks are the best bet for the economy to fight its way out. But the current setup of Congress makes it almost impossible to get the present Republican opposition on board.

To complicate matters further, in a Senate split down the middle, Democratic Senator Joe Manchin has made it even more difficult by going against the President on numerous decisions to protect personal business interests. Senator Krysten Sinema has been another Democrat Senator who has gone against the party on numerous occasions.

The narrative that the stimulus checks have been largely responsible for the current inflation tends to ignore the fact that the present situation is part of the economic cycle. Given the effect the pandemic had on the economy, inflation was expected but got delayed due to the support of the stimulus checks.

Further, inflation was largely fueled by supply issues and the war in Europe which led to the record increase in the price of oil.

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