The Fourth Stimulus Check Comes Form American States As The Federal Administration Backs Out: Was Fear Of Aggravating Inflation Rate The Reason?

Stimulus Check
Stimulus Check

The federal stimulus checks were a great learning experience for the administration as they both proved that immediate payments work wonders.

But there is also another part of the learning experience that the administration needs to look into. The record inflation that is pounding low and moderate-income Americans is being linked to the stimulus checks or the total value of what was sent. And there is some truth in the charges being leveled both by conservative economists and the Republicans.

The pandemic was an unprecedented challenge for the US as it, or the world had never faced something similar before. Even during WW II, there was never a total shutdown of the economy for months as the economy ground to a total halt. With immediate federal support, the nation would have surely slid into a deep recession. It would have taken months for it to recover. And the process would have been painfully slow.

When America first shut down completely the federal government realized that they had an unparalleled emergency in hand. For the first time, millions were suddenly without a source of income as the complete economy shut down in a day.

With close to 65% of Americans living paycheck to paycheck, millions of families were in danger of immediate starvation, homeless, and payment defaults. The stimulus check was the only option then. It helped Americans put food on the table, cut back on high-interest loans, clear their utility bills, and pay their rent.

The successive stimulus checks ensured that people for the first time had more money than they earned in a normal year. for the first time, people not only got on normally with their lives, but they also had enough left over to pay off their debts, save and invest a part of it, and still have some left over to buy non-essential items.

Leading Towards Inflation: Stimulus Checks Ensured That People Had More Money To Spend Than The Markets Could Supply

Low and moderate-income households on average emerged from the two years of the pandemic in remarkable strong financial condition. Trillions of dollars of money were pumped in by the government. It ensured that poverty slid admirably despite the loss of millions of jobs.

The stimulus checks were accompanied by fresh rounds of other forms of direct assistance in 2021. This included the extended weekly unemployment checks that were sent out till September 6 and the enhanced Child Tax Credit stimulus checks.

These two together ensured that a majority of low and middle-income people continued to receive stimulus checks right up to December 2021. And that was not the end of it. 50% of the CTC stimulus check payment was given as a rebate against the 2021 income tax returns filed in the first quarter of 2022.

Stimulus Support Not Limited To Direct Transfer To Individuals And Families

The federal administration did not limit the support to just directly injecting billions into the accounts of millions of Americans. A substantial part of the payment went out to businesses, education institutions, medical facilities, local and tribal bodies, and state governments. This ensured that people received support at the grass root level and development work was not hampered.

Business support also played a major role in keeping the economy on an even keel during the difficult months of the recession. People who were still under employment received their wages on time, production was not stopped, and businesses continued to exist despite a total shutdown in revenues.

This ensured that even as the economy gradually was back on track, people immediately got back their jobs and the pain of a long recession was barely felt by Americans. The US even experienced a brief boom in the last two quarters of 2021 before rising inflation soured things.

Linking The Inflation To The Stimulus Checks

The Republicans and conservative economists would love to dump the total blame for the record inflation on the American Rescue Plan Act signed by president Biden in March 2021. The $1.9 trillion package had a host of support measures with the $1,400 maximum stimulus check only a part of the total.

President Biden ensured that a substantial part of the fund was sent out to various government bodies and organizations, and also to small and medium businesses. The ARPA also extended and expanded many of the critical provisions in the CARES Act and the Consolidated Appropriations Act 2021.

There were a host of support measures for businesses and workers including the Employee Retention Tax Credit, the Paid Sick, and Family Leave Tax Credit, and the Paycheck Protection Program.

The ARPA also had provisions for specific sectors including aerospace and agribusiness, two sectors severely affected by the pandemic-triggered economic downturn. 

The ARPA included $39B in grants to support higher education institutions and provided funds for the forgiveness of student loans.

The Support Measures Came At A Steep Long-Term Cost, Though The Negative Elements Were Exaggerated By The Opposition

The impact of the pandemic support measures was fast but led to some side effects, though not as severe as the opponents to it would have us believe.

While it kept the economy out of deep recession, it also led to a spike in prices as too much money in the hands of low and middle-income families led to an imbalance in demand and supply. It led to too few goods when compared to the demand. But it is also a fact that the shortage of goods was as much a result of the spike in demand as the supply chain issues.

The production of many items that depended on multiple inputs was hampered by the breakdown in supplies. Economists believe that the stimulus checks led to a 3 percentage point increase in the rate of inflation. It has since increased to touch an incredible 9.1% ending June 2022.

Workers also refused to return to work in the initial months post the pandemic and that led to a shortage of goods. This was another unintended consequence of keeping millions of American workers on support systems. It slowed down the process of workers coming out to work as sufficient funds and the fear of the pandemic kept them from working, even when the vaccinations were out in full flow.

The Treasury also worked up a huge debt of around $6 trillion in trying to support the economy. And if the interest rates increase, those costs, which are presently quite low at 1.4%, might zoom up.