I've always wondered why the government when doing these ~10 trillion stimulus to various industries just didn't give every person ~$30,000 during the last year spread out over the year. Probably because that would drive actual inflation.
Imagine the government printed 4.44 trillion dollars and passed twice the total covid stimulus every year. We'd either have massive inflation or the fed would need to jack up interest rates to the 20-40%. Economies don't do well with exploding inflation or sky high interest rates.
This is not economics 101 and it's more nuanced than that. Stimulus checks can make inflation go up, but they can also do nothing. And it's important what type of inflation it causes, because California is only giving it to lower income citizens. If you quadruple the price of sports cars by giving every low income person a check, you still helped out the most vulnerable people.
$40,000 for every man, woman and child was printed for corona stimulus. $13 trillion total. If you're wondering why all this inflation happened, it's pretty simple cause and effect.
Several prominent economists at Harvard looked at inflation in countries that did and didn't send out stimulus checks. The numbers ranged from 4% to 8%, with stimulus checks strongly correlating with higher inflation. The math disagrees: there was going to be high inflation due to the pandemic and the Ukraine war, but stimulus policies accounted for the majority of the damage.
It would not "offset whatever you're making". The economy isn't set up so the most cynical option is true. (I can beat you in cynicism anyway - most people don't have salaries so you'd now outbid non-workers such as the elderly by 4x what you did before.)
This is currently coming up as people claiming all stimulus bills will cause inflation, but there's no inflation in the US for the last 30 years, when we did have it the cause was an energy price spike, and so they have no empirical evidence.
The federal reserve created 20% of all money ever created in the first year of the pandemic [1][2]. Which is absolutely mind blowing to me. The total cost of Covid stimulus was over 5 trillion dollars.
That doesn’t mean all individuals are well off, but there is no doubt that the economy is flush with extra cash. And since the number of physical goods had not changed, that meant inflation. Which honestly nullified any advantage people got from stimulus (which were temporary).
Aren’t we currently experiencing inflation at least partially due to government stimulus handouts during Covid? I know there are multiple causes but free money certainly didn’t help.
Also, I think it is a good idea to keep government programs means tested and separate. If you give people 20k, the number of people who should be feeding their kids with the money but instead bought “new rims” for their 2007 Honda Civic is going to be much greater than zero.
I don't think so, because as you said most went to the rich anyway. For the inflation to be caused by the stimulus, it'd have to actually be in the hands of people spending it.
Demand can only go down when prices go up for elastic goods, so this isn't a factor for, e.g., oil, and anything made or transported using it (everything). Demand is further increased by people having already put off a lot of spending for 2 years.
THIS, so much this ... for years people said bottom-up stimulus plans would inevitably cause inflation. Injecting the money on top changes little, now it's just trickle-down inflation.
(and if this doesn't hold, I would love to understand why)
The percentage of that stimulus that stays in the hands of consumer for disposable income is what’s gonna determine if there will be inflation. The fed is betting most of that is used for paying bills and debt. Then what you get is asset inflation at the hands of businesses.
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