How effective were those stimulus checks? Some argue the money may have fueled inflation
Millions of people received aid through three rounds of federal checks after the onset of Covid-19.
The rush to get payments out quickly meant sometimes sacrificing accuracy.
A look back at whether the money really helped everyone who needed it most, and if it is a factor in today’s high inflation.
…
https://www.cnbc.com/2022/06/11/the-pandemic-stimulus-checks…
People being able to buy food, fuel, clothing, and shelter caused inflation.
Corporate profits are playing no role in inflation.
We are living in Bizarro World.
A look back at whether the [STIMULUS] money really helped everyone who needed it most, and if it is a factor in today’s high inflation.
I don’t remember a “means test” being applied to the billionaire tax cuts in 2017. If we believe that too many Federal dollars in circulation is the problem, why not claw back some of that?
intercst
PucksFool,
The “bizarro” is CNBC working to put off tax hikes without bringing them up as a topic.
If we want our investments and savings not to be inflated away we need tax hikes on the wealthy. Their spending has to be cut down. Or we have waves of inflation.
< if it is a factor in today’s high inflation.>
Of course inflating the supply of money to consumers inflates demand. M1 is cash and checking accounts – money in consumer pockets.
https://fred.stlouisfed.org/series/M1SL
But supply was also constrained by factors mentioned in the article and some that weren’t.
The combination of increased demand and decreased supply led to inflation.
The mistake was in sending the stimulus to people who didn’t need it and sending it after the economy had already begun to recover.
Mention of “billionaires” is irrelevant because there are only a few and their consumer spending doesn’t impact inflation significantly.
Wendy
Wendy,
Mentioning billionaires is loose talk. There are over 11 million households in the US with over one million in assets. Those with one to three million of course are the most common and not fully the culprit, but those with more than three million in particular are the main fuel of our inflation. Taxing them lightly is hurting all of us. We of course are not talking specifically assets but their incomes and investment returns.
We are kidding ourselves getting bogged down in the discussion of past fiscal and monetary stimulus as if the nation was doing something by “knowing” what caused the inflation.
That said the fiscal stimulus is less of a factor than the 2017 tax cut for the top brackets. The monetary policy has only recently gone in reverse but that was far more money for those who did not need it than anything else.
Of course inflating the supply of money to consumers inflates demand. M1 is cash and checking accounts – money in consumer pockets.
Unless it’s not inflating the money to consumers because they’ve lost their jobs, nobody is taking Uber rides, stores are shortening hours or closing, no one is going to restaurants, people have stopped shopping for new cars, and all the other things that run counter to your preferred explanation. Millions of paychecks stopped cold, or were severely reduced.
What you never do is explain why inflation is running high in countries which did NOT pass out stimulus checks or do much of anything in the way of artificially supporting their economy. Many European countries relied on their strong social networks, or paid companies to keep people on payroll rather than shower people with “extra” money. How is their inflation? Why surprisingly (to you) it’s about the same as here.
Another example? Look to the Southern border. Mexico did next to nothing, yet has the same inflation problem as everyone else.
Generally speaking when you find inflation everywhere, but your preferred explanation “not everywhere”, you look for a different hypothesis. Here, here’s what countries did:
https://www.statista.com/statistics/1107572/covid-19-value-g…
I’m going with supply disruption, changing consumer habits (including fewer services but increased demand for manufactured products), hoarding, factory shutdowns, supply disruption, and supply disruption. But maybe that’s just me.
PS: India’s inflation is 7.7%. With economic policies that added seven times less than the US. Think about it.
Unless it’s not inflating the money to consumers because they’ve lost their jobs, nobody is taking Uber rides, stores are shortening hours or closing, no one is going to restaurants, people have stopped shopping for new cars, and all the other things that run counter to your preferred explanation. Millions of paychecks stopped cold, or were severely reduced.
Yes, and it was tough to predict who would need the funds going forward should their jobs be lost. However, just like they do with ACA price breaks, the Gov’t could have clawed back the extra funds from those whose income did not go too low by end of year.
There was significant room for improvement.
IP
Goofy,
We all have the pieces of what has happened to bring on the inflation.
Very few of us are stating what needs to be done to cut the inflation down. In the meantime our earnings, investments and savings are being reduced in real terms.
Although some investments are not being devalued in real terms…ie the greenback.
First of all, if a mass of purchasing power was not poured into both the majority of Americans as well as businesses, we would have had food riots the likes of which I would rather not contemplate. That a mass of this was stolen, given to those who were not in need and otherwise wasted was unavoidable given the time constraints - and attention should be paid to not only retrieve funds which were fraudulently taken as well as apply penalties.
That the pendulum swung past its optimal point is obvious because of the vast excess pile of funds sloshing around (and obvious in the equity market). The way to withdraw that excess is by natural inflation - which can be combated by raising interest.
Leap1: Although some investments are not being devalued in real terms…ie the greenback.
The Greenback is being eroded in purchasing power by 7% per year right now. Stocks might recover their prices, but only deflation will give the USD back its value.
Jeff
(Who got no financial assistance during the COVID crisis)
Jeff,
The targets for clawing back “fraudulent” funds will be in the states where minimum wage is $7.25. Those states resented the unemployment payments. In the process of clawing back monies the bureaucrats will do what is traditionally done by those powers that be and go after PoC by zip code. This wastes the actual funding of any claw back program and keeps things racially charged so the power will remain in their hands.
This has been done in the early otts and the late 20 teens to waste IRS funds and is well documented.
The green back on the one hand is eroding of course. That is the smaller story. The green back is appreciating.
First of all, if a mass of purchasing power was not poured into both the majority of Americans as well as businesses, we would have had food riots the likes of which I would rather not contemplate. That a mass of this was stolen, given to those who were not in need and otherwise wasted was unavoidable given the time constraints - and attention should be paid to not only retrieve funds which were fraudulently taken as well as apply penalties.
Thanks for the voice of reason regarding the stimulus. Of course there was going to be some fraud in a program as massive as it was. The Monday morning quarterbacking is amazing.
Pete
First of all, if a mass of purchasing power was not poured into both the majority of Americans as well as businesses, we would have had food riots the likes of which I would rather not contemplate.
Yes, although it might not have gone that far. But food insecurity rose in virtually every country, there were long lines at food banks throughout the world where those are available, and in some countries *(India, which did little) it is said the pandemic resulted in a “hunger catastrophe”.
I give the government, (and especially the IRS) props for quick action in attempt to forestall disaster instead of waiting until afterwards. With that, at least for the first round, comes waste, as people who are in no danger get monies they really didn’t need. (Like us. But we gave ours away.)
The IRS, it goes without saying, is not a charity organization, nor are they particularly equipped to do anything except know taxpayers addresses (and income), but then there are a lot of people who don’t even file because their income is so low, so who finds them? Getting out front of a looming disaster necessarily implies some misallocated resources, there is no other way. Even using “last year’s income” is fraught, as many people have lumpy tax bills with capital gains, home sales, periods of unemployment, etc.
But by the time the second - and the third - wave came along I suppose more could have been done. Better targeting (there was some) would have reduced both the debt burden and the unnecessary payments, but of course a lot of people would have complained about “welfare” and the like.
The European response was better, I think, in flowing monies through corporations to prevent layoffs - an even giving those companies a work force that could do things they otherwise might not: rehabbing equipment, cleanup, etc. But we surely would have had complaints about already profitable companies getting government funds (because unlike Europe we have freedum), and some companies would have engaged in fraud, as we have seen here as well.
There is/was no perfect solution. The fact that we came through it without serious damage is pretty amazing if you think about it. The 1918 “Spanish Flu” came on the heels of a world war, so there was already massive dislocation and such programs would not have been considered anyway. And so went the politics of several countries into the crapper in the 20’s, BTW.
Anyway, not perfect, perhaps not even excellent or very good, but better than depression and starvation in my book. And if we all have to pay a little something for it, well, nobody said it was going to be a free ride.
MataroPete,
<<<OrmontUS: First of all, if a mass of purchasing power was not poured into both the majority of Americans as well as businesses, we would have had food riots the likes of which I would rather not contemplate. That a mass of this was stolen, given to those who were not in need and otherwise wasted was unavoidable given the time constraints - and attention should be paid to not only retrieve funds which were fraudulently taken as well as apply penalties.>>>
Of course there was going to be some fraud in a program as massive as it was.
I take exception to the idea that there was “some fraud” in the COVID stimulus money.
Almost three quarters of the Paycheck Protection Program money was siphoned off by the “job creators” and never made it to the employees who’s paychecks were supposed to be “protected”.
Little of the Paycheck Protection Program’s $800 Billion Protected Paychecks
https://www.nytimes.com/2022/02/01/business/paycheck-protect…
Only about a quarter of the funding went to jobs that would have been lost, new research found. A big chunk lined bosses’ pockets.
That’s “massive fraud” by any measure. Yet, many people seem to think that single mothers on food stamps getting a few thousand dollars is the source of all our ills.
intercst
Thanks for the voice of reason regarding the stimulus. Of course there was going to be some fraud in a program as massive as it was. The Monday morning quarterbacking is amazing.
The bottom line is everyone likes getting free money from the government, and it was an election year. Remember, after the summer 2020 helo money went out, a few weeks later a letter arrived saying words to the effect “I sent you money, aren’t I great?”
I submit that the potential for fraud was not a consideration in those handout programs.
The Gov in Michigan is up for reelection this fall. There was a very large surplus in an auto insurance fund. Did they adjust the insurance rates to more closely match outflows and leave it at that? Nope. Every car owner got a check for $400. I’m confident that, somewhere along the line, the Gov will remind everyone “I sent you money”.
Steve
Only about a quarter of the funding went to jobs that would have been lost, new research found. A big chunk lined bosses’ pockets.
Odds are very few investigations into this.
Mostly states with $7.25 per hour wages will look into PoC over unemployment claims.
Mentioning billionaires is loose talk. There are over 11 million households in the US with over one million in assets. Those with one to three million of course are the most common and not fully the culprit, but those with more than three million in particular are the main fuel of our inflation. Taxing them lightly is hurting all of us. We of course are not talking specifically assets but their incomes and investment returns.
The fact is that most of these 11 million households SPEND LESS than another 50-60M households (middle class and higher) across the land. That’s how they managed to save their million bucks or three. You need to reread The Millionaire Next Door.
Not to mention that only 4% of households have assets over 3 million, and 4% doesn’t affect the overall inflation number by much at all.
Your thesis is wrong, dead wrong, but you keep repeating it over and over again. We get that you want to tax the wealthy, and there may or may not be good reasons for doing that, but inflation is NOT one of those reasons either way (for or against).
The fact is that most of these 11 million households SPEND LESS than another 50-60M households (middle class and higher) across the land. That’s how they managed to save their million bucks or three. You need to reread The Millionaire Next Door.
I did read it.
I know a small restaurant owner who works very hard. He saves a ton of money. He is an immigrant and does not feel anyone would ever help him in an emergency. He does not earn a lot of money. He saves.
The point is his spending habits. He will count fractions of a cent on his handmade products in the kitchen. Then he will buy $350k house that on his income no American could afford. Then he will send his daughter a top Boston college. Yes the college did help him.
This is where I and the book part company. The millionaire next door will spend in a big way on his tools and heavy equipment. He will then get penurious over anything else down to the penny. The book missed the point entirely as if all the millionaire does is save.
Percentage of income households with far less in assets spend more. That is the only measure those households spend more individually.
Your thesis is wrong, dead wrong, but you keep repeating it over and over again. We get that you want to tax the wealthy, and there may or may not be good reasons for doing that, but inflation is NOT one of those reasons either way (for or against).
Mark,
You did not prove your point at all. You did not even try to prove your point at all.
I feel I need to address this.
Despite only about 0.1% of Americans making over a million dollars a year, it sure seems like the number is much higher. If you want to get rich, you might as well focus on joining industries that pay very well. But there’s more to just joining a well-paying industry to get you to a million dollar income.
Google results…this figure has been around for the last decade…
So 1 in 10,000 people make $1 million per year. If their households are about 2.5 people and we say everyone is in a household that means 1 in 4000 households have $1 million or more in income.
That is not as rare as saying the 0.1%. In my area outside of Hartford CT that is about one third of households making over $1 million per year. I see the money flowing. Starbucks automatically has a choice top dollar or bottom dollar. Ulta Beauty same choice. In my state the gas stations are in zones. My zone has the highest prices because of the income levels and we are in central CT away from the lower priced gas in other states.
I also see the gravy train. If you will. Meaning it is not just the person making over $1 million per year doing the spending. It is their immediate family. It is their top employees. It is their service contractors, or tradesmen and women buying materials for jobs that must get done. There is a cascade effect. And that is something you seemingly do not see but are experiencing in the current inflation.
The person making $1 million per year in my area is not the plumber. The plumber is saving a few million in a life time. The plumber is in your 50 to 60 million next households. You misunderstood that as well when bringing up the book. The book is not relevant to this discussion.
Mark bottom line there is no inflation if no one pays more for something. The poor to the plumber are not in this to pay a lot more and save time. Those on the $1 million or more per year in income gravy train just throw cash or plastic at it.
There are over 11 million households in the US with over one million in assets. Those with one to three million of course are the most common and not fully the culprit, but those with more than three million in particular are the main fuel of our inflation. We of course are not talking specifically assets but their incomes and investment returns.
Dead wrong in so many ways.
Millions have ‘assets’ of over 1 million but most of it likely is in their homes in expensive places like CA, NYC, MD, NOVA, etc. A starter home 20 years ago cost $250,000-350,000 and now with inflation and gains, are worth a million plus. They generate no income but are net sinks- real estate taxes, maintenance, insurance, …and with SALT, limited tax benefits. Or in their 401K/IRA plans for retirement. Since most don’t have pensions these days (and even in the best of times, less than 40% of people had a pension), you need to accumulate some ‘assets’ to retire on. 401K/IRA generate zero income despite ‘net worth’ until one hits 72 now, or begins withdrawals.
You keep confusing ‘net worth’ to annual incomes. I’m sure most with a million in assets are SPENDING and SPENDING just to keep living, paying the taxes on their real estate and likely still working, working, working paying SS and Medicare taxes. Many probably still have kids at home or in college.
More than 3 million? Gimme a break. In CA, a couple working, but a new home, have to fork up 1.5 million or more to buy a home. So they make $150K each…but they are spending just to live there. Rent? $4000/month in SF. And they pay boatloads of fed and income taxes - so what if they each have 1.5 million in their retirement accounts? So they have ‘4 million in assets’ but have to keep working just to stay afloat and they are spending nearly all their income just living.
Now…there are a few who make 1 million or 10 million a year a CEOs or college presidents - but 1 in 1000? 1 in 5000? 1 in 10,000? 1 in 100,000? And likely they are spending a lot of it, investing in the stock market, and of course, taking all the legal tax avoidance measures they can from owning rental real estate to get depreciation to a dozen other deferments…including retirement plans like 401K/IRAs that likely you take advantage of, too!
t.