Why not everyone in the US likes stimulus checks

In March 2020, as the pandemic took hold, unemployment in the US began to skyrocket, the federal government passed a $2.2 trillion

stimulus

bill for the unemployed, loans for businesses and Twelve hundred dollar

stimulus

checks

sent to millions of Americans in December, the government sent out even more

checks

, and then in March 2021, even more all this government spending made this guy very worried. It seems to me that we are taking very substantial risks. advisor and thought the checks were a mistake, we are going to prepare for inflation, you know, inflation when prices go up and money is worth less and less like the United States had in the 70s or in the extreme in places like Venezuela, where money is so worthless, is used to make wallets, so are these checks really something to worry about?

Could they lead to this? First we need to talk about how inflation works. Think of the economy as a fish tank when a fish spends his money like a fish concert. that keeps other fish employed, like local workers, so they can spend their money on things like their mortgage or a car, because fish need cars, stay with me, it's a cycle, employed fish spend money that keeps others fish employed, part of that money also goes away. in your savings to spend later and think of all the water in the tank as all the money that is spent in the economy.

In an ideal economy, fish unemployment is low and a lot of money is spent, so there is a comfortable amount of water in the tank. tank, but in a recession many fish lose their jobs and stop spending money and other fish are afraid of being next so they stop spending and start saving and with less money spent in the economy, the water level drops when That happens, the government can inject more money or water into the economy, it can be through things like investments in infrastructure or unemployment benefits, but in the last 20 years a policy that has been used more and more frequently is controls stimulus checks that give people cash directly to go and checks to spend are definitely something that many economists find useful because it avoids traditional channels: the first stimulus check as we know it came in 2001.

It was actually more an early tax refund that gave adults who had paid at least six thousand dollars in income taxes a three Studies on hundred dollar checks found that everything went very well, people spent the money and the checks helped end the 2001 recession. This approach was so popular that in the next recession in 2008 the government did it again, this time sending out twice as much. Much money in tax refunds was phased out for higher-income Americans, but expanded in other ways most families received a little more for each child lower-income people also received a check, although smaller, it was only a part of a larger stimulus package, but studies found it worked again this time even more people spent their checks quickly, giving people money quickly and helping the economy, which in turn helps more families , but this is the problem, normally companies increase their prices a little every year, but it is not noticeable.

Since people tend to earn a little more each year, prices increase due to inflation and we can measure this as the level of the water in the tank. Higher prices mean more money spent so the water level is higher, but if these fish suddenly have a lot more money to spend the companies can raise their prices a lot, drastically higher prices mean too much water in the tank and it could overflow, this is bad inflation, but economists actually want a little inflation every year, spending is a sign of a growing economy, it is not a bad thing in fact, if prices are not going up, it tells you that something is really wrong in the economy.

This is what inflation has looked like in the United States for the last 40 years. Zero means that prices have not changed from the previous year. Four percent means things cost four percent. more than last year and here, in these gray bars, when the economy was in recession. Observe anything. A recession is almost always accompanied by a substantial drop in inflation. When people lose their jobs or fear they will be next, they don't spend as usual. Businesses can't raise their prices like they normally would when this line falls below zero, meaning things actually cost less than they did a year ago, that's bad, falling prices are a sign of an economy. in crisis and, frankly, an economy in a downward spiral and for the last 10 years, the United States has aimed for 2 percent inflation and you can well say why two percent and their argument is that we want a little of a mattress, but the United States before the pandemic didn't have much of that mattress that we had.

We consistently fell short of that two percent and then our fish tank was attacked, we lost a lot of water, very suddenly we saw the federal government sticking some duct tape on the fish tank and dumping a little more water. One thing they did that was very popular was Send checks to people and this time the stimulus checks were sent to even more people than in 2001 and 2008, basically anyone with a social security number and more for children, and it worked too, you can see it here in the US bank accounts chart. People's balances rose with the stimulus checks and fell as they spent them, which put more water in the tank, but then the government sent out more and even more.

This is what worries some economists if the government dumps all this water and then people start going. spend again including what they have saved that is a lot of water wouldn't it cause the tank to overflow? Most economists say it's probably not really important to remember that we lost a lot of water. The risk right now is to do too little. There has to be a sudden explosion in spending. Most economists, including those trying to run the U.S. economy, agree not to worry. We could see some inflation as the economy reopens, but not at overflow levels.

There is a debate about stimulus checks, but it's in the details who. many economists even want them to automatically shut off when the economy shows signs of recession, starting to have a rule that automatically adjusts the water level without the political headaches of getting Congress to approve it when the unemployment rate rises just a little. We're in a recession, bad news, bad things are coming, send out the checks, but when it comes to inflation, today's economists want a little and aren't really worried about overflowing the tank. Sorry, Larry is doing very little right now listening to People who are so afraid of the fish tank overflowing I think that would be a big mistake.