This is not our first round of stimulus checks, but consumers are still feeling the impact of last year’s policies.
Most important points
- The pandemic was not the first time the federal government issued stimulus measures.
- Stimulus during the Great Recession did not trigger an inflationary crisis, while stimulus during the pandemic clearly contributed to higher living costs.
When the COVID-19 pandemic hit US soil in 2020, it created an economic crisis unlike anything lawmakers had seen. In the spring of 2020, millions of new weekly jobless claims began to be filed, and lawmakers had to step in to prevent the economy from collapsing completely.
To that end, it issued three separate rounds of stimulus, starting with the CARES Act in early 2020 and ending with the US bailout about a year later. And it wasn’t just stimulus checks that hit Americans’ bank accounts during this period. Lawmakers also increased unemployment benefits during the early stages of the pandemic and bolstered the child tax credit by increasing its value and making everything refundable.
This massive amount of aid has undoubtedly helped many individual Americans avoid a personal financial crisis in 2020 and 2021. The problem, however, is that these generous stimulus policies have reportedly fueled a massive surge in inflation.
Since the latter part of 2021, consumers have been forced to spend more money on just about everything from food to housing to clothing. That has forced many people to loot their savings or load up credit card debt to cover basic expenses.
But what’s interesting is that the pandemic wasn’t the first time stimulus aid was introduced. Lawmakers pumped stimulus funds into the economy in 2008, as the Great Recession hit. However, this policy did not lead to a remarkable increase in inflation. So what gives?
Lawmakers may have gone overboard
About a year after the US bailout was signed into law and a third round of stimulus checks was issued to the public, the consumer price index (CPI), which measures changes in the cost of consumer goods, was 8.5% higher than a year earlier. base. But in February 2009, about a year after the Economic Stimulus Act of 2008 was signed into law, the CPI rose only 0.2% year on year.
At the time, stimulus support clearly did not cause inflation to soar. So what went wrong in 2021?
The answer may come down to lawmakers pumping too much aid into Americans’ pockets. Let’s not forget that many people who received stimulus checks in 2020 and 2021 were not necessarily unemployed or affected by the pandemic.
Due to the nature of the pandemic, many reasonably well-off people even received aid at a time when they still had paid jobs and were spending much less money than usual because they stayed at home. That gave consumers more flexibility to increase their spending in the second half of 2021 and 2022. And it’s that increase in spending that has been a major driver of inflation.
Lawmakers tend to be more careful next time
The stimulus round approved in March 2021 may not be the last time we see stimulus checks going out. But given the blowback from inflation, it’s likely that lawmakers will be more inclined to proceed with caution the next time they’re prompted to issue stimulus measures. That could mean making smaller payments, or limiting that aid to a smaller number of recipients.
Meanwhile, as we prepare for the end of 2020, rampant inflation is still an issue. And so while it’s certainly fair to say that the pandemic-era stimulus policies were well-intentioned, it’s also fair to say that they’ve created a lot of ongoing problems that hurt consumers in many ways.
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