After a booming recovery in 2021 as America emerged from the lockdowns of the pandemic, the economy in 2022 is at a crossroads.
Massive stimulus packages passed by Congress in 2020 and 2021 helped keep the United States out of a deep recession, or perhaps even a depression. However, the influx of capital to businesses and individuals also helped prop up the inflation rate.
The dilemma policy makers now face is whether putting additional money in the pockets of Americans will drive inflation even higher or if it will allow them to better cope with rising costs. Here are the opinions of some experts on the issue, along with a look at the smaller stimulus payments that are either being discussed or already have been approved at the state level.
Thesis One: Further Stimulus Will Drive Prices Higher
Although the amount can be debated, there is no doubt that the $5 trillion released into the American economy during the pandemic had at least some effect on rising inflation. According to the Federal Reserve Bank of San Francisco, stimulus payments had a quantifiable effect of adding about 3% to the U.S. inflation rate by the end of 2021, and prices have only climbed higher since then.
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Bank balances in the U.S. soared as stimulus payments were being distributed, and they still remain higher than their pre-pandemic levels, according to both the JPMorgan Chase Institute and the Washington Post. This potentially suggests that any additional stimulus payments won’t go to basic needs as much as discretionary purchases, which may drive prices higher still.
Thesis Two: Americans Need Additional Money To Cope With Rising Prices
The clearest argument for additional federal stimulus comes from actual data recorded by the U.S. Department of Health and Human Services, which found that government action during the heart of the pandemic kept 11 million Americans out of poverty. According to the HHS, “The most impactful programs for alleviating poverty were economic impact payments under the ARP (American Rescue Plan) and unemployment compensation.”
Elaine Maag, a senior research fellow at the Tax Policy Center, told Changing America that while another federal stimulus check is unlikely, it really could help American cope with rising inflation, particularly those with lower income. According to Maag, these types of households tend to have less money in emergency savings, so “delivering some sort of cash benefit now would sort of protect them from the inflation that’s happening around them.”
Former presidential candidate Andrew Yang feels that the stimulus packages have gotten too much of the blame for inflation. As Yang told CNBC, “Money in people’s hands for a couple of months last year — in my mind — was a very, very minor factor, in that most of that money has long since been spent and yet you see inflation continue to rise.”
Yang has long been a proponent of universal basic income, and he feels that additional direct payments to Americans will help keep the economy stable during future crises and keep more Americans out of poverty.
State Stimulus Packages and Their Effects
While no additional federal stimulus packages are currently on the horizon, many states have taken things into their own hands. For example, California legislators are hashing out the details of Gov. Gavin Newsom’s proposal of $400 checks for residents who drive cars, while Georgia Gov. Brian Kemp signed into law $250 stimulus checks for single taxpayers and $500 for joint filers. Other state legislatures — including those of Illinois, New Jersey, Idaho and more — also are considering various proposals.
State stimulus packages are of small enough scope that they likely won’t push up inflation by any additional amount. Whereas the federal government spent trillions of dollars over numerous stimulus rounds, ultimately providing most Americans with $3,200 or even more, state stimulus amounts are typically limited to $500 or less — with many focused solely on lower-income taxpayers. These smaller, targeted amounts may actually help Americans cope with inflation without driving it any higher.
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This article originally appeared on GOBankingRates.com: Would Another Round of Stimulus Checks Help Americans Cope With Inflation?