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State’s Stimulus Checks

Are they inflationary or not?

About 23 million California residents will benefit from the ‘inflation relief checks,’ which began to be sent to the residents in the first week of October and will be through midJanuary. The relief funds are part of California’s governor Gavin Newsom’s plan to offer financial assistance to many working families that have been highly affected by the rising fuel costs in the state.

The relief package sent out to the residents is part of a $17 billion relief package that has also suspended the state’s sales tax on diesel fuel and provided additional help to people with rents and utility bills.

Many states also join to help their middle-class citizens through this tough economic period. At least 20 states are also offering the same aid to their citizens, and while the fuel prices have been declining from their record high in June, drivers in California are paying the highest amount for a gallon of gas on average. The average price for a gallon of gasoline in California now stands at $5.423 compared to the average of $3.759 nationally.

The state’s disbursement of the inflation relief checks began on October 7, but it could take a few days or weeks for the money to arrive in people’s banks.

ARE INFLATION RELIEF CHECKS GOOD?

States are spending billions of dollars out the households in one form or another. The US government recently spent a total of $2.2trillion in economic stimulus to deal with the ravaging effects of the covid-19 virus. The primary responsibility of any government is to its people and what the government is going is good. Still, we have to ask whether these checks are only increasing the effects of inflation.

COULD IT BE THAT THESE STIMULUS CHECKS COULD BE INFLATIONARY, BUT ARE THEY?

The most straightforward answer to this is; they could be, but not significantly! Economists argue that these checks result in a surge in consumer spending, which is bad for inflation as it increases the inflation rather than cools it down. Therefore, giving residents more money to spend only increases inflation’s effects, which is theoretically impractical.

If the CARES ACT stimulus check led to our current situation in the country, will another stimulus package soften or minimize our current economic crisis?

One of the arguments put forward is that any extra infusion of cash could aggravate inflation. The government is trying to help middle-class citizens easily afford the necessities such as petrol and gas. Still, the problem is that if many people jump into consumables simultaneously, they may increase prices.

While the argument put forward by these experts could be true, it doesn’t hold! First of all, we have to understand better what causes inflation in the first place.

Three basic causes cause inflation; an increase in the general price level, not just the prices of a single good or service; it could also result from an increase in the money supply without any real economic growth, and the third and final reason could be from the total demand of goods and services surpassing the supply which is classified as cost-push or demand-pull inflation too much money chasing just a few goods and services in an economy.

Let’s consider these causes; states do not print their own money or control the supply. The arguments being thrown around so often related to the cost-push dimension closely linked to the supply chain has nothing to do with these stimulus checks. The government services the state provides to their economies are usually priced at zero except for the user fees, which are incidental and immaterial in the big picture. The key thing to understand is that there is no inflation when the price is zero. The one dimension that the state’s disbursement could impact is the demand-pull kind of inflation.

The stimulus checks are good, and the war waged against them is just political and ideological. And while there are cases where the injection of these stimulus bills into the economy could result in stimulating the aggregate demand by consumers, most of that could, in one way or the other could, have found its way back into the local and national financial coffers through government spending by the same states. None of the 20 states offering the relief checks has done so by borrowing money from the central bank, which the federal government does so often.

Therefore, the arguments against the stimulus checks are just overblown!