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Why not everyone in the US likes stimulus checks - YouTube
Channel: Vox
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in march of 2020 as the pandemic took
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hold
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unemployment in the u.s began to spike
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the federal government passed a 2.2
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trillion dollar stimulus bill
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money for the unemployed loans for
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businesses and
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twelve hundred dollar stimulus checks
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sent to millions of americans
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in december the government sent out even
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more checks
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and then in march 2021 even more
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all this government spending made this
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guy very concerned
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seems to me we're taking very
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substantial risks what was
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kindling is now igniting larry summers
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he used to be bill clinton's treasury
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secretary and barack obama's top
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economic advisor
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and he thought the checks were a mistake
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we're gonna
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set ourselves up for inflation you know
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inflation when prices
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increase and money is worth less and
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less like the u.s had in the 70s
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or in the extreme in places like
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venezuela
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where money is so worthless it's used to
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make purses
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so are these checks actually something
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to worry about
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and could they lead to this first we
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have to talk about how inflation works
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think of the economy as a fish tank when
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one fish spends their money like out at
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a fish concert
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that keeps other fish like the venue
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workers employed
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so they can go spend their money on
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things too like
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their mortgage or a car because
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fish need cars stick with me it's a
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cycle
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employed fish spend money which keeps
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other fish employed
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some of that money also goes into their
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savings to spend later
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and think of all the water in the tank
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as all the money being spent
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out in the economy in an ideal economy
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fish unemployment is low and there's
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lots of money being spent
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and so there's a comfortable amount of
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water in the tank
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but in a recession lots of fish lose
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their jobs
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and stop spending money and other fish
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get scared that they might be next
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so they stop spending and start saving
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and with less money being spent in the
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economy the water level
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falls
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when that happens the government can
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pump more money or water
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into the economy it can be through
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things like investments in
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infrastructure
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or unemployment benefits but in the last
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20 years
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one policy that's been used more and
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more frequently
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is stimulus checks giving people cash
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directly to
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go and spend checks are definitely
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something that
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many economists think are useful because
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it bypasses the traditional channels
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the first stimulus check as we know it
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came in 2001. it was really more like an
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early tax refund
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it gave adults who had paid at least six
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thousand dollars in income taxes
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a three hundred dollar check studies
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found that it went swimmingly
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people did spend the money and the
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checks were credited with helping to end
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the 2001 recession
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this approach was so popular that in the
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next recession in 2008
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the government did it again this time
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they sent out twice as much money in tax
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rebates
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it was phased out for higher income
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americans but expanded in other ways
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most families got a bit extra for each
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child people with less income
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got a check too though smaller it was
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just a part of a larger stimulus package
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but
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studies found that it worked again this
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time even more people
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quickly spent their checks they give
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money to people fast
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and it helps the economy which then in
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turn helps more families
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but here's the problem normally
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businesses raise their prices
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a little bit each year but it's not very
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noticeable since
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people usually make a little bit more
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each year
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this is inflation prices going up
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and we can measure it as the water level
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in the tank higher prices mean more
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money being spent
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so a higher water level but if suddenly
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these fish have
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way more money to spend businesses can
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raise their prices
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a lot drastically higher prices mean too
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much water in the tank and it could
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overflow
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this is the bad inflation
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but economists actually want a little
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inflation each year
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spending is a sign of a growing economy
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it's not a bad thing
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in fact if prices aren't rising it tells
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you that
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something is really wrong in the economy
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this is what inflation has looked like
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in the u.s the last 40 years
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zero means prices haven't changed from
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the year before
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four percent means things cost four
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percent more than last year
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and here in these gray bars are when the
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economy was in a recession
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notice anything a recession almost
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always comes with a substantial dip in
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inflation
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when people lose their jobs or are
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afraid they're next
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they don't spend like usual businesses
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can't raise their prices like they
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usually would
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when this line falls below zero meaning
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things actually cost
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less than they did a year ago that's bad
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falling prices is a sign of an economy
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in crisis and frankly an economy in a
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downward spiral
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and for the last 10 years the u.s has
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aimed for 2 percent inflation
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and you can say well why two percent and
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their argument is we want a little bit
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of a buffer
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but the u.s leading up to the pandemic
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didn't have much of that buffer
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we weren't consistently hitting that two
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percent
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and then our fish tank was under attack
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we lost a lot of that water very
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suddenly we saw the federal government
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slap some tape on the fishbowl throw
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some more water in
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one thing they did that was really
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popular was to send checks to people
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and this time stimulus checks were sent
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out to even more people than the ones in
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2001 and 2008
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basically anyone with a social security
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number plus
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extra for children and it worked then
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too
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you can see here in the chart of
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americans bank accounts people's
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balances went up with the stimulus
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checks
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and down as they spent them it put more
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water into the tank
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but then the government sent out more
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and even more
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this is what worried some economists if
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the government pours in
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all this water and then people start
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going out and spending again
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including what they've saved that's a
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lot of water
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wouldn't it make the tank overflow
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most economists say probably not
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it's really important to remember that
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we lost
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a lot of water the risk right now
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is doing too little it would have to be
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a sudden
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explosion of spending
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most economists including the ones
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trying to steer the us economy
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agree not to worry we could see a little
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inflation as the economy reopens but
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not at overflow levels there is debate
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around stimulus checks but it's in the
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details
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who should get them and how much should
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they be many economists even want them
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to go out automatically
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when the economy shows signs of a
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recession starting having a
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rule in place that automatically adjusts
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the water level
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without political headaches of getting
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it passed through congress
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when the unemployment rate rises just a
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little bit we're in a recession
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bad news bad stuff is coming send the
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checks
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but as for inflation economists today
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want a little
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and aren't really concerned about
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overflowing the tank sorry larry
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doing too little right now listening to
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the people who are
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so afraid of the fish tank overflowing
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i think that would be a big mistake
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[Music]
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