This is not to say that the stimulus checks were the major reason for inflation, nor that they were necessarily ill-advised.
The direct stimulus payments were the least of it though. Consider stimulus payments in conjunction with all the other programs, like the expanded unemployment benefits (that paid many people more than they would get going back to work, incentivizing not working), expanded child tax credit, rental assistance (in conjunction with the eviction moratorium) and the student loan freeze. That adds up to a lot of money flooding the economy.
And yes, when the economy was largely shut down most of these programs made sense, although some (like the unemployment benefit) were poorly designed. All of these programs were kept on way too long. That last direct stimulus check did not need to happen. The student loan freeze is inexplicably still going on even though payments and interest should have resumed a year ago at least.
The nation was faced with a severe crisis and excessive partisanship limited the options. It is unfortunate that one political party prefers electoral success over the welfare of the nation and therefore roots for an opposition President to fail.
That initial response was bipartisan, and hasty, which is why mistakes were made in how different programs were implemented. PPP has been plagued with a lot of fraud for example.
What US needs is a series of plans and programs that can be implemented quickly in an emergency. Military plans for every contingency. Our financial policies should also have contingency plans, so they do not have to be hastily designed as an emergency unfolds.
But as I said these plans were kept on too long, well after the economy reopened. That was a mistake that drove inflation higher than it would have been otherwise.
If the inflation of 2021 subsides by 2023 it should have limited long-term impact. Unfortunately, chain reactions may give momentum to inflation.
True. There is a lot of inertia when it comes to inflation because inflation expectation is itself a driver of inflation. If people expect high inflation, they will spend now rather than later and demand raises to compensate for expected inflation and both of these things increase inflation.
Raising interest rates will risk a fall in asset valuations, a credit crisis, and recession. I do not think there is any obviously correct policy path forward, especially given the fact of political gridlock.
Stagflation is the worst of both worlds, and I certainly do not envy Jarome Powell and the Fed right now. They need to calibrate interest rate increase carefully lest they trigger a recession.
I'm not sure about the U.S.G. "print[ing] 80% of dollars the US ever had over 22 months." In another thread we seem unable even to agree on the definitions of "dollars" or "money."
We certainly had a huge increase in M1 supply between April and May 2020 according to
this chart.
M2 increased less extremely, but it still increased quite a bit.
