Short-Term Stimulus Checks and Their Long-Term Effects

By Josiah Dalke
September 23, 2021

One of the most basic principles of economics is that there is no such thing as a free lunch; however, some people buy into the lie that the government can provide just that.

The Covid-19 pandemic has changed many aspects of the American way of life, but a major component of that change is how people respond to temporary economic hardship, cultivating an expectation for the government to solve their problems. In the midst of the pandemic, the government-imposed lockdowns brought about job losses, decreased spending, and economic hardship. As a short-term effort, the federal government issued direct payments to Americans. But many wanted this short-term effort to become permanent. In 2020, a petition arose, gaining support for making stimulus checks a permanent monthly occurrence. This demonstrates the apparent ignorance of what stimulus checks actually do and how they affect the economy.

As Brad Polumbo of the Foundation for Economic Education contends, stimulus checks really do not stimulate anything. Instead, all that stimulus checks do is redistribute wealth that the government has already attained because it does not have the power of a mystical Santa Claus to grant money for everyone out of thin air. It has to come from somewhere, and it just so happens that taxpayers, the very people that receive the stimulus check, are the ones responsible for paying for it. However, the truth of how “free” money from the government really is not free typically gets overlooked. The immediacy and novelty of the concept of receiving the money you did not have to earn somehow entices people enough to want to continue.

The irony is that despite the intention of stimulus checks to stimulate the economy, they never actually did so. A report by the Opportunity Insights Economic Tracker predicted that households earning more than $78,000 would only spend $105 of the $1400 stimulus check they receive. The whole purpose of the program was to get people to spend more so that the economy would continue to function at a somewhat normal capacity. However, many people took the stimulus check and instead saved it as the future of the pandemic remained uncertain at the time.

Thus, in effect, all that the stimulus check program provided was an immediate security blanket that will likely cost us much more down the road with inflation and other factors. In fact, Wayne Winegarden of the Pacific Research Institute released a study indicating that the economic trajectory will likely lead to higher pressure on interest rates, higher inflation, and growing economic distortions, especially as the Biden Administration pushes for higher taxes and increased regulation.

This evaluation of the stimulus program gives us insight into how government and free markets operate. Whenever a national crisis arises, the government’s automatic reaction is to bring itself into the situation and try to remedy the problem with some artificial solution.

Long-term prosperity does not come from stimulus checks. Prosperity comes when free markets are permitted to ebb and flow. Instead of imposing economically restrictive lockdowns, and then redistributing taxpayer dollars when economic breakdown ensues, government should allow people to fix problems themselves as they create new and innovative ways to meet new challenges, build markets, and improve their lives.


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