COVID-19 & Printing Money

The Trump tax cuts combined with government spending added to the deficit without excess inflation; however, with the emergence of the Covid-19 pandemic, a $2 trillion stimulus combined with economic fallout drove inflation. President Biden continued to add to that inflation with the CARES Act.

Updated: 2022-08-07

Introduction

In the wake of the coronavirus pandemic, the U.S. economy contracted, and unemployment rose from 4.4% in March to an astonishing 14.7% in April 2020. As a result, the government took extreme measures to avert a complete economic meltdown: lawmakers passed a series of coronavirus relief packages, allocating roughly $4.1 trillion in aid under former President Trump and $1.9 trillion under President Biden. In addition, the Federal Reserve cut its federal funds and discount rates to almost zero and purchased bonds to pump money into the economy.

While the government took these actions to protect and jumpstart the American economy, they also had some unintended consequences.

Government Inflation. The $6 trillion in relief packages injected vast amounts of money into the economy that many Americans who lost their jobs did need. However, those same Americans found themselves with more disposable wealth (i.e., spending money), creating even more inflationary pressures.
Demand inflation. The reopening of the economy combined with low-interest rates created high market demand, causing inflation in the short term.
Supply problems. As producers tried to use already strained supply chains to meet that heightened demand, it has resulted in a supply shock, further increasing inflation.

The pandemic has shone light on the interconnectedness of a global supply chain, where existing economic weaknesses were amplified by increased demand, supply shocks, and an influx of government dollars. Ultimately, this has created the rampant inflation the U.S. is experiencing today.

Unfortunately for the American people, the past year was an almost perfect example of the different forms of inflation. As the 2022 midterm elections approach, inflation is a hot-button issue. In a recent AP-NORC poll, economic problems have overtaken Covid-19 as one of Americans’ top issues. This January, only 37% of Americans said Covid-19 was one of their top priorities for the government to address, a 16% drop compared to a year earlier. In contrast, 68% of respondents mentioned the economy in some form as a concern for 2022. That figure includes 14% that specifically cited inflation as a top issue.

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Narratives

Left Narrative

The inflation Americans are seeing now is temporary. Consumers are purchasing a record number of goods creating the strain, and the private sector has underinvested in supply chains for years, causing the backup. As Republicans sow pessimism about the U.S. economy for political benefit, they weaken consumer confidence and slow economic recovery. The spending bills championed by Democratic lawmakers and President Biden were necessary to keep the recovering economy from faltering and, while not ideal, are worth any short-term inflation. The once-in-a-generation investment in the Infrastructure Investment and Jobs Act will help ease the stress on U.S. supply chains. In addition, President Biden’s proposed Build Back Better framework includes provisions such as expanded access to affordable childcare that, when passed, will allow more individuals to go to work and address temporary labor shortages.

Right Narrative

Congressional Republicans and President Trump have already provided the necessary relief for Americans with several stimulus packages. The Biden administration’s American Rescue Plan was little more than a Democratic wish-list disguised as coronavirus relief. The excess cash injected from these bills has overheated the U.S. economy and is causing inflation to skyrocket out of control. Congressional Democrats and the Biden administration have been giving hand-outs that discourage people from returning to work, creating a labor shortage and causing a supply chain crisis. Democrats’ insistence on wastefully spending trillions more will exacerbate these problems and harm the working class.

Bipartisan Narrative

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Classroom Content

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