President Biden Says Stimulus Package Will Lower Inflation
President Obama and his staff have released numerous articles in the media stating how the stimulus package will lower inflation. The truth is that this is basically an old ploy by politicians to make it appear that economic stimulus packages are effective at lowering inflation. The reality is that the only way that such a measure can be effective at boosting inflation is if it causes more spending by consumers. It is quite simply a political trick of the economists to claim a lower inflation rate as the sole basis for advocating a massive stimulus package.
In essence, this is done through targeting tax increases at high income individuals and passing them along to consumers via the various programs. For example, let’s say that a middle class American decides to increase their spending. They may change their car in order to get lower fuel prices, buy a new home to increase their resale value, or even change jobs and work longer hours to earn more money. All of these actions will have a positive impact on the economy, but all this activity would have no effect whatsoever on the unemployment numbers because consumers would not be spending money.
Not only are these actions unproductive, they also increase inflationary pressures in the market
Inflation simply means that supply and demand forces in the economy drive up prices. When consumers increase their spending, employers cut back on their labor costs and consumers buy more. This increases the inflationary pressures in the economy and makes it difficult for businesses to make money when they should be doing so with fewer resources due to the increased overall spending power of the population.
Unfortunately, all this increases the demand for goods and services and this causes an increase in supply
The supply of goods and services includes the creation of more jobs in the form of additional companies, rising consumer confidence, and rising housing costs. This causes companies to increase their inventories in order to meet the demand for those items. This causes the cost of those items to increase. The result is more inflation.
The problem with this scenario though is that there aren’t any inflationary pressures because businesses still have money to work with. However, that money may not be available when the stimulus package takes effect in three to four months. It’s at this point that businesses are forced to either cut their costs back drastically, lay off some workers, or increase prices for products and services in an effort to maintain their profitability. If the latter happens, then consumers suffer.
To prevent this from happening, President Obama has been stressing the importance of a stimulus package that involves spending cuts and increases in consumer confidence. With unemployment at near record highs, he sees this as a key to recovery. He has said that it will take a minimum of six months before we start to feel the effects of these cuts, but it will happen.
During the last recession consumers were very leery of banks, credit card companies, and big businesses accepting stimulus packages. Today however, they are starting to get more aggressive as they realize that this is the best shot they’ve got at getting help from the government. The big question now is, how should consumers be viewing this stimulus package? Should consumers be expecting more cuts to their wallets? Should they be viewing it as a chance to finally own the things they’ve had to spend their life buying?
I personally don’t think so
I see consumer confidence improving every day thanks to the stimulus package and it has nothing to do with the government spending our money. It has everything to do with the fact that we have a healthy economy, the real recovery is picking up, and people are finally seeing that the recession wasn’t nearly as bad as it was portrayed to be. More people are starting to feel secure when it comes to where they are financially. That’s a good thing.