Economically, no more stimulus is needed. Politically stimulus will happen.
We already have more than a $4 trillion budget deficit this year.
It appears that sometime next week or shortly thereafter, Congress will pass and the president will sign, a new stimulus package. This will be in addition to the nearly $3 trillion already approved to be spent to stimulate the economy. Is this really needed?
In the first stimulus package, the government wanted to avoid a lengthy recession. Because nearly the entire economy was at least partially shut-down, GDP was falling rapidly. Even though January and February of this year were very strong, the shut-down in Mid-March resulted in a 5% decline in GDP for the first quarter.
Since the shutdown would last at least until the end of April, with May and June recovering slowly, the second-quarter GDP number could be as bad as -20%. That would be devastating. Tens of millions of people would be unemployed, with their state unemployment benefits paying only a fraction of their wages.
Millions of businesses were closed and would re-open slowly. That too is devasting since many businesses simply cannot afford many months with little or no revenue. Politicians, from both sides of the aisle, agreed stimulus was needed.
The packages passed gave $1,200 to virtually every adult who paid taxes last year or the year before. A family of four received $3,400. It didn’t matter if a person was negatively impacted economically or not. All taxpayers received the “free” money.
Unemployed people had $600 added to the weekly unemployment benefit received from the state. One study said that 68% of unemployed people were bringing in more money being unemployed than being employed.
Almost all small and medium-sized businesses could borrow money through a government-backed program. If the business promised to not lay-off any workers, the loan turned into a grant and did not have to be repaid.
That stimulus worked perfectly. The total shut-down ended on April 30. Retail sales in May jumped 18%. More than 2.5 million were created in May, easily the most ever in a single month. Total consumer spending jumped more than 8% the best since 1959. Industrial production reversed the slide and…