Newsom’s handouts. Economically bad. Socially not so bad

Michael Busler
4 min readJun 29, 2022

Giving free money to those most hurt by inflation is socially a good idea but economically it will make inflation worse.

Recently California Governor Gavin Newsom said he wants to give up to $1,050 to about 23 million Californians in the form of an “inflation relief check.” He said these payments will have income limits so the lower-income earners will receive the most. Is this a good idea?

Newsom’s plan to give more free money to consumers in the form of relief checks will increase aggregate demand and worsen inflation.

The answer is that it depends on your point of view.

From a socially responsible viewpoint, this is a good idea. Newsom’s purpose is to help those most negatively impacted by inflation. Necessities, like food, shelter and energy prices have skyrocketed in the last year, while their incomes haven’t nearly kept pace.

Those most hurt by inflation are those in the lower-middle or lower-income class, as well as people on fixed incomes, many of whom are retirees. Their incomes haven’t nearly kept up with inflation. As a result, they have seen a decline in their standard of living.

Those most vulnerable Americans need help. This amount is not large but will help.

California continues to see high tax revenue, and Gavin believes that the $17 billion cost of this program can easily be covered by the state’s record-setting $97 billion budget surplus. From a social standpoint, the relief check seems to be a good idea.

From an economic perspective, this idea is very bad and will indeed make inflation worse. That’s because these checks will increase aggregate demand at a time when most of the inflation is caused by excess demand. Indeed, the Federal Reserve is raising interest rates to reduce demand and bring inflation down.

Today’s inflation is partially caused by supply issues due to increased energy cost, increased labor costs and some supply chain issues. However, since the economy today is producing at a rate that is higher than before the pandemic, supply issues are having just a minor impact on the inflation rate.

Michael Busler

Dr. Busler is an economist and a public policy analyst. He is a Professor of Finance at Stockton University. His op-ed columns appear in Townhall, Newsmax.