How the government stimulus might have changed America forever

The US stimulus package has been welcomed, there’s no doubt about it. It may have its issues, and they may have been able to spend it more efficiently. But what no one is refuting, is that Trump hasn’t left businesses or individuals out to dry during what has been a global pandemic. 

Of course, it is somewhat a mere band-aid, and it hasn’t even prevented the US from going into recession, which they did in June. It’s more that the world wasn’t sure how Trump and the Republican party would react to a huge fiscal issue, or pandemic. Whether or not the multi-trillion stimulus package was enough or not, it may have had lasting effects in America.

There’s been a reduction in credit around the economy due to liquidity issues, as well a businesses’ inability to prove stable income. So, outside of government loans, it’s been even more difficult than usual to find financing. Companies like Fundbox have thrived as a result, because they’re an alternative to banks, which have an innate fear of small businesses regardless of a pandemic.

Breaking down political lines

In the same way that Republicans will often claim that young Democrats will be socialist until they have to start paying tax, it seems the right is more than happy to collect their current stimulus cheque. We can’t be sure of how many people disagree with the stimulus package in its entirety, but we can say that this has been a win for Keynesian economics. 

The stimulus 2.0 package was believed to be necessary by both the Democrats and Republicans, although they did differ in how much was necessary. The Democrats put forward a $3 trillion bill, whilst the republicans were standing at $1 trillion.

Of course, such a stimulus package would be utterly non-controversial in much of Europe too, but America has a low threshold for what they determine to be hints of socialism. It seems although the global pandemic was just about enough to transcend this hegemony on the right, even if it is dependent on the degree. It’s not just direct cheques either, it’s the government intervening in the free market with a halt on evictions and return-to-work incentives.

There is no doubt that Trump will see this as an opportunity to gain popularity on the left just before the upcoming election. Most Americans want another stimulus check, and he is giving it to them. They often say a common enemy is necessary for the public to unite, and in this sense, it has been the fiscal impact of Coronavirus. Of course, regarding the Coronavirus itself and its actual harm, there is no such unity.

Feeling fiscally fragile isn’t the American way, and nor is the Government anywhere to be seen in the American Dream. Thankfully, when it’s an American Nightmare, the Government has been relatively welcomed to pick up the pieces.

A step towards Universal Basic Income

With what is essentially universal basic income but under the name of “stimulus package” becoming the norm, figures like Andrew Yang will be pleased with such normalisation. Ex-presidential candidate Yang has proposed $1,000 for everyone, forever. Whilst this is still a long way off from becoming a popular facet of the economy, we are one step closer to it being a consideration.

Yang’s proposal of $12,000 a year with no criteria, other than being over 18, would have huge effects on the economy. There’s no doubt that it would initially be a huge help for both the working and middle class to free up some disposable income, where it would then be spent, invested or saved. It’s long-term unintended consequences however cannot accurately be measured.

National and business debt

Every penny of the fiscal package is, of course, funded by debt through selling bonds to investors. The US fiscal deficit is estimated to quadruple this year to $3.8 trillion. US government debt was $23.2 trillion at the end of 2019, meaning the $2 trillion March stimulus package alone will increase this by almost 9%.

This sounds like more than it is. Of course, the numbers don’t lie, but it neglects the fact that government debt has grown by 90% in the past 10 years.

Thus, whilst Trump may have gained some appreciation regarding the stimulus package, he hasn’t actually raised debt by much more than usual. Raising debt by the usual amount is actually conservative given there’s not only a pandemic, but the largest market crash on record. Of course, the year isn’t over yet and nor are the stimulus packages, but context is important.

This isn’t to justify the debt growth in the past 10 years, which has landed America’s debt-to-GDP ratio at around 107% in 2019. This is over double China’s 51%, whilst the Eurozone’s is 84%. Thus, it’s actually closer to Greece’s during their first threat of defaulting (146% in 2010) than it is to China.

The one thing we are sure of, is that America could afford the stimulus package, it helped many businesses, and in particular, it stimulated a strong stock market rebound. What is to be seen, is the aftermath of businesses now being debt-laden, like the government, yet with a demand for further, on-going stimulus as the pandemic continues with no foreseeable end.