Again, it’s money that the states themselves have shuffled, not spent. Those dollars are almost by definition non-inflationary, because it’s simply squaring out the books in the national income accounts. Next, there are the distributions of cash that went from state treasuries to taxpayers because their laws put a cap on tax revenues and require a rebate. Although some of that pandemic-relief cash was saved until this year and not spent before inflation kicked up, most of it was long gone by last Thanksgiving and had almost nothing to do with the alarming price increases we’ve seen in the past 12 months.
Those payments were clearly counter-cyclical stimulus payments that largely offset household income losses when the economy had shrunk, as businesses were shuttered by lockdowns and people were staying home rather than spending locally or traveling.
Some of these payment programs were initiated during the pandemic period as economic lifelines to their citizenry, similar to the first round of federal checks back during the Trump presidency. But that cold water of reality didn’t stop the recent chatter about state-induced inflation as elections approached. None of these states have funded their check-writing by borrowing money that’s created out of thin air by the central bank - as does the federal government - so the political argument here is about apples and oranges at the very outset. Only the states’ cash payments that would otherwise have gone into rainy-day reserve funds, bond prepayments and supplemental retirement fund contributions would actually be inflationary on a macroeconomic level. In short, states simply shuffle money around they don’t create it.Īlthough in some special cases the injection of cash from state capitols to households could have the ultimate effect of stimulating aggregate demand by consumers, most of that money would have found its way into the local and national economies anyway through government spending by the same states.
The states are typically incapable of increasing what’s called aggregate demand, the sum of all money spent in the economy by consumers, governments and businesses. Every dollar going out for spending must have a dollar coming in from revenues. They can’t and don’t borrow money to fund handouts. Otherwise this issue is just political and ideological posturing.Īs to the facts, all of the states except for one (Vermont) operate under some kind of balanced-budget requirement. (3) So it’s only the demand-pull kind of inflation that state disbursements could ever possibly impact. There is no inflation when the price is zero. The government services that states provide to their economies are usually priced at zero except for user fees, which are incidental and immaterial in the big picture. (2) All that supply chain talk you hear is about the cost-push dimension of today’s inflation, and that has almost nothing to do with these state payouts. Taking them one at a time: (1) States do not print currency or control the money supply. Or it can come from total demand for goods and services exceeding supply, which is either “cost-push” or “demand-pull” inflation: too much money chasing too few goods or too few goods to meet demand without prices increasing. Inflation can result from an increase in the money supply without economic growth, which is “monetary” inflation. There are three basic causes of inflation, which is an increase in the general price level, not just the price of a single good or service. One reason comes from better understanding what actually causes inflation the other is a simple logical analysis of the facts. Well, probably not significantly, for two reasons. Some knee-jerk critics say that’s inflationary, but is it really? Since the outbreak of COVID-19, at least 20 states have sent money to their residents or will do so soon, typically billing the checks as economic stimulus or, more recently, relief for rising energy and food costs. That’s the theme of recent reports linking inflation to state-level tax rebates and other payments to households. Payments are expected to go out starting in October through January.(Shutterstock)No good deed goes unpunished. Enter to win tickets to see Charlie Puth at Greek Theatre (7/11)Īccording to NBC Los Angeles, approximately 23 million Californians will receive California Relief checks ranging from $200 to $1,050 depending on tax filing status and income.Ryan Seacrest Pays Your Bills WEEKDAY MORNINGS and EVERY HOUR on THURSDAYS!.
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