Why not everyone in the US likes stimulus checks

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Vox

And why the US wants inflation. Explained by fish. Subscribe to our channel! http://goo.gl/0bsAjO The US government has sent checks to millions of Americans during the economic crisis caused by the pandemic. But some economists are concerned that all that government spending could lead to inflation. If everyone suddenly has $1,200 more to spend, what will that do to the economy? Will it lead to prices going up, and money losing its value? But the consensus among most economists, including those in charge of steering the US economy, is that we actually want some inflation. And to understand why, it helps to think of the US economy as a fish tank. Read more about inflation on Vox.com: https://www.vox.com/policy-and-politics/22346376/inflation-rate-explained-federal-reserve And more about the "Sahm rule" to send out checks automatically at the start of a recession: https://www.vox.com/future-perfect/2020/3/26/21194227/did-the-stimulus-package-get-passed-checks Note: The headline on this video has been updated. Previous headline: Why the US wants inflation Vox.com is a news website that helps you cut through the noise and understand what's really driving the events in the headlines. Check out http://www.vox.com. Watch our full video catalog: http://goo.gl/IZONyE Follow Vox on Facebook: http://goo.gl/U2g06o Or Twitter: http://goo.gl/XFrZ5H

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Video Transcript:

In march of 2020 as the pandemic took hold unemployment in the u.s began to spike the federal government passed a 2.2 trillion dollar stimulus bill money for the unemployed loans for businesses and twelve hundred dollar stimulus checks sent to millions of americans in december the government sent out even more checks And then in march 2021 even more all this government spending made this guy very concerned seems to me we're taking very substantial risks what was kindling is now igniting larry summers he used to be bill clinton's treasury secretary and barack obama's top economic advisor and he thought the checks were a mistake we're gonna set ourselves up for inflation you know Inflation when prices increase and money is worth less and less like the u.s had in the 70s or in the extreme in places like venezuela where money is so worthless it's used to make purses so are these checks actually something to worry about and could they lead to this first we have to talk about how inflation works think of the economy as a fish tank when One fish spends their money like out at a fish concert that keeps other fish like the venue workers employed so they can go spend their money on things too like their mortgage or a car because fish need cars stick with me it's a cycle employed fish spend money which keeps other fish employed some of that money also goes into their Savings to spend later and think of all the water in the tank as all the money being spent out in the economy in an ideal economy fish unemployment is low and there's lots of money being spent and so there's a comfortable amount of water in the tank but in a recession lots of fish lose their jobs and stop spending money and other fish get scared that they might be next So they stop spending and start saving and with less money being spent in the economy the water level falls when that happens the government can pump more money or water into the economy it can be through things like investments in infrastructure or unemployment benefits but in the last 20 years one policy that's been used more and More frequently is stimulus checks giving people cash directly to go and spend checks are definitely something that many economists think are useful because it bypasses the traditional channels the first stimulus check as we know it came in 2001. it was really more like an early tax refund it gave adults who had paid at least six thousand dollars in income taxes A three hundred dollar check studies found that it went swimmingly people did spend the money and the checks were credited with helping to end the 2001 recession this approach was so popular that in the next recession in 2008 the government did it again this time they sent out twice as much money in tax rebates it was phased out for higher income americans but expanded in other ways Most families got a bit extra for each child people with less income got a check too though smaller it was just a part of a larger stimulus package but studies found that it worked again this time even more people quickly spent their checks they give money to people fast and it helps the economy which then in turn helps more families but here's the problem normally Businesses raise their prices a little bit each year but it's not very noticeable since people usually make a little bit more each year this is inflation prices going up and we can measure it as the water level in the tank higher prices mean more money being spent so a higher water level but if suddenly these fish have way more money to spend businesses can Raise their prices a lot drastically higher prices mean too much water in the tank and it could overflow this is the bad inflation but economists actually want a little inflation each year spending is a sign of a growing economy it's not a bad thing in fact if prices aren't rising it tells you that something is really wrong in the economy This is what inflation has looked like in the u.s the last 40 years zero means prices haven't changed from the year before four percent means things cost four percent more than last year and here in these gray bars are when the economy was in a recession notice anything a recession almost always comes with a substantial dip in inflation when people lose their jobs or are Afraid they're next they don't spend like usual businesses can't raise their prices like they usually would when this line falls below zero meaning things actually cost less than they did a year ago that's bad falling prices is a sign of an economy in crisis and frankly an economy in a downward spiral and for the last 10 years the u.s has aimed for 2 percent inflation And you can say well why two percent and their argument is we want a little bit of a buffer but the u.s leading up to the pandemic didn't have much of that buffer we weren't consistently hitting that two percent and then our fish tank was under attack we lost a lot of that water very suddenly we saw the federal government slap some tape on the fishbowl throw some more water in One thing they did that was really popular was to send checks to people and this time stimulus checks were sent out to even more people than the ones in 2001 and 2008 basically anyone with a social security number plus extra for children and it worked then too you can see here in the chart of americans bank accounts people's balances went up with the stimulus Checks and down as they spent them it put more water into the tank but then the government sent out more and even more this is what worried some economists if the government pours in all this water and then people start going out and spending again including what they've saved that's a lot of water wouldn't it make the tank overflow Most economists say probably not it's really important to remember that we lost a lot of water the risk right now is doing too little it would have to be a sudden explosion of spending most economists including the ones trying to steer the us economy agree not to worry we could see a little inflation as the economy reopens but not at overflow levels there is debate Around stimulus checks but it's in the details who should get them and how much should they be many economists even want them to go out automatically when the economy shows signs of a recession starting having a rule in place that automatically adjusts the water level without political headaches of getting it passed through congress when the unemployment rate rises just a Little bit we're in a recession bad news bad stuff is coming send the checks but as for inflation economists today want a little and aren't really concerned about overflowing the tank sorry larry doing too little right now listening to the people who are so afraid of the fish tank overflowing i think that would be a big mistake [Music] You

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