Wasteful Stimulus: More Evidence

I recently reported how new numbers from the Bureau of Economic Analysis show that the Covid-19 stimulus spending has been a big waste of money. Not only did states get $200 billion they did not need, but families around the country got way more money in extra unemployment benefits and stimulus checks than they lost to the economic shutdown.

A review of employment and earnings numbers from the Bureau of Labor Statistics add more evidence to the same effect. Over the seventeen weeks from April through July, private-sector employees were paid a total of $1,968.6 billion in wages. This was down from $2,097.8 billion in 2019, in other words a loss of 6.1 percent.

This is a loss, no doubt, but its total value is only $123.2 billion – a far cry from the more than $1 trillion that was paid out in stimulus checks, not to mention the extremely high $600 weekly bonus to the unemployed. Together, those extra payments gave American families $566 for every $100 of income lost.

The $123-billion wage loss does not account for all incomes lost: it only covers the private sector and does not take into account the skewed shutdown effects across the country. Some states – California being one – are hit much harder by the shutdown than others. However, since these are aggregate numbers they do give us a good picture of the totality of the stimulus waste; if Congress had taken a measured approach to its stimulus spending, the payouts would have been proportionate to the loss inflicted by the artificial economic downturn. That has not been the case.

It is also worth noting that the negative effects of the shutdown do indeed look like a V, much as President Trump predicted back in the spring. In March, when the first signs of a shutdown emerged, weekly earnings in the private sector were 4.4 percent higher than in March of 2019. In April earnings were down by 8.9 percent; the loss was 6.2 percent for both May and June, and down to 3.3 percent in July.

In August, private-sector workers were back almost exactly where they were a year earlier.

These are, again, average weekly earnings. In terms of employment, the private sector is still lagging behind. After having been up by 1.7 percent in February and 0.4 percent in March, compared to 2019, they reduced their workforce by as much as 15.2 percent in April. The re-hiring set in already in May, with the loss compared to 2019 shrinking monthly; in August there were 7.5 percent fewer workers in the private sector than a year before.

As mentioned, as a general, blanket measure the stimulus checks were entirely redundant. So where the unemployment bonuses. All they did was to dig a deeper hole in the federal budget. However, that is not all the damage they have done: there are signs of inflation looming in these employment numbers.

At no point in the past ten years have weekly wages risen as fast as during the shutdown. In the period April-August, weekly wages rose on average by 6.24 percent. This is 2-3 times faster than during the same period any year in the past decade.

This major increase is not the work of market forces, but government fiat: when you can get $2,400 per month for being unemployed – on top of your regular benefits – you will not just take any offer from any employee. On the other side of the equation, employers have to go somewhere to find that extra money to pay you. That “somewhere” is the buyer of their products.

Bluntly: expect to see some real inflation numbers already this winter.

The big, looming question is how this cost-push inflation is going to interact with the monetary inflation we can expect from the exorbitant money printing that the Federal Reserve has engaged in recently. That, however, will be a topic for a later article.

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