Last week, the Senate passed President Biden’s $1.9 trillion stimulus package. There is no doubt that the stimulus will provide significant relief for many people suffering due to this year-long pandemic.
But there is a dark side to this as well, and that dark side rarely gets discussed. Neither party understands it, nor do average Americans. The downside of the stimulus package is not the usual hubbub about debt and deficits, either. Instead, the problem is that this stimulus package makes the poor poorer in the long run. It makes inequality worse.
So how does this work? It is simple.
All the new money that gets printed for the stimulus has to end up somewhere. For people who lost their jobs from the pandemic, they spend the money on things like food, rent, and other necessities. That’s all fine.
For people like me though – lucky enough to stay employed throughout the pandemic – what do I do with my stimulus check? I invest it.
With this much new money entering the economy, a substantial percentage of it will end up in things like the stock market, pushing asset prices higher. Because of this, the gap between the wealthy and the poor will continue to grow. This effect is natural and inevitable. The bigger the stimulus, the more inequality grows.
Note – I’m not against the stimulus. I’m happy people are getting help. But you have to understand the tradeoffs, and most people don’t. The tradeoff with stimulus is that by helping people today, you are making them fall further behind tomorrow.
For the same reason, I don’t want to hear you complain when tech stocks shoot up and billionaire net-worths go higher, the same way that happened after the first stimulus. Yes, Amazon stock is going to go up. No, don’t get mad at Jeff Bezos. The stock will go up directly becauseof the stimulus. Your support caused this. Maybe that’s not what you wanted, but it’s how money works.
Not everything is as black and white as you think. Luckily, I’m here to open your eyes to the gray.
To learn more about some of what I articulated here, check out the below two issues from my educational Questioning Money series.
How Money Drives Inequality
You Can’t Save Money In Dollars