by Karl Honneger, Emerging Leaders Council
As the COVID-19 vaccine is being distributed to residents of nursing homes and states across the country are allowing restaurants to open up, it seems like there may be a glimmer of hope for the economy to recover. President Biden will soon be approving another “stimulus” payment to millions of Americans. Is it possible that the economy could bounce back quickly and that a third round of government checks is just what is needed?
One reason some are hopeful for an economic recovery is that there will be a flood of money spent due to pent-up demand by consumers. But there are obvious limitations to this theory. The average person is not going to make up for all the spending they were forced to abandon earlier. For example, my wife and her father had to give up their long tradition of eating together at a restaurant every Wednesday night during the pandemic. When they returned, however, they didn’t eat six months’ worth of meals. It would be impossible to “make it up” to the restaurant.
Instead, many people are putting money away in a record numbers, as a result of the economic turmoil caused by the government restrictions on free enterprise. In April 2020 the savings rate peaked at 33% and dropped in June, to 19% which was still higher than the pre-2020 record of 17% in May 1975. The top two income quintiles were responsible for almost all of that additional savings as they put away a total of $1.6 trillion last year. Almost everyone knows a friend or family member who has been furloughed or laid off because of the pandemic. The already wealthy seem to be saving due to this economic fear.
Economic Recovery or Something Else?
What Americans are doing with their money doesn’t just indicate they are afraid of the future economy, but also expect social unrest. Last year, 23 million firearms were bought, which represents a 64% jump year over year. The trend does not seem to be abating. In January 2021 alone, 2 million firearms were bought which is an 80 percent year-over-year increase. Demand for ammo is also up. Some police departments are being told their annual orders of ammunition will be showing up by late summer at the earliest. Many police departments have to train during the summer before the weather gets bad. Billions of the “stimulus” dollars that have been spent, have been for firearms and ammunition. It appears that American’s are more interested in self-defense and building up their savings than blowing their latest stimulus check on restaurants and entertainment.
If previous stimulus checks didn’t do much to help the economy, is it possible that a $1,400 check to most Americans will put us back on the right track? Keynesian economists would argue that there are almost no side effects from more free money. However, Austrian economists were the only ones to predict the 2008 financial crisis and can also explain the effects of government spending in ways that the average person can understand.
Ryan McMaken, senior editor of the Quarterly Journal of Austrian Economics, argues that “Whether directed at billionaires or at mechanics, stimulus payments and programs—especially of the type funded by newly printed money—create bubbles and result in wealth destruction.” Instead of stimulus, Austrian economists suggest cutting government spending and regulations to allow the free market to recover. Considering that government is unlikely to do either, we are far from an economic recovery. Lifting restrictions on restaurants and other businesses are long overdue but it will take much longer for our economy to recover.
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