COVID-19 relief could have long-term effects on U.S. economy

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It has been over a year since COVID-19 became a global pandemic. As a result the United States government spent $6.5 trillion in the 2020 fiscal year. $2.6 trillion went to COVID relief.

As a result, the national debt of the U.S. crossed the $27 trillion mark in Oct. 2020 and has continued to rise since. 

Dr. Paul Wendee, adjunct professor of business and economics, said the money in the national debt is owed to institutions, foreign investors and the American people in the form of securities such as bonds, which are backed by the U.S. Government. 

The Federal Reserve, a separate government entity from the Treasury Department, also funds whatever securities the Treasury cannot sell.

According to Wendee, the money for the stimulus checks comes from the government going into more debt. 

“It’s all done by computer screens, they push a button and $1 trillion goes from the Federal Reserve into the Treasury and the Federal Reserve gets $1 trillion in government bonds to put on their balance sheets,” Wendee said. “The Treasury prints the actual money we see in our hands and pockets. The Reserve creates that money basically out of thin air and that’s how they’ve been funding the stimulus efforts.” 

Because the government sent out money to Americans, economists are debating whether this will lead to serious inflation, which occurs when the value of the dollar decreases because the government adds more money into the economy and there is not enough production to offset the increase. This causes the prices of items to go up. 

Wendee said inflation is a potentially serious consequence of the pandemic, but that Americans do understandably need the money the government has sent out. 

“The only way that we won’t have inflation with all the money the government is paying out is if the production level goes up,” Wendee said. “Right now a lot of people are not working, so the production level has gone down. If it does not go back up, there would be too much money chasing too few goods. Now that people have more money, if production stays the same as it is now, there will be inflation. People don’t get employed by giving people money, they get employed if the business is getting more business and needs more people.” 

Dr. Bob Namvar, professor of economics, is writing an academic paper on the topic. He said he does not anticipate inflation being a major problem in the coming years but he does expect a rise in taxes. 

“Printing unreasonable amounts of money generates more inflation,” Namvar said. “However, at this time since spending has slowed down since the first quarter of 2020, we have not experienced a demand-pull inflation. Inflation rate has stayed at about 1-2% I do not see any possibility of high inflation more than 2-3% in 2021. Higher taxes are expected in the upcoming years to compensate.” 

Another area that has seen a significant impact from the pandemic is small businesses. Mikayla Bennetts, senior marketing major, said her biggest concern is the future of small businesses. 

“It’s hard watching these small businesses that have worked so hard to build themselves up, be shut down due to COVID-19,” Bennetts said. 

Although it is natural to be worried in unprecedented times, Namvar said he does not see a reason students should be concerned about the future after the pandemic. 

“The world has experienced several pandemics during the last several hundred years, including plague, Mexican flu, and AIDS but we did not experience any big short-run or long-run effects in the world (for economics),” Namvar said. “I believe everything will go back to the same pace and normality in a short period of time, and I do not think our students should be very concerned about their future. We are proud to have the largest and most blessed economy and country and I foresee a bright future for our students.” 

About Misty Severi

Staff Writer

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