When most Americans received their $1,200 stimulus checks, the money went to alcohol, legal marijuana, and credit card payments.
A few families tucked their money into savings for a rainy day.
It is easy to think of those stimulus funds as free money. We must remember that long-term consequences are lurking around the corner for the economy from this spending.
Inflation is the primary concern.
The Stimulus Featured Unprecedented Fiscal Easing
The goal of the stimulus checks is to keep the economy functioning. With record unemployment filings and emergency financing required to keep families afloat, the extra money became a moment of relief for those facing catastrophe.
The money, combined with eviction moratoriums and mortgage restructuring, kept most people in their homes during the COVID lockdowns.
What we may be doing with this money is keeping our short-term lives comfortable at the expense of long-term wealth growth. It is not inconceivable to see several years of high inflation figures on essential goods. We already see price increases of 20% or more on food.
Companies May Change Their Production Habits
The supply chain disruptions that companies experienced with the pandemic has them thinking about moving their production closer. When goods have fewer obstacles between creation and consumption, fewer issues occur.
Instead of keeping everything at a single manufacturing or production center, several smaller facilities may become normal instead.
If that outcome happens, it means the long-term price for many items may increase. We’ll have access to greater resiliency at the expense of increased labor.
The COVID lockdowns also showed what an overreliance on China causes to the global economy. Shifting to domestic production for pharmaceuticals and PPE creates even more expenses.
The stimulus checks were a lifeline during a troublesome time. If we’re not careful, there could be more disruptions waiting for us in the future.