The Growing Ineffectiveness of US Federal Stimulus Programs

Abstract

The effectiveness of the anticrisis programs of the US federal government to bring the American economy out of the 2020 crisis is analyzed. It is noted that the 2020 crisis was unprecedented in its scale and causes of occurrence, which practically did not occur in American economic history in the period after the end of World War II. The unusual nature of the crisis found its expression in the policy of introducing lockdowns as the main tool in the fight against the coronavirus pandemic, which led to unprecedented drops in the reduction and increase in real GDP over the course of six months. From the very beginning of the implementation of anticrisis fiscal programs, they were characterized by inefficiency in spending budget funds, which was due to several reasons. The main one was political, expressing in the fact that the crisis fell on the year of the Presidential elections. The Republican administration of D. Trump, who is in power, virtualy wasted budget funds «from helicopter» for the speedy overcoming of the crisis, the volume of which significantly exceeded the magnitude of the fall in real GDP. As a result, most of the funds went to support the incomes and, accordingly, the consumer demand of families, individuals, small and medium-sized businesses that received “free” funds that did not require reciprocal labor efforts on the part of payments and benefits’ recipients. In the US economy, a syndrome of unprecedented cash pumping has formed, which by the beginning of 2021 naturally led to an “inflationary overheating” of the economy. Gradually, by the beginning of 2022, inflation, measured by the consumer price index, actually got out of control, which led the Federal Reserve System (FRS) to the decision to switch to a policy of raising the federal fund rate in 2022, which will certainly complicate the US exit to trajectory of sustainable economic growth. The Democratic administration of J. Biden, which took office in January 2021, put forward an ambitious program to overcome the crisis, called "Build Back Better." Initially, the total cost of the program was estimated at $7.8 trln, however, as the program began to acquire legislative status, its cost started decrease sharply precisely because the negative elements of the program, which are reflected in the huge growth of budget deficits and the gross debt pyramid, began to clearly outweigh the costs associated with accelerating economic growth and increasing employment. As a result, in 2021, the US Congress refused to accept those components of the Build Back Better program, which were aimed for a sharp expansion of the block of social programs, mainly in the field of health and education, as well as combating climate change and preserving environmental quality. A year after the publication of the Build Back Better program, a fairly stable stereotype of its public rejection has formed in American society as causing more harm to the American economy than providing tangible socio-economic benefits.