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Inflation Not “The” “Predictable” Result of Coronavirus Relief

Governor Kristi Noem managed not to use the flatly false phrase “strongest economy in the nation” in her most recent weekly state propaganda piece. But she did include a more devious economic contrivance on the federal coronavirus relief dollars that saved America from economic disaster:

Over the past few years, the national economy has been artificially supported by the trillions of dollars that Congress provided to states, businesses, and individuals because of the COVID-19 pandemic. The result was a predictable one: historic inflation. Until President Biden reverses the policies that have caused inflation to skyrocket, the strain of inflation will continue to be an obstacle to South Dakota’s fantastic growth. There will come a time when our economy is no longer boosted by these stimulus dollars, and we must be prepared for the impact that will have on our state’s finances [Gov. Kristi Noem, weekly column, 2022.07.22].

The result was a predictable one—as if there were just one result of the enormous coronavirus relief dollars, and is if this one result were predictable.

There were many results of coronavirus relief funds that came from Uncle Sam. The primary result was a historic economic recovery, saving us from the worst and sharpest economic downturn since the Great Depression. Government assistance produced big growth in personal income, one of the stats Noem cites right before her claim about the inflationary result of that assistance to tout South Dakota’s (read: her) economic success. Coronavirus farm subsidies boosted farm income, which boosted sales tax revenue, which boosted the FY2021 budget surplus that Noem bragged about. Absent more than $11 billion in federal coronavirus relief, South Dakota would have experienced a deeper, longer recession and a big budget deficit.

The federal coronavirus relief dollars helped millions of Americans keep their jobs, keep their homes, and keep food on the table when capitalism unsupported would have collapsed. Instead of seeing more Americans go broke, we pulled millions of Americans out of poverty.

Inflation was neither the singular result of federal coronavirus relief nor the predictable result. Pre-pandemic research showed that government spending alone produces almost no effect on inflation. This July 2022 study from the Federal Reserve finds that U.S. pandemic relief has contributed 2.5 percentage points to inflation, but it finds that the problem is not the stimulus itself but the fact that the stimulus bolstered consumption but did not drive higher production. Current inflation is only “predictable” in hindsight, and even our experience with this specific fiscal policy response to this specific public health emergency does not allow us to predict that future economic stimulus efforts will provoke inflation.

And even if the Governor possesses predictive powers beyond those of mere mortal economists, she never used them. As recently as this year, she has been giddily taking and spending those federal stimulus dollars on South Dakota projects and not expressing any concern about contributing to “predictable” inflation. Obviously even Governor Noem agrees that spending those coronavirus relief dollars and incurring some ancillary inflation is better than leaving those stimulus dollars on the shelf and letting the economy flag.

The Fed comes to the same conclusion:

The COVID-19 pandemic hampered firms’ ability to produce and consumers’ ability to consume. In response to economic disturbances, many governments resorted to large fiscal stimulus. This policy was successful at boosting consumption which, together with relatively inelastic supply, may have led to supply chain bottlenecks and price tensions.

However, one should also recognize the positive role played by generous government support throughout this unprecedented crisis. The large spending supported a strong economic rebound, with both GDP and employment recovering at a remarkable pace, likely preventing worse outcomes despite the price pressures that may have resulted from the spending [François de Soyres, Ana Maria Santacreu and Henry Young, “Fiscal Policy and Excess Inflation During Covid-19: A Cross-Country View,” Board of Governors of the Federal Reserve System: FEDS Notes, 2022.07.15].

Some inflation did arise from the unique interaction of federal coronavirus relief dollars with a pandemic-stricken economy. But so did a whole lot of economic good that saved us from a much worse catastrophe. Just like the coronavirus vaccine, federal stimulus may cause a fever or other ookies, but it’s a whole lot better than the alternative… and most of us, including Kristi, have had the good sense to take the shot.


  1. Donald Pay 2022-07-26 09:04

    Cory writes: “As recently as this year, [Noem] has been giddily taking and spending those federal stimulus dollars on South Dakota projects and not expressing any concern about contributing to ‘predictable’ inflation.”

    Exactly. If she really believes the BS she writes, she would not be spending those Biden Bucks. And what about the federal contributions to her South Dakota budgets? Inflationary to the max, because they produce nothing of value. What about her flying all over the US? That is useless spending that only increases inflation. When inflation hit, I cut back my nonessential spending, but Noem’s profligate ways didn’t end. She has no business lecturing us on inflation when she’s causing it.

  2. larry kurtz 2022-07-26 10:12

    This morning South Dakota’s media outlets are awash in federal payouts to farmers, the James River water district, Lewis and Clark and Ellsworth among others. Bleeding the beast ain’t just for Mormons anymore, init?

  3. buckobear 2022-07-26 10:33

    Maybe the states should be required to return the money to the feds.

  4. larry kurtz 2022-07-26 10:34

    Honestly? When Democrats are in power DC’s payouts to red states like South Dakota seem like a colossal waste that result only in inflation.

  5. larry kurtz 2022-07-26 10:45

    Over at Pat’s Pissoir Powers goes on and on about all the cash Republicans bring to South Dakota all the while commiserating with the Earth haters who complain about all the money that goes to tribal communities. It’s such tripe.

  6. Cory Allen Heidelberger Post author | 2022-07-26 11:29

    The New York Times supports my analysis:

    The big factors that drove up inflation in the U.S. also affected the rest of the world: the disruption of supply chains by both the pandemic and Russia’s invasion of Ukraine, and soaring consumer demand for goods.

    But increasing inflation has played out differently in different countries, said Jason Furman, an economist at Harvard University. The U.S.’s earlier, bigger price spike had different causes than Europe’s more recent increase. (Countries differ in how they calculate price changes, but economists still find comparisons of the available data useful.)

    In the U.S., demand has played a bigger role in inflation than it has elsewhere. That is likely a result of not just the American Rescue Plan but also economic relief measures enacted by Donald Trump. Altogether, the U.S. spent more to prevent economic catastrophe during the pandemic than most of the world did. That led to a stronger recovery, but also to greater inflation [German Lopez, “The Debate Over Inflation Often Treats It As a Uniquely American Problem. It’s Not,” New York Times: The Morning, 2022.07.26].

    Yes, hooking a tow chain to your car may crimp your bumper. Would you rather stay in the ditch?

  7. Cory Allen Heidelberger Post author | 2022-07-26 13:18

    In the same paragraph where Kristi speaks of inflation as the singular and predictable result, she also admits that the coronavirus relief dollars boosted our economy.

  8. Mark Anderson 2022-07-26 14:14

    You know blue areas of the country generate 75 percent on the nation’s wealth. What is holding back little red state So Dak? Maybe Sioux Falls needs to be bluer?

  9. P. Aitch 2022-07-26 14:20

    – The law of demand says that at higher prices, buyers will demand less of an economic good.
    – The law of supply says that at higher prices, sellers will supply more of an economic good.
    – BUT, sellers weren’t able to supply more product because Covid shut down the means of production.
    – THUS, blame Hunter Biden.

  10. Mark Anderson 2022-07-26 15:05

    Actually “the blue section’s contribution to the total US gross national product is an astonishing 75% bigger than the red section’s” that’s from Ronald Brownstein’s Red States are building a nation within a Nation. You should all read it.

  11. larry kurtz 2022-07-26 16:57

    Sysco pumps mid level management with similar propaganda. Phrases like, “there are no problems, just opportunities” were drilled into our subconscious. Today they’re suing their own suppliers because the problems have overwhelmed the opportunities.

  12. grudznick 2022-07-26 17:11

    Wasn’t it Mr. Trump that dumped the aberration of the CARE project on the world and then Mr. Biden dumped the aberration of the ARP project? They are equal aberrations, both fellows.

  13. O 2022-07-26 17:57

    Although I have to agree that CARE – putting money into the hands of those in need during a drastic time of need was an aberration for President Trump – a fellow who only looks to line the pockets of his .1% cronies (therefore himself); it was the right thing to do. The paycheck protection program was also the right step; however, that was made into an open invitation to steal from the US taxpayer instead of being a true lifeline for businesses to keep employees earning during a crisis. It made clear that business are not patriots. Continued correctly with Biden, the error made was in not more directly targeting supply chain concerns, not taking the opportunity to trim the wealth inequality by shaving the costs from the vulture capitalists gobbling up the wealth created by the chaos.

    All of this should bring us to a deep discussion of government spending and wealth inequality; both issues are perpetuated in the most negative ways by government taxation and spending policies.

  14. Arlo Blundt 2022-07-26 18:15

    Grudz–yes, Trump loved sending checks out. Remember he wanted the last CARE payment to be 2500 bucks not 1200. Remember the checks included a personal note from President Trump…he wanted to make all the political hay he could off of Corona Virus…Today’s news flash..Trump gave a speech today on the topic of law enforcement and crime. Chutzpa supreme.

  15. grudznick 2022-07-26 18:40

    Indeed, Mr. Blundt, indeed. When it was not his money Mr. Trump wanted as much credit as possible with our money, just like Mr. Biden and his burning of the insanest amounts of fake money. They are similar creatures of the macabre, except for the January 6 business, of course.

  16. P. Aitch 2022-07-26 19:05

    Which is worse? Inflation when you’ve got money or inflation when you can’t pay your bills. This inflation is mostly food, gas, and automobile sales. We’re fine. It’s the red team that’s got no plan and no game. The best thing about Biden is we don’t have to defend him. After Trump just roll your eyes and nod your heads.

  17. grudznick 2022-07-26 19:20

    Nobody should have sympathy for the slackards who have been sitting at home taking the free money to hunker in front of the teevee watching movies from the internet. Now it’s time for them to get back in line and take a job and work harder to be able to get raises to make up for Mr. Biden’s inflation. Those who have the money worked hard for it, those who don’t have no one to blame but theirownselfs.

  18. Mark Anderson 2022-07-26 19:26

    Oh grudz, its so obvious your a trust fund baby.

  19. DaveFN 2022-07-26 20:37

    When many experts disagree one can more-or-less surmise that the fiscal stimulus was not the sole contributor to inflation. The extent it was is itself in question.

    “The survey asked the experts whether they agreed or disagreed with the following statement: “The current combination of US fiscal and monetary policy poses a serious risk of prolonged higher inflation.” If so, how strongly and with what degree of confidence.

    Of the panel’s 43 experts, 38 participated in this survey, and the results indicate considerable uncertainty and differences in views. Weighted by each expert’s confidence in their response, 33% agree with the statement, 36% are uncertain, 26% disagree, and 4% strongly disagree.”

    Noem is miming Minority Leader Rep. Kevin McCarthy who tweeted mid-July that “Inflation is running rampant due in part to out-of-control spending from President Biden and Speaker Pelosi.”

    That’s the most we could expect from a mime, ie., miming.

  20. O 2022-07-26 21:08

    grudznick, I would say much the same about the .1% who profiteered off the federally juiced stock market, the COVID enhanced stock market, and the present inflation-excused profiteering; it is time for them to pay their way — their fair share. Inflation follows the money: which group do you think has the bulk of the cash, your “slackards” or my .1% aristocracy?

  21. All Mammal 2022-07-26 21:30

    shat trickles down… cash funnels up.

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