America's Pandemic Stimulus

How the U.S. government spent around 5 trillion dollars in response to COVID-19, what it achieved, and its role in the inflation that followed.

When the COVID-19 pandemic hit in 2020, the U.S. economy lost over 20 million jobs in a single month, April 2020, and unemployment jumped to nearly 15 percent. The government responded with one of the largest fiscal responses in history.

The main packages

CARES Act, March 2020: around 2.2 trillion dollars, including direct payments to households, expanded unemployment benefits and the Paycheck Protection Program for small businesses.
December 2020 relief bill: around 900 billion dollars.
American Rescue Plan, March 2021: around 1.9 trillion dollars, including further payments and support for states.

Together, pandemic relief totalled around 5 trillion dollars, well over a fifth of annual GDP.

What it did

Direct payments, known as stimulus checks, went to most households.
Expanded unemployment benefits, including an extra 600 dollars a week in 2020, meant many unemployed workers earned more than before.
The Paycheck Protection Program provided forgivable loans to keep workers on payroll.
Child Tax Credit expansion in 2021 temporarily cut child poverty sharply, by some estimates to a record low.

Results

The recovery was fast. Unemployment fell back below 4 percent by early 2022, much faster than after the 2008 crisis. Household savings rose, and poverty measures that include government support fell.

The inflation debate

Critics, including economist Lawrence Summers, warned in early 2021 that the American Rescue Plan was too large and would fuel inflation. Inflation did rise sharply, peaking at about 9.1 percent in June 2022. Economists continue to debate how much of the inflation came from stimulus-driven demand versus supply chain disruptions and energy shocks. Many estimates suggest stimulus contributed a meaningful but partial share.

The child poverty experiment

For six months in 2021, most families with children received monthly Child Tax Credit payments. Measures of child poverty fell to record lows. When the expansion expired in 2022, child poverty rose again sharply. The episode gave economists evidence on how cash transfers affect family wellbeing.

Thinking the stimulus was either a total success or a total failure

The stimulus supported a fast recovery and reduced hardship, but likely contributed to inflation. Judging it involves weighing these effects, and economists disagree about the balance.

Key takeaways

U.S. pandemic relief totalled around 5 trillion dollars in 2020 and 2021.
It included stimulus checks, expanded unemployment benefits and the Paycheck Protection Program.
The recovery was fast, and the expanded Child Tax Credit cut child poverty sharply.
Economists debate how much the stimulus contributed to the 2021 to 2022 inflation.