| Table 1 | |||||||||
| Treasury Expenditures or Outlays 2019-2020 | |||||||||
| Billions of Current U.S. Dollars | |||||||||
| Difference | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2019 | 2020 | 2020-2019 | |||||||
| January | 331.3 | 404.9 | 73.6 | ||||||
| February | 401.2 | 423.2 | 22.0 | ||||||
| March | 375.8 | 355.8 | -20.0 | ||||||
| April | 375.2 | 979.9 | 604.6 | ||||||
| May | 439.8 | 572.6 | 132.8 | ||||||
| June | 342.4 | 1,104.9 | 762.5 | ||||||
| July | 371.0 | 626.5 | 255.4 | ||||||
| Total | 2,636.8 | 4,467.8 | 1,830.9 | ||||||
| Source: U.S. Department of the Treasury. | |||||||||
Fiscal Stimulus Pace and Size
July 12, 2020
There is little doubt that the economy required a significant fiscal policy stimulus to offset the effect of the pandemic caused by the COVID-19 virus. The monthly treasury statement for July of 2020 released by the Department of the Treasury shows an increase in expenditures of $1.8 trillion between January and July of 2020 with respect to the same period of 2019.
In our macroeconomic forecast for the second quarter of 2020 it was argued that any previous macroeconomic projection had been rendered ineffective by the unknown effect of the virus on the economy. The situation continues to be the same and what is now obvious is that the economy will only fully recover when the virus is incapacitated. It is clear that as workers have been able to return to work and some normalization is observed the economy shows signs of recovery as observed in the reduction of the unemployment rate.
One problem that seems to be arising is increased inflationary pressures. The questions that could be posed are whether the timing and the size of the additional fiscal expenditures have been optimal. Some people would argue that a smaller stimulus executed over a longer period would have been preferable yet others on the extreme might argue that no additional fiscal expenditures were necessary.
Given the relationship between COVID-19 and the growth of the economy the only possible way to know the optimal size and timing of the stimulus required was to intertemporally estimate the effect of the virus on the economy. Due to the unprecedented nature of the current crisis this was nearly impossible. The stimulus was necessary because without it there would have been a complete economic collapse as the lack of income made it impossible for agents to fulfill their contracts and obligations. Even the additional fiscal expenditures of $1.5 trillion in the second quarter of 2020 when compared to the same quarter of 2019 (Table 1) were not enough to avoid a record economic contraction of -32.9% (annual rate) of GDP between the first and second quarter of 2020.
It could be argued that there is a lag between the additional treasury outlays and their absolute effect on economic growth. The re-emergence of inflation seems to confirm this claim. Only third quarter economic results will partially answer these questions.