A Strong Safety Net Helps the Whole US Economy

The typical American is a lot richer now than they were just before the pandemic — and this improvement is at least partially due to government support for families and businesses in 2020 and 2021. There are other factors, of course, but it’s clear that a strong safety net plays an important role in supporting not only families but also the overall economy.

The Federal Reserve’s latest comprehensive survey of consumer finances lays out broad gains in family income and net worth from 2019 to 2022. While those with the most education and the highest net worth saw the biggest gains in median income, the increase in net worth was seen across all incomes. The gains in net worth affected families young and old, those with low incomes and high, homeowners and renters. In addition to government programs, a rising stock market and soaring housing prices played a role. All told, the average real value of families’ financial assets increased by nearly one-third in the three years covered by the report.

What does it all mean? One lesson is the importance of smart, well-timed public policy. Amid the peak of uncertainty and income loss during the pandemic, the government stepped in to support households and businesses Then, as the economy reopened, households were ready to spend again.

Government support did more than help boost demand. It may have also helped create a positive supply shock — an expansion in the economy’s overall capacity.

Initially, government support was blamed for creating so much demand that it sparked inflation. But this demand-led recovery has proved to be more resilient than past recoveries. And inflation has come down even amid fast economic growth and unemployment rates near 50-year lows.

This strong economy is not a mystery. Only one thing can allow inflation to come down in the face of strong economic growth and low unemployment: expanding supply. To be sure, some of this expansion occurred because bottlenecks in supply chains were cleared. That’s not the full story, however. High demand created a wealth of opportunities, and Americans have been chasing them.