Did the American Rescue Plan rescue you?
It’s early 2020, and a pandemic hits America and the world. The decision is made that the population needs to stay at home to stop the spread. The economy is shut down. To respond, the government passes stimulus bills to help individuals and businesses. The idea is that direct government transfer payments can protect Americans, particularly the poor, who have fewer resources to defend themselves. Throughout 2020 various stimulus packages will be designed, passed into law, and executed. By the beginning of 2021, the country will be at a crossroads. Vaccines are available, some states are opening up, and Congress is at a stalemate regarding how much more stimulus to do.
The American Rescue Plan is huge – 1.9 trillion dollars in stimulus and aid. On a per capita basis, that is $5,800 for every man, woman, and child in the nation. Some of the dollars are paid directly to people; some go to increased welfare, schools, hospitals, and local governments. Ultimately the American Rescue Plan is passed into law on a strictly partisan vote – Democrats believe more needs to be done, and Republicans say no.
It has been 18 months – time to look back. Did it indeed rescue us? In particular, did it protect the most vulnerable in our society – the poor?
Poverty
Across the board, the poor were helped by the increase in direct money paid to them and increases in various welfare program benefits (here is how the bill impacted welfare programs). Many resources were made available between direct payments to individuals, the child tax credit, and welfare increases, including rent support. Who got what is widely divergent, but a reasonable middle ground is that most people got anywhere from $2,000 to $4,000 in aid per person, including children. That is a lot of help – unprecedented in the nation’s history.
The aid moved as many as 3% of the population out of poverty – from 11.6% of the population in poverty to 7.8% (here is more information). That change in the poverty rate is not from people earning their financial independence but merely from using government aid to fund living expenses. Therefore, when the assistance goes away, poverty will most likely return.
Inflation
Here is a graph of the inflation rate [i]. It sure appears that inflation was kicked off with the big spending in the stimulus bills of 2020 and exacerbated with the American rescue plan of March 2021. All that spending was done by printing money – none of it was covered through taxes or other government receipts. Many argued at the passing of the American Rescue Plan that it would overstimulate the economy. They appear to have been correct. The cost of living is now at least 15% higher than 18 months ago and probably totals easily $2,000 per person in higher annual living expenses. And prices are still rising.
So was the bill a good idea – did it rescue us? Maybe over the short term, but the long term will be painful. It is painful right now. The increased aid to the poor is long gone; high rent increases and skyrocketing food prices are now upon us. Inflation is cruel to the poor and downtrodden.
Most Americans believe a strong economy does more to help the poor than welfare (See welfare public opinion page). Those passing the American Rescue Plan thought they could do both – pump the economy and increase welfare. But the printing of money introduced high inflation, which changed the whole calculus.
Ronald Reagan believed the most terrifying words in the English language were: “I’m from the government; I’m here to help.” As inflation roars, the American Rescue Plan might be an example.
[i] Data from U.S. Department of Labor Statistics. 12-month percentage change, Consumer Price Index. Available here.