As the emergency wanes, it's well past time for legislatures to take Covid policy back from the bureaucrats.
On March 11, 2021, President Biden signed into law the American Rescue Plan Act (ARPA). This act will spend $1.9 trillion in money the federal government doesn’t have. Officially, this spending is meant to stimulate the US economy and help those most affected by the economic consequences of the COVID-19 pandemic, the lockdowns, and the economic downturn.
Unfortunately, reality does not match the spin. Indeed, ARPA contains little stimulus for an economy that is rather healthy, few resources to support the fight against COVID, and little real help for those hardest hit. The bill does, however, contain macroeconomic dangers, microeconomic distortions, and a Trojan Horse that will allow the most radical—and unconstitutional—elements of social engineering utopians to establish beachheads in the economy for further and future mischief.
Alas, ARPA is nothing exceptional. Just a year ago, I wrote about similar folly in the CARES Act. ARPA continues growth in government spending, which is neither prudent nor constitutional.
The American Rescue Plan Act and its Predecessors
ARPA spends $1.9 trillion. We can roughly categorize it as follows:
Public Health (9%)
Vaccines, Testing, Infrastructure ($164 billion)
Support to Individuals (39%)
Direct grants ($410 billion)
Housing support ($48 billion)
Support to states for extended unemployment ($289 billion)
Support to Small Business (3%) ($55 billion)
Macroeconomic Support (23%)
Support to state/municipal budgets ($350 billion)
Pension bail-outs ($86 billion)
K-12 and Higher Education ($170 billion)
Transportation ($56 billion)
Agriculture ($10 billion)
Cybersecurity ($2 billion)
Miscellaneous (13%) ($260 billion)
ARPA is the third act to address the pandemic, economic recovery, and emergency welfare. In March 2020, the CARES Act spent about $2 trillion. In December 2020, Congress tacked an $833 billion supplement to the 2021 budget (the Coronavirus Response and Relief Supplemental Appropriations Act, CRRSAA), signed into law by President Trump.
In sum, between March 2020 and March 2021, the federal government spent almost $5 trillion in additional funds (beyond the already bloated federal budget).
Where is the Public Health Funding and Stimulus?
The first question one might ask, in the midst of a pandemic, relates to ARPA spending on—of all things—public health! Only 9% of ARPA is devoted to public health (half of which goes to vaccines, and half to testing, veterans health, public health services, etc.). CRRSSA devoted 8% of its total to public health; for CARES, it was 21%. It is odd to note that so little of the $5 trillion in COVID-related spending is actually earmarked for public health; after all, if the pandemic goes away, so do the economic problems. And let us recall that only around 20% of Americans are fully vaccinated.
Beyond this odd situation, we can also reasonably wonder about the stimulus. Simply stated, the US economy is not in a recession, and thus not in need of stimulus. To be sure, unemployment rose to 14.8% in April 2020, and was still above 10% in July 2020. But by February 2021, a month before ARPA was signed into law, unemployment had fallen to 6.2%. Mortgage defaults (which were at 6% before the pandemic) had fallen to 6.75%; rent defaults (which were at 15% before the pandemic) had fallen to 19% by March, before ARPA. Again, there is no economic crisis. One is left wondering why the federal government just spent another 10% of GDP to “stimulate” an economy that is not in recession.
Thanks to technological progress that has allowed large-scale telecommuting, there is no economic crisis and no widespread hardship. Of course, a small percentage of Americans are suffering immensely, having lost their jobs or health insurance. But ARPA, like its predecessors CRRSSA and the CARES Act, is not targeted at helping those in greatest need. Instead, ARPA grants stimulus checks to about 85% of American households, regardless of need. As there is no economic recession, it is not (economically) logical to engage in a blanket distribution of funds. But a law that grants goodies to almost all Americans, without serious means-testing, starts to smell a lot like good ol’ fashioned pre-election politics.
ARPA, like its predecessors, is not an economic stimulus bill, nor is it carefully targeted at providing relief to those who really need it. It is much better classified with Roman patronage, as a pre-emptive purchase of votes before the midterm election. Alas, President Biden is merely following in the footsteps of his predecessor, as President Trump did the same in March 2020.
Okay, so this is business as usual in electoral politics. So what? Unfortunately, ARPA, along with its predecessors, poses two major difficulties: economic consequences and constitutional problems.
It is clear that ARPA is neither Keynesian stimulus nor emergency welfare for the hardest hit. We now examine the likely economic consequences of this mammoth spending bill.
The macroeconomic effects are the most obvious. The butcher’s bill for the three (allegedly) pandemic-related spending efforts represents a grand total of 26% of GDP over one year. By comparison, the sum of the Bush (II) stimulus, the Obama stimulus, and the Troubled Asset Relief Program (“TARP”) cost “only” 10% of GDP—over four years. What is worse, ARPA spends money the federal government doesn’t have. Until the 1970s, the US debt-to-GDP ratio stood around 30%. It then grew, over the next 40 years, to 82% after the 2007 Great Financial Crisis, then crossed the 100% threshold. It was not until the Trump presidency, in 2020, that the ratio grew to 129%. Thanks to President Biden’s latest effort, the ratio has passed the 133% mark. America’s bipartisan profligacy will be paid over multiple generations. In the meantime, we can expect diminished growth, higher taxes, a drop in capital investment, and—thanks to the lack of means-testing—a likely continuation of the asset bubble, as the wealthier among the 85% of households receiving federal goodies invest, rather than spend, their “stimulus” money.
ARPA will also bring microeconomic consequences. ARPA supports state and municipal budgets—including those of fiscally irresponsible entities and those with a budget surplus—without asking too many questions. ARPA bails out undercapitalized pension funds (many linked, what a coincidence, to unions) that were already insolvent before the pandemic. The sudden lockdowns in March 2020 demonstrated just how few Americans have a cash reserve beyond the next paycheck; instead of encouraging financial responsibility and savings, CARES and ARPA merely encourage the moral hazard of dependence on the taxpayer (and Treasury bondholder). And, according to the Roman logic of the patronus-cliens relationships, many Americans will earn more during the pandemic than they did before; two-thirds of beneficiaries of federal extensions and supplements to unemployment payments will earn more by not working than they would have by working. These microeconomic distortions do not lay the foundations for long-term economic growth and social mobility.
ARPA and its predecessors clearly violate the federal mandate of enumerated and delegated powers (see Article I section 8, and the 10th amendment, which do not countenance such an aggressive policy).
Before World War I, the federal government consumed or controlled less than 3% of GDP. Between the two world wars, at the height of the New Deal, the federal burden never passed 10% of GDP. After World War II, federal spending increased, over 30 years, to 20% of GDP, a level that remained steady until 2019. Since the trio of massive COVID-related spending bills, the federal government controls roughly one-third of the economy. To that, we can add 10% of GDP for the cost of complying with federal regulations, and almost 20% of GDP in municipal, county, and state spending. In sum, almost 60% of the US economy is now controlled through politics, rather than the free interaction of consumers and producers in a competitive market.
Over the past year, we have seen a bipartisan assault on constitutional and fiscal floodgates. But the reality is even worse than appearances. Indeed, ARPA is a Trojan Horse that is smuggling in tools that will be used for further power grabs—ones that would not be tolerated save for the pretext of fighting a pandemic and a recession. The educational union machine has not yet spent the manna received under the CARES Act, but ARPA is showering it with a further $130 billion—to be spent over seven years. This has nothing to do with stimulus, but is explicitly a slush fund. ARPA is smuggling in support for health insurance premiums, including for some recipients who are not unemployed and do have sufficient resources. Since traditional legislation can’t be secured, ARPA is slowly laying the foundations for single-payer healthcare. ARPA is even quietly making a shift towards Universal Basic Income by providing a monthly child credit to most parents. In sum, President Biden and the Democratic majority are using the pretext of a pandemic to insert a fifth column into the commanding heights of the American economy, setting up an economic takeover that the lack of a senatorial super-majority wouldn’t otherwise allow.
A Trillion Here, a Trillion There
Soon we’re talking real money. Alas, ARPA’s $2 trillion bill (on the heels of almost $3 trillion in 2020 spending) is not the end of the story. On March 31, President Biden outlined a $2.3 trillion American Jobs Plan, proposing further massive spending on infrastructure and jobs, coupled with a massive increase in the corporate tax rate. Income tax rates are sure to follow.
The poet Horace reminds us: Naturam expellas furca, tamen usque recurret/et mala perrumpet furtim fastidia victrix. “Drive Nature out with a pitchfork, she’ll always come back/ Victorious over your ignorant confident scorn.”
Individuals, businesses, unions, and governments will enjoy the checks while they continue to roll in. But we are fast heading towards an economy we don’t recognize and consequences that we can’t contain.