How Not to Criticize the American Rescue Plan Act of 2021

Posted in: Politics

Last week President Biden signed the American Rescue Plan Act of 2021 (“American Rescue”). The $1.9 trillion law was enacted on a party-line vote. To some extent, unanimous Republican opposition to American Rescue—which is broadly popular—reflects simple tribalism. Republicans who supported giving most Americans a $2000 check when Donald Trump was President were opposed to providing $1400 now to add to the $600 that was provided at the end of the last administration. However, given traditional Republican skepticism of government spending (at least while a Democrat is in the White House), it is possible to identify an ideological, and not merely partisan, set of objections.

And indeed, Republican senators and representatives, as well as the conservative punditocracy, have offered numerous substantive criticisms of the Act. Of course, in any large spending measure, everyone can find particular objectionable items. For example, as a vegan, I wish that Section 1001(b)(2), which authorizes the Secretary of Agriculture to distribute food aid, prioritized plant-based foods rather than specifically including, as it does, “dairy, seafood, eggs, and meat.” Others will find different provisions problematic.

In addition to critiquing specific line items, Republican opponents of American Rescue have made three broad-based objections. They contend: (1) the already-recovering economy doesn’t need stimulus; (2) many of the Act’s provisions have nothing to do with COVID-19; and (3) there will be waste, fraud, and abuse, just as there was with respect to the CARES Act that Congress enacted in March 2020. Let us consider these objections in turn.

Is Stimulus Necessary?

With the stock market recently hitting record-high levels, some critics of American Rescue argue that a major stimulus measure is not currently needed and worse, will drive up inflation. The concern has a superficial legitimacy to it but is ultimately misguided.

To begin, the stock market is not the economy. A bare majority of Americans have some investment in stocks, mostly through their retirement funds, but stock ownership is overwhelmingly concentrated among the wealthy. Most families in the bottom half of the wealth distribution own no stock—and they are the ones who have suffered the most and remain at greatest risk from the pandemic itself and from its economic effects. Sure, financial analysts, management consultants, and others who have been able to work from home for the last year have not lost income and may have even benefited from the booming stock market, but such people will not qualify for either extended unemployment benefits or the $1400 payments. The fact that some people are well off counts as no reason at all to deny aid to those who are suffering.

Meanwhile, the inflation worry seems overblown. Basic macroeconomics tells us that excessive government spending can trigger inflation when the spending leads to increased demand that in turn leads to higher prices (absent a corresponding increase in supply). But there is little reason to fear that the spending in American Rescue is excessive. Most of the direct payments to individuals will go to cover items like back-rent, credit card debt, and other debt—that is, to pay for goods and services that have already been purchased but not paid for.

Similarly, American Rescue allocates roughly $350 billion to states, localities, territories, and tribes to “mitigate the fiscal effects” of the pandemic. In practical terms, that means paying down debt for measures already taken, hiring additional health care workers to administer vaccines and perform other tasks, and restoring services (like sanitation, education, and police and fire protection) that were cut due to revenue shortfalls occasioned by the economic effects of the pandemic. Like the payments to individuals, payments to sub-national governments mostly fill in holes rather than create bumps and are thus unlikely to create excess demand that drives inflation.

To be sure, some portion of the money in American Rescue will go to purchase goods and services, not merely to pay past due bills. However, even that portion of the money need not exert inflationary pressure. If the government simply injected a couple of trillion dollars of demand into the economy all at once, that would drive up the price of the existing supply of goods and services. But that is not how it will work. As the pandemic wanes, the supply of goods and services will expand: people with newfound cash will have spending opportunities at newly full bars, restaurants, and theaters eager to compete with each other for customers. Done right, a titrated cash infusion will lead to economic growth with at most modest inflation.

Can we be certain that American Rescue will have no adverse inflationary impact? No, but that hardly means Congress was wrong to enact it. Federal Reserve Chair Jerome Powell has helpfully reassured Congress that he stands prepared to use monetary policy to combat any unwanted inflationary effects of American Rescue. Thus, Congress and President Biden were wise to judge the risks of inaction to be substantially greater than the risk of over-reaction.

One final point about framing warrants mentioning in response to the claim that the economy does not need stimulus now: although American Rescue will have beneficial stimulative effects, it is not a stimulus measure as such.

Since the landmark work of John Maynard Keynes, policy makers have understood that they can hasten the end of prolonged recessions or depressions by putting money in people’s pockets. Keynes explained that if the point of government spending is stimulus, it would even be helpful for government to spend on useless tasks. He gave the example of burying money in the ground to incentivize entrepreneurs to hire workers to dig it up.

In reality, so long as government is going to be paying people, it typically chooses to do so for something useful—projects like rural electrification during the New Deal response to the Great Depression and transportation infrastructure during the Obama administration’s response to the Great Recession. Yet however beneficial those and other projects were, the ultimate purpose was to juice the economy so that it would not remain stuck in an equilibrium well below capacity.

That is not the problem now. The economy is not stuck. It’s suppressed by a combination of well-justified public health measures limiting major swaths of the service sector (like hospitality, travel, sporting events, and more) and, in places like Mississippi and Texas with grossly irresponsible political leadership, individual decisions not to engage in activities that pose health risks.

The chief goal of allocating nearly $2 trillion now is most definitely not to induce people to spend money to attend crowded indoor concerts, weddings, and conventions; rather, in addition to the direct public health spending, American Rescue aims chiefly to provide replacement funds to all the office cleaning staff, hotel workers, bartenders, and others who lost their jobs over much of the last year. American Rescue may have stimulative side effects, but it is not fundamentally a stimulus measure. Accordingly, in addition to failing on its own terms, the contention that the economy does not currently need stimulus is a non sequitur.

Is it About COVID-19?

Many Republicans sought to justify their opposition to American Rescue by accusing their Democratic colleagues of including provisions in the law that had nothing to do with the pandemic. This charge is a description masquerading as a critique.

Some state legislatures and local bodies operate under a “single-subject” requirement that limits the sorts of provisions that can be combined into one bill. Notably, Congress does not. Accordingly, Congress routinely enacts omnibus bills that address a wide range of subject areas. Indeed, one might even think the ability to do so combats gridlock.

Members of Congress care most about issues that directly affect their constituents. A Florida representative wants federal funding to address the harms from hurricanes; a Michigan representative seeks funding to help transition the auto industry to electric vehicles; a New York representative proposes better federal oversight of Wall Street; etc. The sometimes unsightly process of “horsetrading” enables them to come together to provide mutual support for their individually worthy projects.

Admittedly, the system also permits substantial “pork barrel,” that is wasteful, spending, but that concern is hardly limited to American Rescue. Republicans have no business complaining that American Rescue addresses more than one problem or even to complain that some of its provisions are not strictly necessary, unless they have a problem with just about every law Congress has ever passed.

Furthermore, even taken on its own terms, the complaint frequently misses the mark. Many of American Rescue’s spending measures that Republicans criticize are at least indirectly related to the pandemic.

Consider the just under half a billion dollars allocated to the National Endowment for the Arts, the National Endowment for the Humanities, and the Institute of Museum and Library Services. The relevant appropriations provisions expressly require that funds be spent “to prevent, prepare for, respond to, and recover from the coronavirus.” And it is easy to see how: museums and concert halls that have been closed for the last year continued to accrue expenses for matters like maintaining their collections, paying their employees, and paying rent or mortgages. If they were open at limited capacity for part of that time, they still did not make up their usual revenue and had additional expenses for items like improving ventilation and installing barriers to limit the risk of spreading the virus.

Accordingly, Republicans are only partly right that American Rescue addresses some problems that pre-existed the pandemic. But again, even if they were completely right, that would not justify their opposition to the law.

Waste, Fraud, and Abuse

Some human beings are evil. They call elderly retirees pretending to be the retirees’ grandchildren and defraud them of their meager savings. They install ransomware on hospital computer systems and demand payment under threat of endangering patients’ medical records and thus their lives. And when the government passes a big spending measure that aims to provide relief to people who have lost their jobs and to businesses on the verge of bankruptcy, some evil people pretend to qualify for assistance they do not deserve.

Consider just one case arising out of the Cares Act. According to an indictment filed in federal court in Florida last month, Don Cisternino sought and received over $7 million in Paycheck Protection Program funding for a business that he claimed had over four hundred employees. Yet the indictment alleges that he had no such business and spent the money on personal enrichment, including “the purchase of Lincoln Navigator, Maserati, and Mercedes-Benz vehicles, and an approximately 12,579 sq. ft. residence.” Do such cases show that massive government spending programs, no matter how well intentioned, will end up failing to assist those most in need while enriching bad actors?

The honest answer is, at least a little, yes. It is impossible to design a system for disbursing funds that will be impervious to the malice of fraudsters. Indeed, one should not even aim for perfection, because there is a tradeoff between, on one hand, fraud, waste, and abuse, and, on the other hand, bureaucracy. The finer the filter for selecting out unworthy cases, the greater the risk that worthy applicants will be wrongly denied benefits and that all applicants will need to navigate cumbersome procedures.

Yet we ought not throw the baby out with the bathwater. There are better and worse means of detecting fraud, waste, and abuse while also ensuring reasonable access for deserving applicants. Moreover, implementation matters. The CARES Act had robust anti-fraud provisions, but the Trump administration and the last Congress did not use them nearly as vigorously as they might have. In this respect, as in many others, one expects better now.

American Rescue is not perfect legislation, nor will it be implemented perfectly, but it is a much better option than anything Republicans were offering. Hence, their criticisms ring hollow.

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