The American Rescue Plan Act of 2021 — or American Rescue Plan for short — has been signed into law. You can read the text of the legislation here.
The American Rescue Plan (we’ll call it ARP) is far more than just a $1.9 trillion stimulus bill. It is a transitional moment, and quite possibly a paradigm shift — a structural change in the model — for Americans’ relationship with their government.
Thanks to ARP, President Joseph R. Biden could be as consequential a president as Lyndon B. Johnson, or even Franklin D. Roosevelt. The American Rescue Plan is, in multiple ways, a reversal of trends set in place 40 years ago, via transformational legislation enacted by President Ronald Reagan in 1981.
Some will see the sweeping scope and ambition of ARP, and the echoes of LBJ and FDR within it, as a very good thing. Others will see it as a very bad thing. We are not interested in the politics, but rather the market impacts.
It might sound extreme to call this the most consequential legislation in 40 years, with the possibility of making Biden a historical successor to Johnson or Roosevelt. It is not.
The magnitude of the American Rescue Plan has to be considered in three contexts: The money that has been spent in the past year; the new programs that were just signed into law; and the way those programs were strategically introduced.
In terms of money spent, it is estimated that, on an inflation-adjusted basis, America spent the modern-day equivalent of $4.8 trillion fighting World War II. To battle the pandemic and rescue the economy, America will have spent $5.5 trillion with the ARP tally included.
Both the current and former presidents referred to a “war footing” in fighting the virus. They weren’t kidding. Uncle Sam has already reached further into his pockets than he did for World War II.
And the extent of pandemic-related relief spending remains unknown because the final bill for fighting the pandemic depends on multiple unknown factors. There is the matter of how long we spend fighting the pandemic (whether ARP is the last word or not); whether the temporary programs in ARP are extended; and how the cost of the extended programs gets tallied.
Then, too, with respect to temporary programs versus permanent ones, the American Rescue Plan does something strategically brilliant. It presents a slate of radical new relief programs, many of them involving direct transfer payments — where the government pays cash, expecting no return — on a “temporary” basis, giving Americans the chance to get used to them.
These temporary programs have a “try before you buy” aspect, in the sense that Americans could easily grow attached to them for the 12 months or more that they run. Once a relief program is given to someone — especially if it involves cash — it is politically hard to take away, and sometimes impossible.
Trying to end a program that provides monthly cash benefits means, in a real sense, taking money from voters’ pockets after they had grown accustomed to receiving it. With many of the temporary programs in the American Rescue Plan, there is a deliberate calculus of building political popularity, and then using that political popularity to make things permanent later.
And the political popularity aspect of ARP is already sky-high; the bipartisan level of approval is remarkable. According to a Morning Consult poll taken in late February, 76% of voters backed the plan, including 60% of Republicans.
Then, too, various programs in the bill are designed for later expansion. Not only could these programs prove popular enough to warrant signing into law later on, but they could expand in size and scope.
But what kind of programs are we talking about exactly? What kind of legislation in ARP might count as radical, or even wild, from the perspective of a pre-pandemic point of view?
We can see at least three things worth highlighting to illustrate how LBJ-and-FDR-like this legislation is: Means-tested universal health care; full-scale pension bailouts; and means-tested universal basic income (UBI) for kids.
With respect to means-tested universal health care, the ARP legislation stipulates that anyone whose income level is 150% or less of the federal poverty level (FPL) will see their health care premiums drop to zero. Those premiums used to bottom out at $800 — now they will cost nothing.
For a family of four, for example, the FPL is $26,500. This means that, for a family of four with household income of $39,750 or less, health care premiums will be zero.
Health care subsidies will also be substantial for households earning more than 150% of FPL, with the benefits phasing out as income levels increase.
For example, the economics blogger and journalist Kevin Drum estimates that, for a family of four with $85,000 in household income and $25,000 in health insurance costs, their federal subsidy will go from zero to $18,000 per year, meaning their health care costs will fall from $25,000 out of pocket to $7,000.
It is hard to imagine that kind of health care relief being rolled back, once tens of millions of families experience the savings. You try giving a middle-class household the benefit of an $18,000 cost reduction for a full year, and then explaining later why you need it to take it away.
The full-scale pension bailouts embedded in ARP are also a thing to behold.
Near the end of 2019, we released an e-book titled The Deadly Decade Survival Guide, a sort of handbook on surviving and thriving in the wildness of the 2020s. In that e-book, we talked about the inevitable need for pension-fund bailouts, with both public and private pension systems heading in slow motion toward inevitable disaster.
Thanks to ARP, those inevitable pension fund bailouts are now underway. The American Rescue Plan allocates $86 billion specifically to fund failing or distressed pension plans, covering approximately 10 million workers in the United States.
“The provision applies to multi-employer pensions,” CNBC reports. “These plans pay benefits to union workers in industries such as construction, manufacturing, mining, retail transportation, and entertainment.”
For millions of workers in both the public and private sector, the $86 billion bailout will literally save their retirements, in the sense that, without those federal funds, they wouldn’t have received the future checks they were counting on.
But this strikes us as another example of the camel’s nose under the tent — eventually you get the whole camel — because it wouldn’t seem fair to dole out $86 billion of pension fund relief if, say, a few trillion worth will ultimately prove to be needed. Why should some pension funds be saved, but not the rest, now that a precedent has been set?
And now we come to one of the most transformational pieces of all: Universal Basic Income (UBI) for kids. That might sound over the top, but it is hard to classify the provision as anything else; some commentators, like MSNBC host Chris Hayes, have taken to calling it “social security for kids.”
Here is Hayes describing ARP-mandated changes to the Child Tax Credit (CTC):
“If you are watching this right now, and you have one or more children, and you make less than $150,000 a year in combined household income — which is, you know, the overwhelming majority of parents — you can get money from the government, on a monthly basis, to help with the expenses of having a child.
“You won’t have to wait for a tax refund at the end of the year, because the bill increases the tax credit to $3,000 per child ages 6 to 17, and $3,600 annually for children under 6 for the tax year 2021.
“But then importantly, parents of children under 6 will start receiving $300 monthly payments, via direct deposit or through the mail starting around July. Parents with kids age 7 to 17 will receive $250 a month, and then claim the rest of the year’s tax credit when they file 2021 taxes.
“Remember, this credit — which is actually a check in certain circumstances — it’s per child. So right now, if you have a 10-year-old, a 7-year-old, and a 4-year-old, the government is going to give you an extra $800 every month.
“The U.S. has not really had a program anything like this before. Some European countries and Canada have experimented with different versions of what’s called child allowances, and those experiments have been very, very popular. People really like them.
“This will essentially be the closest thing we have to a universal cash benefit…”
In the past few years, one recurring theme we have touched on is the manner in which the ideas behind modern monetary theory (MMT) look more and more inevitable as time passes.
This is not in respect to politicians or economists officially embracing MMT, but rather the government on the whole moving toward a de facto set of MMT-style policies, primarily because the American voting public, on a bipartisan basis, will be enthusiastic about seeing this happen.
The principal idea behind MMT-style thinking — the core of the theory as a system — is the notion that budget deficits and national debt levels are an “artificial constraint,” meaning they don’t actually matter to a nation with monetary sovereignty.
MMT thinkers do, in fact, believe the government operates with constraints — but they see the true constraint as inflation, meaning, if the country is not experiencing undesirable monetary inflation, then the level of spending is fine. MMT economists would prefer to ignore deficits and debts as a kind of bogus indicator, focusing instead on the level of inflation experienced by the economy. If inflation is low, let the dollars flow; if inflation gets too unwieldy, only then does the spending need to be reined in.
One of the ways the American Rescue Plan is transformational — and there are many things we left out in this brief sampling — is that MMT-style thinking has now been ratified into law with an overwhelming level of popular support.
This also helps explain why we see sustained inflation — real, meaningful inflation — as an inevitable aspect of America’s future, almost no matter what happens.
Those who assume inflation pressures will be “transient,” or otherwise temporary, do not realize how the game works: Under the MMT framework, if inflation is low — and especially if it is dangerously low — you crank up the spending until it comes back.
Our baseline expectation, more or less, is that many of the popular cash transfer programs in the American Rescue Plan will cease being “temporary” and will make their way into law down the road, by way of sheer bipartisan popularity with the American public.
It is hard to imagine taking these programs away in a year; indeed, the only political justification we can imagine for taking them away would be an inflationary backdrop so harrowing and nasty that politicians could point to roaring inflation as a warning against overspending.
In the absence of truly nasty inflation as described, we anticipate American voters who very much like the temporary programs saying, “what is the problem exactly? We still don’t have inflation, why can’t we keep these programs going? In fact, why can’t we expand them?”
And then, ultimately — this is our sense of how things will happen, based on a feel for how complex systems work — the structural and permanent inflation that most had written off as “unlikely” or “transient” will show up with a lag, not unlike the shower head that delivers hot water on a delay (except in this case a delay not of seconds or minutes, but of months or quarters or possibly even years).
Some observers think the American Rescue Plan is the best thing to come out of Washington in decades, with the potential to transform America for the better by lifting the labor sector and helping low-income Americans like no legislation has done within half a century. Others believe the American Rescue Plan is a turn toward disaster, and a road to fiscal ruin.
What both sides can agree on, or should, is that ARP is transformational. For good or ill, we will not be going back to the ways of the past 40 years. A new era of government expansion, and a deeply expanded relationship between American citizens and the state, has begun.