Conservative Republicans will shortly begin to attack the Biden’s American Rescue Plan passed by Congress. Their complaints will be many, they will claim that the relief package is bloated, that it is inflationary, it increases the national debt to unsustainable levels, and that it is not targeted enough.
If by bloated, critics mean that the relief package is large, then yes it is, but its size is no larger than the Trump tax. The Obama’s American Recovery and Reinvestment Act of 2009 was too small by half resulting in a largely jobless recovery spread over a four-year period.
Whether the relief package is inflationary, depends on the state of the economy. Today the official unemployment rate is 6.2 percent, with 10 million individuals still unemployed. The unofficial, but more comprehensive U-6 unemployment rate, which includes all unemployed, and workers marginally attached and those working part-time for economic reasons was 11.1 percent in February. Proof that Sen. Mitch McConnell is wrong; the economy has not “turned the corner.”
As we can see there are plenty of workers who need to return to work before we begin to experience inflationary pressures, this gap between where we are and where we need to be can be seen in the nation’s capacity utilization rate (the percent of productive facilities being used).
Today’s utilization rate is only 76.9 percent, well below the 85 percent, which is the traditional threshold for us to begin to experience demand pull inflation. In addition to slack labor market conditions, the one time $1,400 checks will be spend relatively quickly, the unemployment compensation checks will continue only until September, but the school aid may take two years to cycle through, all of which further highlights the fact that the bill will not be inflationary.
Claims that the national debt has reached unsustainable levels are nothing more then pure conjecture. There is no evidence that any particular level of national debt is unsustainable. Russian national debt is 19 percent of GDP, but their economy is shrinking. By contrast, Japan’s national debt is 240 percent of GDP, they have the third largest economy in the world, with an expanding economy.
U.S. Federal debt will approach 102 percent of GDP in 2021 (not counting Biden’s Relief Plan), and according to the Congressional Budget Office (CBO), will increase to 107 percent of GDP over the next decade. And while these are the figures cited by the CBO, the question we need to be asking is, what potential harm can this level of debt do to the economy.
Federal debt is not real in the sense that private debt is real. National bankruptcy is not possible since the federal debt is denominated in a currency unit (dollars) that the government creates when it makes expenditures. Paying down the debt forces the nation into recession, so no nation intentionally pays down their debt unless they’re faced with an inflation problem.
And if by chance there is a desire to reduce the level of outstanding debt, we would simply have the Fed buy back the debt. Could excessive Fed purchases put too much money back into the economy? Yes, but in that case the government could soak up the excessive money by altering the tax rates.
Claims that the relief package is not targeted are total falsehoods. The bill contains provisions to aid the unemployed, money for state and local governments, aid to schools, aid to businesses, funds for testing and vaccines, monies for renters and homeowners, increased subsidies for people purchasing insurance under the Affordable Care Act, and a refundable, monthly, child care tax credit that will cut child poverty.
The treasury is consulting with state governors to see exactly what their needs are. This further contradicts the notion that the bill is directionless. The refundable child tax credit will reduce child poverty by 45 to 50 percent. The relief package has provisions to increase subsidies to those purchasing health insurance under the Affordable Care Act. In one example, premiums were reduced from $1,050 per month to $445 per month.
In reality the Republicans do not want to focus on specific issues, their plan is to demonize the relief package the way they did the Affordable Care Act (ACA). Democrats didn’t defend the ACA allowing Republicans to paint it as socialized medicine, thus allowing them to recapture Congress, and this will be their game plan today.
Just flipping one seat in the Senate will allow McConnell to become the Senate leader ending all chances for passing legislation that impacts economics, voting rights or civil rights.
Passing the relief plan was just the start. Real economic assistance and reform will depend on how well Democrats sell the American Rescue Plan.