The American Rescue Plan Was A Disaster

The ARP Exacerbated Inflation, Doomed Democrats and Their Agenda

The White House

By Sander McComiskey ‘26

The American Rescue Plan receives its fair share of criticism. Republicans and fiscal conservatives regularly denounce the bill as a dangerous morass of wasteful spending, more specifically a “far-left wish-list” and “the most damaging spending bill enacted in decades”. Predictably in this polarized political climate, the bulk of objection has come from the right, excluding a few center-left economists and pundits. This is understandable, as those ideologically opposed to big government or those interested in the failure of the Biden administration have an incentive to rail against the ARP. Although the legislation has received scant criticism from the vast majority of the Democratic party, it is imperative that liberals accurately assess the successes and failures of their own policy, even if that entails admitting fault. It is precisely because a stronger and more expansive government is crucial to improving American lives and because the success of the Biden administration is vital to the health of our democracy that the American Rescue Plan can be judged as nothing but a monumental failure of public policy.

The Inflationary Effects of the American Rescue Plan

The least contentious point of criticism is the macroeconomic effect of the ARP, specifically on the issue that has wreaked havoc on the Biden administration, doomed progressive policies in this congress, and will likely hand control of Congress to the Republican party: inflation. The ARP is by no means the impetus for the inflationary pressures that plague the United States, but the role of $1.9 trillion in deficit spending in exacerbating an existing inflationary gap is undeniable. Passed as the American economy began to open up and regain full capacity, the ARP entered into an economy struggling with above-average demand due to pandemic saving patterns and below-average supply due to supply chain constraints, already a recipe for inflation.

Despite these pressures, the ARP injected phenomenal levels of stimulus into the economy, giving $350 billion directly to state and local governments, sending $1400 stimulus checks to most Americans, creating a fully refundable tax credit for child-raising parents, extending enhanced unemployment benefits, and spending hundreds of billions of dollars more to juice aggregate demand. The United States has suffered greater core inflation than its industrialized European counterparts, and economists point to pandemic aid as the primary catalyst. The exact portion of current inflation attributable to the ARP is unclear, but various economists place the likely estimate between one to three points of core inflation, a huge contribution to current inflationary pressures.

It is important to acknowledge that while the ARP is likely responsible for around two points of current inflation rates, core inflation consistently runs between six and seven percent, a greater divergence from equilibrium than can be explained by the ARP. To the extent that remaining inflation can be chalked up to government policy rather than supply chain problems and diminished labor forces, it is due to substantial consumer demand produced by vitally necessary pandemic aid, namely the CARES Act and its successor passed with bipartisan support.

This distinction is responsible for the extent of political damage to the Biden administration and, by extent, the Democratic party. Without the ARP, existing inflation could have been portrayed, accurately, as a result of pandemic aid, which regardless of inflationary effects, was a huge success both macroeconomically and in its effect on individual Americans. More importantly, this aid earned approval from bipartisan supermajorities in Congress and was signed by former President Trump. Inflation is the single most deadly issue for Democrats in this election cycle, dooming campaigns and incinerating any chance at retaining both congressional majorities, but Republicans have only been able to coherently pin the blame on the Biden administration because of the ARP. Without it, the administration could correctly claim no responsibility for current inflationary pressures, which might have even provided President Biden the opportunity to go on the offensive and gain popularity through styling himself a competent and resolute opponent of inflation. Not only was the ARP damaging to the macroeconomy, contributing to inflation that dragged down real wages and necessitated restrictionary monetary policy with potentially devastating effects, but it was political poison for the Biden administration and Democrats nationwide.

Downstream Legislative Consequences

Unfortunately, the damage done by the ARP was not limited purely to inflation and its political consequences. Presidential administrations have a limited amount of political capital, typified in the axiom that the first two years of a presidency are the most productive. This means that presidents have a limited number of policies to pursue within that time period. The ARP was intended to be one of the three legislative centerpieces of the 116th Congress, alongside a historic investment in the nation’s infrastructure and physical capacity surpassed in audacity only by the crown jewel, a massive investment in social programs for American families and workers that would represent the greatest progress on this front since either the Roosevelt or Johnson administration. At least, that was the plan.

On the first of those counts, the administration realized most of its proposed policies, through the bipartisan infrastructure deal, the harmlessly mislabeled Inflation Reduction Act, and the CHIPS Act, encompassing monumental investments in green energy, manufacturing, and physical infrastructure. On the second, the administration secured nearly none of the social programs it proposed. The central culprit of this wasted opportunity to transform the American economy and daily lives of its workers: the failure of the American Rescue Plan.

The first plank of this assertion is supported by the finite appetite for spending in the current Congress. While the administration’s proposals by no means overshot the need for expansion of the social safety net and programs that support average Americans, the combined price tag of the three measures was eye-popping, especially given the outsized and somewhat inappropriate focus on the bottom line cost in the media driven by the mechanics of budget reconciliation. It proved difficult to sell $6 trillion in combined spending to a razor-thin congressional majority and a polarized country, causing concrete tradeoffs to be made. Likely, the $1.9 trillion spent in the ARP supplanted a comparable amount of spending dedicated to the types of programs included in the Build Back Better Budget Plan. 

Secondly, the ARP led to the more obvious factor in the BBB Plan’s ultimate rejection: inflation. Senator Joe Manchin, initially receptive to a large amount of spending on social programs, was at least ostensibly swayed by the optics of trillions in new spending during an inflationary gap. At the least, it is quite plausible that without the ARP, not only would America enjoy a healthier macroeconomy and the Democrats less of an electoral disadvantage, but the Biden administration might have realized much of the proposed expansion of social programs liberals eagerly anticipated at the beginning of the presidency.  

This tradeoff of $1.9 trillion in ARP spending for a comparable amount of spending on social programs is so tragic due to the transitory nature of ARP benefits. The spending was designed as an economic stimulant, meaning the benefits were purposefully temporary. Nearly all of the spending was designed to occur within two years, rather than investing over the next ten to fundamentally reshape the American economy while supporting families, education, and social services as the American Families Plan would have accomplished. Free community college, universal childcare and pre-K, and expanded healthcare benefits obtained through taxing high earners would have transformed the nature of the economy and individual lives as fleeting boosts to already flush bank accounts never could have. Policy need not be zero-sum; one bill’s passage should not doom another’s, but in this instance, the failure of the ARP likely prevented massively more beneficial legislation from earning Congress’s approval. This is legitimately heartbreaking given the lengthy period of time it took to realize this opportunity, and the probable wait before a similar chance comes back around.

A Concluding Assessment of the American Rescue Plan

The ARP was by no means a wholly negative bill. It funded vitally important measures such as vaccine rollout and other pandemic-related policies, as well as additional policies that prevented hardship as the economy reopened. However, the ARP itself should not be credited for these measures, as they likely would have been enacted even in its absence. The ideal plan would have been very similar to the counterproposal offered by the moderate group of Republican senators immediately dismissed by the administration.

In a similar vein, excoriating the ARP in hindsight is in no way a condemnation of the Biden administration’s support of the measure in early 2021. I myself was in favor of the bill upon passage; while I regarded it as likely oversized, I greatly underestimated the possible consequences of that excessive stimulus. The bill also marked the end of an era of seemingly unlimited constraints on government spending and borrowing and an economy unwilling to overheat despite considerable effort. While the passage of the ARP was, in retrospect, quite damaging, this does not entail it being an unwise decision at the time. 

That being said, those who pointed out the possible dangers of the proposal at the time, especially those who spoke out not as a reflexive response to an administration of the opposing party proposing anything at all, deserve credit. Larry Summers, bracketing one’s opinions of his economic legacy, was absolutely correct when he warned about the inflationary risks posed by the sheer size of the ARP. 

It is imperative to consider the merits of past policies not to cast blame on specific actors, but to learn from the mistakes of the past and produce more effective policy in the future. For this reason, every American, regardless of party or ideology, should have no qualms about admitting that the American Rescue Plan was, in fact, a disaster.