Biden’s economic Trojan horse
On March 11, 2021, President Biden signed the American Rescue Plan Act (ARPA). That bill will spend $ 1.9 trillion on money the federal government doesn’t have. Officially, this spending is supposed to boost the US economy and help those hardest hit by the economic fallout from the COVID-19 pandemic, lockdowns and economic downturn.
Unfortunately, the reality doesn’t match the spin. Indeed, ARPA contains little stimulus for a fairly healthy economy, little resources to support the fight against COVID, and little real help to the hardest hit. However, the bill contains macroeconomic dangers, microeconomic distortions and a Trojan horse that enables the most radical – and unconstitutional – elements of utopian social engineering to establish bridgeheads in the economy for further and future disaster.
Unfortunately, ARPA is nothing out of the ordinary. A year ago I wrote about similar folly in the CARES Act. ARPA continues the growth in government spending that 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, Tests, Infrastructure ($ 164 billion)
Support for individuals (39%)
Direct Grants ($ 410 billion)
Housing Benefit ($ 48 billion)
Support for states with prolonged unemployment ($ 289 billion)
Small Business Support (3%) ($ 55 billion)
Macroeconomic Support (23%)
State / Municipal Budget Support ($ 350 billion)
Pension Bailouts ($ 86 billion)
K-12 and Higher Education ($ 170 billion)
Transportation ($ 56 billion)
Agriculture ($ 10 billion)
Cybersecurity ($ 2 billion)
Other (13%) ($ 260 billion)
ARPA is the third act dealing with pandemic, economic boom, and emergency. In March 2020, the CARES bill spent approximately $ 2 trillion. In December 2020, Congress tackled a US $ 833 billion budget amendment signed by President Trump (the Coronavirus Response and Relief Supplemental Appropriations Act, CRRSAA).
In total, the federal government spent almost $ 5 trillion on additional funds between March 2020 and March 2021 (over and above the already inflated federal budget).
Where is the funding and public health incentive?
The first question to ask in the midst of a pandemic is about ARPA spending – public health of all things! Only 9% of ARPA is for public health (half of it for vaccines and the other half for testing, veteran health, public health services, etc.). CRRSSA dedicated 8% of its total to public health; for CARES it was 21%. It’s strange to note that so little of the $ 5 trillion in COVID-related spending is actually going to public health; If the pandemic goes away, so will the economic problems. And let’s remember that only about 20% of Americans are fully vaccinated.
Beyond this strange situation, we can also reasonably marvel at the stimulus. Simply put, the US economy is not in recession and therefore does not need any stimulus. Unemployment rose to 14.8% in April 2020 and was still above 10% in July 2020. However, by February 2021, a month before the ARPA was signed, unemployment had fallen to 6.2%. Mortgage defaults (which were 6% before the pandemic) had fallen to 6.75%; Loss of rent (which was 15% before the pandemic) had dropped to 19% by March before ARPA. There is no economic crisis here either. One wonders why the federal government has just spent another 10% of GDP to “stimulate” an economy that is not in recession.
Thanks to technological advances that have made teleworking on a large scale, there is no economic crisis or widespread hardship. Of course, a small percentage of Americans suffer immensely because they have lost their jobs or their health insurance. But, like its predecessors CRRSSA and the CARES Act, ARPA is not designed to help those most in need. Instead, ARPA provides stimulus checks to around 85% of American households, regardless of their needs. Since there is no economic recession, it is (economically) not logical to distribute the funds across the board. But a bill that grants goodies to almost all Americans without serious means testing smells a lot like old-fashioned pre-election politics.
America’s bipartisan waste is paid for over generations. In the meantime, we can expect lower growth, higher taxes and a decrease in capital investments.
Like its predecessors, ARPA is not a stimulus package, nor is it carefully aimed at relieving those who really need it. It is rated much better under Roman auspices as pre-election pre-election pre-election voting. Unfortunately, President Biden is merely following in the footsteps of his predecessor, as President Trump did in March 2020.
Okay, that’s the way it is in electoral politics. So what? Unfortunately, ARPA, along with its predecessors, poses two main problems: economic consequences and constitutional problems.
It is clear that ARPA is neither a Keynesian incentive nor an emergency for the hardest hit. We now examine the likely economic consequences of this mammoth spending calculation.
The macroeconomic effects are the most obvious. The butcher’s bill for the three (supposedly) pandemic-related spending efforts totaled 26% of GDP over a year. In 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’s worse, ARPA is spending money that the federal government doesn’t have. Until the 1970s, the US debt ratio was around 30%. In the next 40 years, after the great financial crisis in 2007, it rose to 82% and then exceeded the 100% threshold. It wasn’t until the Trump presidency in 2020 that the rate rose to 129%. Thanks to the recent efforts of President Biden, the rate has passed the 133% mark. America’s bipartisan waste is paid for over generations. In the meantime, we can expect lower growth, higher taxes, a decline in capital investment and – thanks to the lack of means testing – a likely continuation of the asset bubble as the 85% of households that receive federal goods are wealthier investing their “stimulus” money instead of spending it.
ARPA will also have microeconomic consequences. ARPA supports state and municipal budgets – including those from tax-irresponsible bodies and those with a budget surplus – without asking too many questions. ARPA is bailing out undercapitalized pension funds (many were, what a coincidence, unions linked) that were insolvent even before the pandemic. The sudden bans in March 2020 showed how few Americans have a cash reserve beyond their next paycheck. Rather than encouraging financial responsibility and savings, CARES and ARPA merely encourage the moral risk of being dependent on the taxpayer (and the bond holder). And following the Roman logic of Patronus-Cliens relationships, many Americans will earn more during the pandemic than they did before; Two thirds of the beneficiaries of federal extensions and supplements to unemployment benefits earn more when they are not working than when they are working. These microeconomic distortions do not form the basis 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 advocate 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 exceeded 10% of GDP. After World War II, federal spending rose to 20% of GDP over 30 years, a level that remained constant through 2019. Since the trio of massive COVID-related expenditure calculations, the federal government has controlled around a third of the economy. Add 10% of GDP for the cost of complying with federal regulations and nearly 20% of GDP for local, regional, and government spending. Overall, nearly 60% of the US economy is now controlled by politics rather than the free interaction of consumers and producers in a competitive market.
Last year we saw a bipartisan attack on constitutional and fiscal locks. But the reality is worse than appearances. Indeed, ARPA is a Trojan horse that smuggles tools that are used for further seizures of power – those that would not be tolerated without the pretext of fighting a pandemic and recession. The education union machine has not yet issued the manna obtained under the CARES bill, but ARPA is showering it with an additional $ 130 billion – to be spent over seven years. This has nothing to do with stimulus, but is specifically a slush fund. ARPA is smuggling in support of health insurance premiums, including for some recipients who are not unemployed and have adequate resources. With traditional legislation unsustainable, ARPA is slowly laying the groundwork for payer health care. ARPA is even quietly shifting towards universal basic income by providing monthly child loans to most parents. Overall, President Biden and the Democratic majority are using the pretext of a pandemic to add a fifth column to the dominant heights of the American economy and ushering in an economic takeover that the absence of a senatorial super majority would otherwise not allow.
A trillion here, a trillion there
Soon we’ll be talking about real money. Unfortunately, ARPA’s $ 2 trillion bill (shortly after spending nearly $ 3 trillion in 2020) isn’t the end of the story. On March 31, President Biden outlined a US $ 2.3 trillion employment plan that proposed further massive spending on infrastructure and jobs, as well as 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 repetition / et mala perrumpet furtim fastidia victrix. “Drive nature out with a pitchfork, it will always come back / victorious over your ignorant, self-conscious contempt.”
Individuals, corporations, unions, and governments will enjoy the checks as they keep getting on board. But we are rapidly approaching an economy that we fail to see and consequences that we cannot contain.