By I. Toledo
Aiming to boost the economy and end the pandemic, US President Joe Biden signed a 1.6 trillion-dollar stimulus plan in March 2021, also known as the American Rescue Plan (ARP), which was marked as one of his biggest achievements. This law included sending direct payments of up to 1,400 dollars to most Americans, expanding unemployment insurance and child tax credit benefits, and providing state and local governments with hundreds of billions of dollars. Although the plan succeeded in providing economic relief during the covid pandemic, many economists argue it contributed to the country’s biggest inflation in 40 years.
Now standing at 8.5%, the USA’s annual inflation rate peaked at an astounding 9.1% this June, marking the largest increase in four decades. When comparing this with the inflation suffered by other wealthy countries due to the pandemic, the US stands out since 2021 as the country with the most economic stimuli and the biggest core inflation.
This led people to criticize the American Rescue Plan for three things: its size, its timing, and the details of its spending.
Starting with its size, many argue that 1.9 trillion dollars was too much money, overheating the economy and causing inflation instead of increasing economic output. Michael Strain, part of the right-leaning American Enterprise Institute, said “The sweet spot, I think, might have been a $300-500 billion American Rescue Plan that could have given us a lot of the benefits of the ARP without sparking such rapid price growth.”
The timing was also seen as an issue with the ARP, as most of the money was spent last year and not over a larger period of time. This increased demand for consumer goods rapidly as Americans were suddenly met with cash and unemployment assistance, helping to boost the economy in the short term. However, this died out just as fast once supply couldn’t keep up with the unexpected increase in demand, and thus, had to turn to increasing prices.
Lastly, another problem detected was what the plan included. Although a part of the money reached people who needed it and, along with other policies, helped them bounce back from the Covid crisis, the rest was not well targeted, as some checks reached economically stable people and state and local governments which weren’t facing the budget crisis initially expected.
On the other hand, some economists believe that the ARP was solely a minor contributor to inflation and that the correlation between the size of economic stimulus and core inflation when comparing the US to other countries is merely coincidental.
What is being done to fix the problem
President Biden has shared some of his plans to get inflation under control again. Some of these include:
- Calling on companies to lower their costs and not their wages
- More well-paying jobs and raising the federal minimum wage to 15 dollars per hour
- Making prescription drugs, energy and child care more affordable