By: Myles Dudley
Almost one year into the Coronavirus pandemic, the U.S. has surpassed 27 million cases and over 450,000 deaths (CovidTracking, 2021). Considering mutant strains of the virus emerging around the world and even starting to pop up in the US, this public health crisis is beginning to feel like an unseemly new normal for people across the country. However, since the 2020 presidential election, help from Washington has seemed on the horizon. The rather new Biden administration has gotten to work on getting Congress to pass their proposed $1.9 trillion Coronavirus plan, dubbed the American Rescue Plan.
What is it and who does it help?
The American Rescue Plan is divided into two parts, rescue and recovery. The rescue portion can be separated into three main parts: $1 trillion in direct relief to families across the country, $400 billion to help disadvantaged communities and small businesses, and another $400 billion to combat the virus (White House, 2021). One trillion dollars in direct relief is an eye-catching number that adds on to the $600 approved by Congress in the CARES Act last year. The direct relief comes in the form of $1,400 per-person checks to households across America and caps at $4,800. The average working class family might use these funds to cover the costs of paying for food, rent, healthcare, etc. This is one of the most vital parts of the plan, since around 10 million Americans are unemployed (White House, 2021). The $400 billion for communities and businesses across the country will help keep small businesses’ doors open and provide emergency paid leave for workers. This is another piece of the plan being touted by the Biden administration, due to the fact that half of all low-income workers — disproportionately people of color — lack access to paid sick leave (White House, 2021). The last $400 billion, intended to combat Coronavirus, is expected to aid in the creation and administration of COVID tests, distribute vaccines nationwide, and to purchase more protective equipment for essential workers. Altogether, the plan directly combats the virus itself through medical means while cushioning the impact on the American people through monetary allocation along with a safe path to reopening schools and leading the country to a safer recovery (Stewart, 2021).
Economic Implications
The sweeping package of relief comes along with a hefty price tag, and some equally scary potential implications. First, many scholars of economics ask how the plan would affect the nation’s output gap — which is the difference between actual economic activity and the potential economic output in an economy. Economic analysis from the Committee for a Responsible Federal Budget states that it’s most likely that the American Rescue Plan would overshoot the American output gap, meaning that that plan could close the estimated $380 billion output gap more than two times over (CRFB, 2021). Consequently, the closure of the gap could lead to an increase in economic output and additional savings. Though it may sound good to overshoot the economic gap, if the American Rescue Plan forces the American economy to overproduce for too long, there are some undesirable effects. For example, the economy can technically perform above its potential for a long period of time, but that could mean the plan could add to the national debt without actually improving the economy in the long run, which is economically inefficient (CRFB, 2021). However, it is also possible that the Rescue Plan neither overshoots the output gap nor becomes economically ineffective. There are two more possibilities; one is that the plan makes minor misallocations in the economy, channeling money into sectors that don’t really need it or not injecting enough into those sectors to change anything, which virtually has no effect. The second, the worst case scenario, is that the plan is so ineffective that it could lead the U.S. to the edge of an economic cliff similar to the one right before the Great Recession.
Final Thoughts
Ultimately, the proposed American Rescue Plan offers some direct and desperately needed help to not only people across the country but also the national economy. However, the package does come with some possibilities for economic inefficiency, such asmisallocations in the economy and adding to the national debt. Although, in the end, it is most likely that Biden’s American Rescue Plan will be the sweeping support that people across the country need right now.