Despite the Biden administration’s $1.9 trillion stimulus package, the American economy is struggling to get back on track after more than a year of pandemic lockdowns.
Although the American Rescue Plan has been popular, its results could be dire and have already been identified by some analysts as the cause of present or future economic failures. Businesses are struggling to hire new employees. Economists and investors warn that inflation could be just around the corner even as administration officials argue this is not the case. Yet Biden and congressional Democrats call for more federal spending, even though that would exacerbate both of these problems.
While the American Rescue Plan holds majority support, it is less popular than the CARES Act. The American Rescue Plan held a 63% approval rating among voters who were polled from March 15-21, according to Gallup. Nearly all — 97% — of Democrats approved, compared to only 18% of Republicans. In contrast, the CARES Act had 77% approval among voters polled by Gallup from March 28-29, 2020. Polling found that 79% of Republicans and Democrats supported the CARES Act in March 2020.
The American Rescue Plan has already impacted the United States’ economic recovery just two months after it was passed, though not in the way that its advocates hoped. After economists projected the country to add more than 1 million jobs in April, only 266,000 people went back to work. The United States’ unemployment rate even increased. (RELATED: The April Jobs Numbers Were So Bad That CNBC’s Steve Liesman Thought It Was A Typo)
Manhattan Institute economist Brian Riedl argued the increased unemployment benefits in the American Rescue Plan discourage people from finding new jobs. Individuals can receive up to $687 in unemployment benefits a week, Riedl noted in National Review, “the equivalent of roughly $17 per hour—which exceeds the wages that a large share of unemployed workers had been earning in their previous jobs.”
“This was not necessarily a problem at the peak of the pandemic, when public-health experts wanted unemployed workers of certain industries to stay home,” he continues. “But paying people more to stay home becomes a large problem when the economy begins reopening and ‘help wanted’ signs go ignored.”
Commerce Secretary Gina Raimondo claimed that increasing unemployment benefits is not the reason for the poor jobs report, although she later allowed that the benefits could impact job growth in “some regions.” Biden argued that job loss due to the coronavirus pandemic should put the low numbers “in perspective,” and he used the weak job numbers to call for new government spending.
While 60% of small businesses are trying to hire new workers, 44% of small business are struggling to fill openings, according to the National Federation of Independent Businesses’ (NFIB) April jobs report.
“Many small business owners who are trying to hire are finding themselves unsuccessful and are having to delay the hiring or offer higher wages,” NFIB chief economist Bill Dunkelberg said.
Other economic indicators point to inflation, which is a measure of rising prices. Inflation can occur due to an increase in production costs, an increase in consumer demand, or an increase in the amount of money available for people to spend. The consumer price index, which measures price changes over time, increased 0.6% in March. That was the largest monthly increase since August 2012, according to the Bureau of Labor Statistics. Lumber prices are at a marked high, leading to an increase in housing costs.
Sen. Ted Cruz: “I recognize there are other crises. We’ve got a gas crisis playing out. We’ve got a war in the Middle East. We may have an inflation crisis coming… Biden policies are failing across the board: economically, domestically and abroad.” #BidenBorderCrisis pic.twitter.com/jfXDPBYx0g
— Steve Guest (@SteveGuest) May 12, 2021
Investors and consumers have expressed worry about the rising prices. A survey conducted by CivicScience on March 23-24 found that more than 77% of Americans were worried about inflation. Another survey, conducted by Bank of America in March, found that investors viewed inflation as the biggest threat to the economy, displacing the coronavirus.
“The American Rescue Plan, the $1.9 trillion bill passed in March, was too much. I mean, I don’t think there’s any question about that.”
— Douglas Holtz-Eakin, economist and former Bush43 Congressional Budget Office director, on the very real risks of inflation. pic.twitter.com/44PYvr37aT
— The Recount (@therecount) May 7, 2021
Federal Reserve officials have emphasized that the inflation associated with the American Rescue Plan and economic reopening should only be temporary.
“Toilet paper and Clorox were in short supply at the outset of the pandemic, but manufacturers eventually increased supply, and those items are no longer scarce,” Boston Federal Reserve Bank President Eric Rosengran said.
“Many of the factors raising prices this spring are also likely to be similarly short-lived.”
Other economists have argued that increased government spending, combined with low Federal Reserve interest rates, could lead to sustained inflation.
“They’re creating too much demand when it’s not needed. When demand runs away from supply, you get inflation,” former Trump administration chief economic advisor Kevin Hassett told The Wall Street Journal. “The laws of economics can’t be repealed.”