A few days ago, the American Rescue Plan Act of 2021, or American Rescue Plan (ARP) for short, was signed into law. You can find the full text here. This $1.9 trillion bill is a stimulus injection into the American economy as it is still recovering from the 2020 Covid-19 pandemic.
There is a political aspect to any discussion concerning this bill but we are not interested in the politics, but rather the market impact. To battle the pandemic and rescue the economy, America has spent $5.5 trillion, including ARP.
The American Rescue Plan does something strategically brilliant. It introduces a slate of radical new relief programs, many of them involving direct deposits of cash on a “temporary” basis, giving Americans a stimulus injection. These temporary programs have a “try before you buy” aspect, in the sense that Americans could easily grow attached to them for the 12 months or more that they run. Once a relief program is given to someone — especially if it involves cash — it is politically hard to take away, and sometimes impossible.
Trying to end a program that provides monthly cash benefits means, in a real sense, taking money from voters’ pockets after they had grown accustomed to receiving it. There are also various programs in the bill that are designed for later expansion. These could very well expand in size and scope and become law if they prove to be popular enough. There are at least three significant ideas worth highlighting: Means-tested universal health care; full-scale pension bailouts; and means-tested universal basic income (UBI) for kids.
ARP says that anyone whose income level is 150% or less of the federal poverty level (FPL) will see their health care premiums drop to zero. Those premiums used to bottom out at $800. So $0 is better than $800. Health care subsidies will also be substantial for these households as well, with a sliding scale for benefits as income increases. It’s pretty hard to imagine that kind of health care relief being roll back, once tens of millions of families experience the savings.
ARP also begins the process of bailing out failing pension funds. It allocates $86 billion specifically to fund failing or distressed pension plans. For millions of workers in both the public and private sector, the $86 billion bailout will save people’s retirements. But we all have a sense that there are trillions of dollars required to save pension plans. So, this seems to be another program that is likely to expand.
Lastly, there is the Universal Basic Income (UBI) for kids. Admittedly, it’s not called that in the bill but instead of the Child Tax Credit one would get in their tax return, one can get money from the government, on a monthly basis, to help with the expenses of having a child.
In a sense, ARP has approved the ideas of modern monetary theory (MMT) with overwhelming popular support. The principal idea behind MMT-style thinking is the notion that budget deficits and national debt levels are an “artificial constraint,” meaning they don’t actually matter to a nation with monetary sovereignty. This also explains why people always bring up the dreaded I word (Inflation) when we talk about firing up the old printing press of US dollars.
No matter your personal thoughts on ARP, it is clear that it is transformational. A new era of government expansion has begun and American citizens will be intricately tied to the government. So, while we think that ARP is just the third stimulus injection for a country that has already seen over 500K Covid-19 deaths so far, it actually introduces a whole new relationship that many of us many not have been expecting.
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[…] another article, linked here, we went over some of the aspects of the most recent Covid-19 stimulus bill signed in March of […]