Axios published on Sunday an in-depth analysis of the economic and political ramifications of the American Rescue Plan (ARP), the $1.9 trillion stimulus package enacted by the Biden administration in response to the COVID-19 pandemic.

Originally designed to fuel a rapid economic recovery, the ARP has come under scrutiny for its role in triggering high inflation, which played a significant part in shaping voter sentiment and political dynamics in recent years.

The analysis sheds light on the initial Democratic strategy behind the ARP. With memories of a sluggish recovery after the 2008 financial crisis, the administration wagered that overstimulating the economy was preferable to a prolonged period of high unemployment.

The ARP provided $1,300 checks to American families, enhanced unemployment benefits, and funding for state governments.

While the plan helped jump-start the recovery and achieved faster growth than many other developed nations, economists and critics argue that the scale of the stimulus also contributed to inflation, which climbed to levels unseen in decades.

Global supply chains issues, workforce shortages

Larry Summers, a former Treasury Secretary and one of the prominent critics of the ARP, warned early on that such extensive fiscal action could lead to economic overheating.

"In general, increases in inflation disproportionately hurt the poor and are associated with reductions in trust in government," Larry Summers wrote in May 2021. "Progressives might consider the role that inflation played in electing Richard M. Nixon in 1968 and Ronald Reagan in 1980."

According to the Axios report, the inflationary impact of the ARP was compounded by global supply chain issues and workforce shortages, yet US fiscal policy alone accounted for an estimated 3% of the inflation surge in 2021.

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Though inflation has since slowed, prices remain significantly higher than four years ago, leaving many voters feeling the impact.

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Axios also highlights the political dimension: Despite economic gains, including a relatively strong job market, the lasting price hikes have weakened public trust in government.

The quick economic recovery spurred by the ARP has been overshadowed in the public memory by inflation's toll on household budgets, a trend that Axios suggests contributed to political challenges for Democrats and possibly even the re-emergence of former President Donald Trump.

In the report's closing assessment, Axios points out that the ARP's mixed legacy may influence future policy decisions.

Economists warn that the experience could make both politicians and policymakers hesitant to pursue large-scale stimulus efforts in future recessions, fearing the political repercussions of inflation over economic growth.

America and its debts

Axios's analysis also comes amid rising concerns over America's debt. A report from The Economist notes that net government debt, which has risen from 40% of GDP in 1990 to 98% today, is projected to grow over the next four years.

According to IMF data from April, the US now holds the eighth-highest public debt-to-GDP ratio globally. Other developed economies, like Japan and Italy, also carry high debt loads, with ratios of 158% and 129%, respectively. However, the US's economic size and role make its increasing debt particularly significant.

Despite efforts to contain debt, such as the Fiscal Responsibility Act of 2023 signed by President Joe Biden, which extended the debt ceiling, the cost of servicing America's debt continues to rise.

With debt servicing expected to account for 16% of government revenue in 2024, interest expenses may increase as low-interest pre-pandemic debt is renewed at today's higher rates.

Federal Reserve Chair Jerome Powell underscored these concerns earlier this year, noting that the national debt trajectory is “unsustainable,” with the US debt now surpassing $34 trillion.