Arizona economist sees promise, expresses concern as federal aid flows in

With the passage of a $1.9 trillion COVID relief package and promise of a historic multi-trillion- dollar infrastructure package, Arizona is poised to experience a rapid influx of federal funds.

Arizona economist Jim Rounds is optimistic about this investment, and believes that it could give Arizona lawmakers and policy minds the opportunity to chart a more positive post-pandemic economy. 

“We can hedge against the bad and take advantage of the good with solid economic policies,” Rounds said . “We stepped it up after the Great Recession. We need to take another giant step post-COVID.”

The American Rescue Plan delivers $4.3 billion in state fiscal relief, $3 billion in local fiscal relief, and $2.6 billion in relief for education.

Despite concerns from prominent national economists like Larry Summers, former U.S. Treasury Secretary and President Emeritus of Harvard University, about economic overheat, Rounds is more concerned about the “ridiculous” amounts of debt being piled on,. “The biggest issue with borrowing so much is that we have to pay it back eventually,” he said.

Indeed, American debt as a percentage of GDP has risen from 107% at the beginning of 2020 to approximately 130% today. This figure was around 118% at the end of World War Two.

“I’m not overly concerned, yet, about inflation,” Rounds said. He predicts that the inflationary pressures applied by the expansion of federal spending will result in higher mortgage costs in Arizona and higher interest rates across the nation. These forces would counteract rising inflation.

Overall, he is disheartened by the perceived lack of empirical evidence guiding the American Rescue Plan. “I’m more disappointed in the lack of research into the needed scale of the stimulus package. The best economic stimulus package continues to be COVID-19 vaccines.”

He argues that the expansion of vaccine availability will increase demand, naturally stimulating the economy. Arizona has been ahead of the curve on vaccine distribution and recently opened up availability to everyone above the age of 16. Cases and hospitalizations have steeply declined.

Incoming infrastructure and climate investment

President Biden and congressional Democrats are now eyeing a federal infrastructure and climate package, as Biden promised on the campaign trail. While the details are still being hammered out, it is likely to amount to several trillion dollars in spending.

Rounds is very optimistic about the possibilities for Arizona’s growth if a package passes and is signed into law. 

“The climate package needs to be well considered. There’s a difference between heavy regulation and finding a balance between public and private sector preferences,” he said. “In fact, many larger businesses have started listing environmental issues as a key in their strategic plans.”

According to Rounds, Arizona can help lead the next generation of clean power generation. “Proper planning can actually generate jobs in states that take the lead in being the producers of related environmental technology goods and services. Arizona can be such a state if we can draft some form of a strategic plan in this area.”