Time to stop bickering over percentage points of growth and speak instead to people’s everyday concernsby James Kwak / February 27, 2018 / Leave a comment
In passing a $1.5 trillion tax cut, mainly for businesses and business owners, and then voting to lift spending caps that they had demanded only a few years ago, US Republicans have not only vastly inflated federal government deficits as far as the eye can see. They have not only executed another perfect 180-degree spin away from the fiscal rectitude they draped themselves in during the Obama years. In addition, they have finally delivered the economic stimulus that Democrats have demanded for a decade—putting their opponents again on the back foot.
A bit of background: most economists believe that the government can stimulate the economy by cutting taxes or increasing spending, both of which increase deficits. Either way, more money ends up in the hands of households and businesses, which can spend more on consumption goods or durable investments (houses, factories, etc.). That extra economic activity puts more people to work and induces them to spend more in turn.
Throughout the administration of President Barack Obama, Democrats argued that the US government should do more to stimulate an economy struggling to recover from the devastation caused by the 2008 financial crisis. But Republicans, determined to deprive Obama of legislative victories, used the spectre of rising deficits to block every attempt after the initial stimulus bill of early 2009. Only with their recent package of tax cuts and spending increases have they provided the economic boost that they refused to the Democrats, producing headlines like “Liberals Wanted Fiscal Stimulus. Conservatives Delivered It” (in the New York Times).
“That’s not what we meant!” Democrats respond. We are stuck arguing that Republican policies are the wrong kind of stimulus at the wrong time: the wrong kind because tax cuts for the rich have relatively little economic impact (since rich people are more likely to save their additional money); the wrong time because unemployment is already low, so the result is likely to be higher inflation rather than more jobs. If inflation does rise, the Federal Reserve would then likely raise interest rates in response, increasing the risk of a recession.
We’re right about the economics, of course—we usually are—but politically, no one cares.
This is part two in a mini-series on the US economy. Read part one
For more than three decades, while Republicans have taken…