In response to the Great Recession, the Obama Administration prepared a stimulus package: The American Recovery and Investment Act injected nearly $800 billion into the US economy, through a combination of tax reductions directed towards the lower income brackets, and accelerated funding for numerous infrastructure projects. Many economists insisted that the amount of stimulus was too low, but that was the amount the political process could deliver. There is ample evidence that the ARRA did help arrest the job losses resulting from the 2008 crash of the financial markets, but it did not restore unemployment to pre-crash levels.
In response to the budget surpluses of the late 1990s, as soon as George W. Bush got into office, another stimulus act was passed--the so-called "Bush tax cuts"--a $3 trillion reduction in the federal income tax, with the lion's share going to wealthy taxpayers. One year after the Bush cut was passed, the country experienced a minor recession (mainly caused by corruption and extravagant speculation in the equity markets for high-tech). Then 9/11 happened, and the US marched off to war to the tune of another $1.2 trillion. The Bush Tax Cuts, set to sunset in 2010 (done so they could be passed under reconciliation rules and avoid a Democratic filibuster), have been extended once, and many in Congress are angling for their extension again. The Ryan Budget, voted on by the House of Representatives, would have doubled down on the tax cuts, lowering rates even more--this in a budget bill which was intended to lower the deficit.
Two different theories of how the government can goose the economy--one based on Keynesian economic principles; one based on supply-side economics. Neither has had much demonstrable success--we're still in a recession, after all--but the response of the political class to the two programs is wildly different. The ARRA is regarded by much of the body politic to be a failure; a squandering of assets that ought to never happen again--and there even periodic proposals to rescind ARRA funds not yet dispersed. On the other hand, the political class takes as an axiom that the Bush tax cuts do have a stimulating effect--the moribund economy notwithstanding. Attempts to raise revenue as part of a deficit-reduction package is opposed on the grounds that We Can't Raise Taxes During A Recession--and the "Laffer Curve" theory of deficit reduction (that lowering tax rates will increase revenues to the additional economic activity stimulated by) seems to be earnestly believed by many, even though at the current tax rates, it's patently ridiculous.
Why this double standard exists is left as an exercise for the reader.
Significant Digits For Tuesday, March 31, 2015
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