Unfortunately, the last cycle after the Great Recession didn’t see this sort of broad, deep and well-funded effort. Instead, because Obama was facing hysterical opposition, the country ended up with:
Temporary tax cuts, which do little to drive long-term private-sector investment; Other temporary fiscal measures, such as extended unemployment, which only work while they are in effect; So-called shovel-ready projects, most of which didn’t lay the foundation for long-term growth.
Both Obama and Reagan got the specifics of their stimulus programs wrong. Obama should have focused a bigger spending package on infrastructure and updating depleted military units. (By way of contrast, consider the interstate highway program put into place under President Dwight Eisenhower. The positive economic impact of that project is still being felt today.) Reagan’s stimulus, meanwhile, concentrated too much on expanding the military, which does less to boost the economy than other forms of government spending.
I am not suggesting that deficits don’t matter (they do) or government tax and spending policies should be profligate and irresponsible (they shouldn’t). However, given the low borrowing rates the U.S. Treasury enjoys, it’s pretty clear that Mr. Market isn’t very concerned about deficits today.
But the timing of these issues matters a great deal. Keynes had it right -- the time for government spending increases and tax cuts is when things are going poorly; when a recovery is more mature, that’s the time for limiting deficits.
In the not-too-distant future, the U.S. economy should be strong enough to absorb a withdrawal of extraordinary measures, including the Federal Reserve’s emergency monetary stimulus. Had Congress done its part on the fiscal side back in 2009, the economy would have been in much better shape -- and sooner -- than it is today.
This column was provided by Bloomberg News.