Recall that at the peak of the economic collapse, national unemployment reached 10%. If you add in discouraged and marginally employed workers, the rate was over 17.5% (BLS.gov). In February 2009 alone, there were 3059 mass layoff events (BLS.gov). Given the severity of the recession, almost all economists advocated for a larger stimulus and many argued for a second bill noting that without additional fiscal stimulus the economic recovery would likely be longer and more painful than necessary. Republicans unanimously opposed any additional stimulus, again repeating their concerns about deficits and inflation. What transpired was exactly what many economists predicted, the longest and arguably most painful economic recovery since the Great Depression (The Great Recession: A Macroeconomic Earthquake, Federal Reserve Bank of Minneapolis). Especially hard hit were blue collar manufacturing workers who lacked skills and education.
Republicans did nothing to make things better. Republicans would go on to block raising the debt ceiling in 2011 in order to impose mandatory spending cuts in 2013 if the two parties couldn’t agree on a budget. The Republicans set up the government shutdown in 2013 and mandatory spending cuts, sequestration, affected all government agencies and programs. Keep in mind that all of this is happening at exactly the wrong time with national unemployment still above 7.5% and unemployment for workers with lower levels of education above 12%. From 2009-2016, the Republican position on economic policy was dominated by controlling deficits and concern for inflation, arguably causing an unnecessarily long and painful recovery at the expense of many of the voters who elected Donald Trump.
So where are we today? Unemployment nationally is 4.1% and for workers with lower levels of education, unemployment is below 6.5%. By all measures, the economy is in the best shape in over a decade. The Federal Reserve Bank signaled in early 2016, before the election, that they felt very comfortable with the health of the economy by raising interest rates. Economists working for the Fed agreed that it was time to slow the economy down, that finally the threat of inflation that Republicans were so concerned about in 2009, had gotten likely enough to take precautionary action. In fact, the economy of the last two years, in the opinion of the Fed, is so strong that they plan to take additional precautionary actions by raising interest rates multiple times in 2018.
So what is the Republican economic policy position now? STIMULUS!
WHAT? This makes absolutely no sense. In addition to a tax cut bill that pumps the economy with borrowed money, borrowed “on the backs of our children and grandchildren” as Sen. John Barrasso (R-Wyoming) liked to say in 2009 when all the cool Republicans were against larger government deficits, the administration is proposing a massive increase in government spending on infrastructure. Early estimates on the proposed infrastructure spending bill suggest that the amount will be larger than the 2009 Obama Stimulus package, the one NO Republican voted for when we were in the midst of the Great Recession. Don’t get me wrong, I support increased infrastructure spending, but not coupled with a massive tax cut that not one economist says will be paid for with economic growth and will cause added debt.
Only one of 42 leading economists said that the tax reform bill would help the economy and all 42 said that it would lead to larger deficits and national debt (Vox 11/22/2017). In addition, fiscal stimulus IS inflationary when the economy does not have any excess capacity. How did the party of fiscal responsibility end up the party of economic pyromaniacs? How does any self-respecting Republican rationalize this flip-flop? At least Republicans are consistent in one thing, they didn’t listen to the majority of economic experts in 2009 and they are not listening to them in 2016, 2017, 2018….
And how do Republicans rationalize the pain they are likely to cause on the very voters they relied on in the last election? Economists agree that this level of fiscal stimulus, at this point in the business cycle, is disastrous. Actual inflation or just the threat of inflation will require the Fed to increase interest rates. The government will need to continue issuing new debt to cover the costs of the tax cuts and infrastructure spending, new debt in a rising interest rate environment. Therefore, not only are Republicans going to cause inflation that will hit lower skill, lower education workers the hardest, they are going to cause inflation by adding to government debt. So when the economy needs it least, Republicans appear to have no problem with stimulus paid for on the backs of our children and grandchildren.