This is in marked contrast to the experience after the financial crisis of 2008.
There was a major fiscal stimulus in 2009, but a mix of legislative policies and deficit concerns from some officials in President Barack Obama’s inner circle constrained its size. Many of its components were relatively invisible to the average voter. And as the economy remained weak through 2010 and beyond, Republicans and many Democrats focused on reducing the deficit. “Stimulus” has become a dirty word in Washington.
The Fed stepped in and embarked on quantitative easing (essentially buying bonds with newly created money) and other untested strategies to keep the expansion going.
Central bankers’ tools, however, are limited. You can adjust interest rates and push money into the financial system to make obtaining credit easier. This can lead to more investment and spending, which in turn can lead to more jobs and higher wages.
Sound awkward? It’s – the economic equivalent of a triple bench shot in billiards.
In the 2010s, the strategy kind of worked. There was no going back into recession, and the expansion was the longest ever before the pandemic ended. But it took years and years for the economy to recover, and it was a deeply uneven recovery, with asset owners seeing the greatest gains. That the efforts were led by unelected central bankers reduced their democratic legitimacy by making it appear as if it was just an effort by elitist institutions to protect the rich and powerful at the expense of everyone else.
“You can do it and it can be successful, but the consequences of income and wealth inequality are going to stink to heaven,” said Professor McCulley. “You can do it that way, but it’s an abomination for democratic inclusion.”
In contrast, the tax authorities can spend money directly and route it where it is needed without expecting it to be paid back. The United States has done just that in the last year on a scale unparalleled since World War II.
The new $ 1.9 trillion package includes, among other things, $ 1,400 in Payments to Most Americans, a new childcare tax credit that deposits $ 300 a month into the bank accounts of most parents of a young child, Help for those facing eviction or foreclosure; and billions in grants for small businesses. According to opinion polls, it has been significantly more popular than other major domestic laws in recent years.
