An Interesting/Dangerous Test of American Party Politics

THE NEED FOR ECONOMIC STIMULUS

When Barack Obama became president he was facing an economic free-fall. The banking system, responsible for collapsing the global economy with overzealous trade in hyper-nuanced investment instruments had just received massive bailouts. Furthermore, the normal monetary tools for dealing with economic recession were blunted by the fact that interest rates were already low, and could not be lowered enough to stimulate borrowing and investing.

Instead, the Fed was left with buying up bad investments to get liquidity back into the investment market, a process called quantitative easing. With nothing to invest in, however, this strategy was insufficient in and of itself to stop the economic death spiral. Loss of investment meant businesses cutting jobs. Cut jobs meant fewer consumers, leading to lower demand. Lower demand meant less to invest in. Rinse and repeat.

The only solution left was good, ol’ fashioned, Keynesian fiscal stimulus. The government could borrow at low interest and put that money directly into the hands of those who would spend it, namely working and middle class Americans. If Americans had money to spend, businesses could start hiring. More hiring means more people making and spending money, giving investors something to invest in. The pump is primed.

So the Democratic Party put together a stimulus package. President Obama, however, felt that it was important that this stimulus was a bi-partisan effort.(1) Instead of the large, direct payments to working Americans called for by Keynesian economists, Democrats offered a smaller, watered down package heavy with inefficient tax cuts.(2)

Their attempt to attract just one Republican vote failed. Republicans assailed the American Recovery and Reinvestment Act as, of course, creeping socialism. They predicted that the United States would be facing Wiemar Republic style inflation where Americans would be forced to sweep up worthless dollars gathered in the street just to buy a loaf of bread. Furthermore, Republicans decried the sin of deficit spending. If the American people had to tighten their belts, then the government should do the same.(3)

Furthermore, the anemic stimulus, as expected, lead to an equally anemic recovery. Americans found themselves suffering prolonged economic hardship while the one percent, having been significantly bailed out, enjoyed massive bonuses for quality retention.

There are two theses on the Republican response to the Obama stimulus:

  • Thesis One: Republicans sincerely believe that deficit spending is bad fiscal policy.
  • Thesis Two: Republicans intentionally tried to sabotage President Obama and the Democrats by obstructing any attempt to improve the economy, despite the fact that such a strategy caused devastating pain to millions of Americans.

As it stands, the evidence thus far suggests that Thesis Two offers the most explanatory value. After all, during the Obama Administration, despite decreasing deficits for most of his term, Republicans bewailed the catastrophe awaiting us as a result of his fiscal largess. Today, now that we have a Republican Administration, the fact that we are facing a trillion dollar budget deficit is met with the sound of crickets chirping peacefully in the background.

We now face an interesting test case of the the Theses above. The United States is facing a recessionary trend.(4) As was the case with the 2008 recession, the Federal Reserve is already close to the zero lower bound, muting any potential benefit from rate cuts. The Fed has already injecting $1.5 trillion into the economy and has announced that it will re-initiate its Quantitative Easing program. Both strategies were soundly condemned by Republicans as schemes and scams during the Obama Administration.

Now, is asking for…wait for it…

…waaaaait for it…

$850 billion in stimulus to help the stalling economy.

If Thesis One is valid, then we should see the Republican Party soundly condemn the efforts of the Federal Reserve and reject further deficit spending. After all, if the American people have to be under quarantine, then the federal government should be under quarantine as well. Fair is fair!

If Thesis Two, then the Republican Party will be silent about the Fed’s actions and will happily provide the stimulus funding. If that’s the case, then it should be clear that the Republican Party is not a governing institution, but rather a cynical organization dedicated to power at any cost.

To be fair, this situation also offers a test of the Democratic Party. Will the Democratic Party act in the interest of responsible government and join the administration in negotiating an effective stimulus, or will they defer to the precedent of minority party obstructionism. As it stands, the main thrust of the White House stimulus is a payroll tax cut. Tax cuts are historically weak forms of stimulus. This is especially true when combined with spending cuts as expressly preferred by the Republican Party.(5)

If Democrats are interested in good government, they will help the Administration, even a hostile administration, improve the legislation in the interests of the American people. However, doing so would almost certainly benefit the incumbent Republicans by curtailing a possible economic downturn. However, sabotaging the economy to make the Republican Party look bad creates immense suffering, even death, for everyday Americans, the very people the Democratic Party professes to serve.

It’s quite the conundrum. If Thesis Two is correct, the Republican Party has demonstrated that it doesn’t care how many Americans suffer if it means empowering the GOP. And, let’s face it, if Thesis Two is valid, then this cynical strategy worked. The GOP was all but cast into obscurity by 2008. By 2010, they were back in power. Does the Democratic Party take the same gambit?

We are living in interesting times.


  1. You can find a good evaluation of Obama’s embattled presidency here. SKOCPOL, T., & JACOBS, L. (2012). Accomplished and Embattled: Understanding Obama’s Presidency. Political Science Quarterly,127(1), 1-24. Retrieved March 17, 2020, from www.jstor.org/stable/41502505
  2. To be sure, my family and I benefit from this stimulus. Among the direct subsidies included was money to help fund public schools. In 2009, I had lost my job as a private school teacher to the recession and the local school district had suspended future hiring. Once the the stimulus money made it to my district, I was among the first hired. President Obama and the Democrats saved my home, and I returned the favor by voting the Democratic ticket in 2010 and 2012. That being said, though I was a fortunate beneficiary of the stimulus, many more were left out.
  3. Of course, this is the opposite of true. When the economy is in recession, tightening the government belt denies needed cash, leading to less spending when more spending is required to stimulate the economy. Deficit spending is the only fiscal solution.
  4. It’s important to note that we are not officially in a recession.
  5. The whole point of stimulus is to increase the availability of liquid funds in the market that can be used for spending and investment. Tax cuts are often saved or used to pay down debt rather than spent to stimulate the economy. Yes, this is a stimulus, but not as large as a direct payment. Any stimulating effect, however, is counteracted when the government, in turn, cuts spending by an equal amount. There is then no net gain to the monetary base.

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