Throughout his term, Obama tried repeatedly to get Republicans to sign on to additional spending and tax cuts for the middle and lower classes, which would have increased the deficit. The GOP repeatedly refused to go along with this, arguing that higher deficits were philosophically unacceptable and financially ruinous. In 2016, with the economy slowing down, the Obama administration again proposed a moderate stimulus plan that would have
targeted infrastructure, but congressional Republicans refused to budge.
But under Trump, something odd has happened: The GOP has presided over the
largest two-year deficit increase in American history, outside of a recession. The party has paired higher spending with a massive corporate tax cut, which sweetened a long-term marginal-rate cut on corporate income with a short-term tax benefit for households.
Thanks to this infusion of deficit-financed stimulus, job growth and GDP
accelerated throughout 2018, and both continue to grow steadily today, despite the wobbliness of global markets and the president’s imbecilic decision to wage a trade war against the world’s second-biggest economy.
There is no question that the Trump deficits are an unprecedented live experiment with sky-high deficits in a non-recession and non-war economy. Permanent trillion-dollar shortfalls would be
an economic gamble. But this is a strange and nervous period in economic history, with the entire developed world experiencing pitifully low inflation, low interest rates, and chilly growth, despite years of dovish monetary policy. It may simply be the case that old-fashioned fears of high deficit spending are no longer appropriate for a global landscape with more aging, automation, and other economic factors that may permanently constrain inflation.
But that’s all speculation. Here’s what we know for sure: The Trump tax cut, despite its
extremely poor long-term design, clearly helped the economy in the short run. And neither side will talk honestly about why. This should be a triumphant moment for Keynesianism and its defenders, who were right about the benefits of spending “beyond our means.” They should proclaim their victory from the rooftops. By staying quiet, they may find it harder to defend themselves when a Democrat becomes president and Republicans suddenly rediscover the sanctity of balanced budgets.
Democrats don’t want to help Republicans, and Republicans don’t want to sound like Keynesians.
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