It is a distinct contrast to the experience after the 2008 financial crisis.
There was a major fiscal stimulus action in 2009, but a mix of legislative policy and deficit concerns by some officials in President Barack Obama’s inner circle has restricted its size. Many of its components were relatively invisible to the average voter. And when the economy remained weak in 2010 and beyond, Republicans and many Democrats focused on reducing the deficit. “Stimulus” became a dirty word in Washington.
The Fed intervened, undertaking quantitative easing (essentially, buying bonds with newly created cash) and other untested strategies in an effort to keep the expansion going.
But the tools of central bankers are limited. They can adjust interest rates and inject money into the financial system in hopes of making it easier to obtain credit. This can stimulate more investment and spending, which, in turn, can generate more jobs and higher wages.
Does it look tortuous? It is – the economic equivalent of a triple bank shot in billiards.
In the 2010s, the strategy sort of worked. There was no decline in the recession, and the expansion was the longest on record, until the pandemic ended it. But it took years and years for the economy to return to health, and it was a profoundly uneven recovery, in which financial asset owners saw the biggest gains. The fact that the effort was led by unelected central bankers has reduced its democratic legitimacy, seeming only an effort by elitist institutions to protect the rich and powerful at the expense of everyone else.
“You can do this and you can be successful, but the consequences of income and wealth inequality will be dire,” said Professor McCulley. “You can do that, but it is anathema to democratic inclusion.”
In contrast, tax authorities can spend money directly, channeling it where it is needed, with no expectation of repayment. The United States did just that last year on a scale unparalleled since World War II.
The new $ 1.9 trillion package includes, among other provisions, payments of $ 1,400 for most Americans, a new daycare tax credit that will put $ 300 a month into the bank accounts of most parents of a child small, help for those facing eviction or running billions of dollars in donations to small businesses. Public opinion polls consider it considerably more popular than other major domestic policy laws in recent years.