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Republican Keynesianism

Matthew Yglesias takes a trip down memory lane to 2001, when Republicans were fierce Keynesians:

Once upon a time an asset bubble burst, but there was little leverage involved and the ensuing downturn was relatively mild. The federal reserve had room to run in terms of cutting interest rates, and the previous ten years’ worth of fiscal policy had seen a series of measures, some bipartisan (1990 & 1997) and some partisan (1993) to improve the country’s budget situation. But the newly inaugurated young president argued that the country needed to enact a large discretionary fiscal stimulus program to combat the downturn, even thought his would shatter the fragile consensus that had guided improvements in the fiscal posture. Oddly, this stimulus program would be phased in and out over a ten-year time horizon. Even odder, the nominally temporary nature of the stimulus was clearly a fraud—everybody understood that the key authors of the stimulus in fact intended the policy change to be permanent in nature.
I refer, of course, to the Economic Growth Tax Relief Reconciliation Act of 2001, a.k.a. “the Bush tax cuts,” which IIRC were roundly applauded by most of the right-of-center economists who can today be found assuming a debt-averse and stimulus-skeptical posture.

The Bush tax cuts were not designed to fight a temporary economic downturn. They were designed to increase the tax incentives of the rich by reducing their marginal tax rates, in accordance with supply-side economics. The economic benefits of reducing marginal tax rates have absolutely nothing to do with the state of the business cycle -- you could undertake them just as well during a boom as a bust, and Republicans are happy to do so. Nonetheless, because supply-side economics was unpopular, Republicans argued for the policy in Keynesian terms:

Dick Armey: “Because the economy is slowing down, I believe it is vital that Congress pass a pro-growth tax cut.”
Bill Thomas: “If we can move, as the budget resolution said, up to $100 billion over the rest of this fiscal year and next fiscal year into the hands of the American income tax payers, it would simply assist the Federal Reserve chairman in making sure that this stumbling economy recovers.”

Etc. And after the tax cut passed, the administration continued to justify it in those terms:

“The tax cut, as you know, is now in the mail. Most of the economic forecasters out there say it was just in time," chief White House economic adviser Lawrence Lindsey said on ABC's "This Week" program. "And I think, as a result of the tax cut, we're going to see that last quarter, before the tax checks went out, will be the worst quarter and that the third quarter will be better than the second quarter."

Again, if you're arguing for tax cuts on the basis of timing, you're making a Keynesian argument. And whatever the merits of a Keynesian fiscal response in 2001, they are vastly stronger during the current downturn. And yet during the current downturn, the GOP and the conservative movement have ardently embraced anti-Keynesian beliefs. They have resurrected the argument that deficit spending prolonged the Depression specifically and fails to stimulate the economy during slowdowns in general, an argument that did not interest them in 2001.

I don't think this is exactly a case of pure opportunism. Rather, it's a sort of inconsistency whereby a whole group of people have allowed their thinking to e shaped by political circumstance. In 2001, Keynesian arguments were useful to help bring about a non-Keynesian policy they favored, so conservatives either came to believe in those arguments or took a soft line on them. In 2009, Keynesian policy was embraced by a Democratic president in order to help revive the economy, the effect of which would be helpful to Democrats and harmful to Republicans. Anti-Keynesian arguments naturally appeared a lot more enticing in that context. Our brain is very good at convincing us that what we know is in our interest is also morally justified. But the fact is that the entire right-wing has okay with Keynesian stimulus when the case for it was weak, and staunchly opposed when the case was very strong.