Senator McConnell: For Short-term Fiscal Restraint But Against Long-Term Fiscal Restraint

Advocates of long-term fiscal restraint often argue ala the Solow growth model that increases in national savings lead to more investment as long as we can assume full employment is maintained. During periods of weak aggregate demand (such as the current one), a strong case for short-term fiscal expansion can be made. The Obama stimulus bill was designed to reverse the slide in aggregate demand. However, Senator McConnell and other Washingtonian Republicans – aka the neo-Hooverites - opposed this fiscal stimulus on the grounds that it sacrificed fiscal responsibility.

President Obama has trumped these fools by arguing for long-term fiscal responsibility. John King asked Senator McConnell about the President’s proposal to reduce the government deficit over the long-run in part by letting the Bush tax cuts for the very rich sunset:

So we have got to ask ourselves whether increasing capital gains taxes, dividend taxes and taxes on small businesses is a great thing to do in the middle of a deep recession.

Excuse me but recessions do not last forever and the President was clear that he has been talking about a mix of short-term fiscal stimulus and long-term restraint. Is McConnell really this stupid? I doubt it as his hypocrisy has been standard Republican practice for over a generation. They justified the 1981 tax cut on the grounds that we had a recession to deal with – never mind the fact that fiscal policy was operating at cross purposes with Volcker’s monetary policy. We would have had more national savings had we had less fiscal stimulus and a quicker path to lower interest rates. Bush43’s tax cuts may have been sold as dealing with the 2001 recession but the truth was they were not as much about immediate fiscal stimulus and more backloaded in their impact on aggregate demand. We continued to hear GOP calls for making the tax cuts permanent even as the economy rebounded and the Federal Reserve chose to raise interest rates.

For McConnell to use the recession as an excuse not to eventually raise taxes is pure hypocrisy. But it is also standard Republican rhetoric – as stupid as this rhetoric may be.