The 2001 and 2003 Tax Cuts and the Economic Recovery
While I profess to being a Keynesian economist, I have never bought into the notion that fiscal stimulus is the only way to reverse a recession. Max Sawicky – who may be more Keynesian than yours truly – writes:
My question in all this, which no conservatives are rushing to answer, is this: What sequence of economic events would it take since the end of recession in 2001 to lead you to conclude that the tax cuts have failed? If none, and failure is conceptually impossible, then naturally one must conclude that the tax cuts have succeeded. The economic recovery would have occurred at some pace in any case. Can it be said that this recovery was markedly superior to those of the past? That question has already been answered, not least in a paper by Lee Price for the Economic Policy Institute. He shows conclusively that in almost every dimension, the course of the economy since 2001 has been worse than in previous recoveries. It is true that at present the unemployment rate of 4.7 percent looks good. Unfortunately, this rate glosses over the extent of labor market drop-outs – anyone too discouraged by the recession to look for work – who are not counted as unemployed under the official definitions. That aside, the rate does not prove the tax cuts work.
Max and I agree that we have yet to reach full employment. And it is refreshing to see Keynesian Max noting that we would have seen a recovery even in the absence of a tax cut. Of course, those who argue we need a permanent tax cut to maintain aggregate demand near full employment likely never read the General Theory in the first place.