ABSTRACT

This chapter introduces the debate between the stimulus view and the austerity view of economic recovery. The Keynesian view conflicts with the conservative view presented by Republicans in the US Congress. The conservative view attacks the rationale for government spending. The austerity view holds that there is too much government intervention in the economy. Specifically, there is too much government employment. It discusses with the political obstacles to a fast and strong fiscal policy to fight recession and unemployment. The chapter explored the supply-side argument that cutting marginal income tax rates improves incentives and increases investment. The supply-side view is that marginal tax rates should be reduced, beginning at some level of income. The political obstacles to a fast and strong fiscal policy to fight recession and unemployment helps to explain the Obama stimulus that was large enough to stop the free fall toward depression but was not big enough to assure a strong recovery.