Economic stimulus

Economic stimulus measures such as spending bills or tax cuts are designed to improve the economy when it is in recession and the private sector is so frozen that it cannot spend or loan money. Conservatives favor cutting taxes, liberals prefer to spend money borrowed from future taxpayers.

For the $789 billion 2009 stimulus, which is now law, see American Recovery and Reinvestment Act of 2009.

The risk is that it might depress the economy, e.g., by reducing incentives for investment. According to the Congressional Budget Office, "Fiscal stimulus aims to boost economic activity during periods of economic weakness by increasing short-term aggregate demand."

Democrats in Congress passed a $789 billion economic stimulus bill in Feb. 2009 along party lines.



In the early 1930s British economist John Maynard Keynes introduced the theoretical model of how government spending can help an economy out of a severe recession like the Great Depression. President Herbert Hoover had engaged in a massive stimulus spending program that came close to bankrupting state and local governments as the economy continued to spiral downward 1929-32. However, Hoover raised taxes, which economists agree was bad medicine. The New Deal engaged in massive stimulus spending which to a large extent did stimulate the economy and brought it back to levels of the mid 1920s, but did not end high unemployment.