One more post on the extension of the payroll tax cut; as I mentioned before I thought it was smart to extend the tax cut without paying for it to further increase demand. This is good policy for our economic recovery. The President and Congress cannot ease up on this recovery. Although we have had positive economic news in the past couple months, unemployment is still too high and consumer confidence is still too low. We need to learn from our past and realize some good news does not mean government should stop helping.
In 1937, the country was on the right track and the economy was improving. The improvement was due to FDR adhering to the advice of John Maynard Keynes to increase government expenditures and invest in public works programs. These programs worked, which gave Roosevelt a false sense of economic stability. Keynes warned the economy was not fully recovered and cutting back on government spending would deepen the recession. Despite the warning by Keynes, the President decided to ease up on spending. Unfortunately, Keynes was correct and in 1938 America was thrown back into a recession.
Let’s hope our politicians do not switch to austerity policies too quickly. This will only move our economy in the wrong direction.