There’s been some discussion (for example, Mank and Krug), on the political and economic merits of economic stimulus vs. austerity. (Each of these options contains many choices regarding distribution; for example, “austerity” could be implemented via tax increases at the high end, tax increases at the low end, or various sorts of spending cuts. But right now, much of the discussion appears to center on the bottom line for the budget rather than on the details of how we’d get there.)
John Sides has an excellent discussion of the political angle of the stimulus-vs.-austerity debate, arguing that if Obama and congressional Democrats want to improve their prospects in the fall, they’d be smart to forget about deficit worries and just turn up the heat on the economy.
I just have a couple of things to add to John’s analysis. First, I suspect the Obama team knows about the research on the economy and election outcomes, and, more importantly, I think they knew about this in 2009 as well. That’s one reason they did the big stimulus last year, no? To put the economy on a better footing in the 2010 election year. And, according to many economists, the stimulus worked in that regard; in the absence of a stimulus, we might very well be in much worse economic shape (at least in the short term). But does Obama gain much by jump-starting the economy now, in July, 2010? At this point it might take too long for an additional stimulus to make much of a difference. And the last thing Obama wants is for a big improvement to come in 2011! On the contrary, the political logic suggested by the political-business-cycle work of Hibbs, Bartels, and others is to keep things mellow in 2011 and save the boom for 2012. Of course, the Republicans know this too . . .
My other comment is that the economic principles of Obama and his team may not be as clear as Sides, Krugman, Mankiw, et al. seem to think. Recall that in 2008 Obama was strongly supported by labor unions, poverty advocates, and . . . Wall Street. Whatever cynical feelings you might have about any or all of these three groups, I think we can all agree they have different economic priorities when it comes to taxes and spending.