The fiscal austerity that drove the budget deficit from around 9 percent of G.D.P. in 2010 to 3 percent in 2016 has, for practical purposes, been abandoned. First, Republicans passed a $1.5 trillion tax bill in December that sharply cut rates on businesses. Then last week they made a deal to undo budget caps demanded by the Republican House in 2011. President Trump signed that bill on Friday.
This sudden reversal has the economists who have long argued we should run the economy a little hot — that is, stimulate it using the government’s power to tax and spend — in something of a quandary.
“It’s a very weird and conflicted feeling,” said Jared Bernstein of the Center on Budget and Policy Priorities, who worked in the Obama White House. “On some level I should be happy, and I am sort of happy right now, but with some nontrivial caveats.”