Temporary, targeted tax reductions and increases in government spending are not good economics

See Stimulus Has Been a Washington Job Killer: The political graveyards are full of politicians who thought that temporary, targeted economic policies would get them re-elected by JOHN F. COGAN AND JOHN B. TAYLOR, WSJ, 10-3-11.

"Consider the evidence. When President Gerald Ford entered office, the economy was in the midst of the serious 1974-75 recession. Responding to the popular clamor to "do something," he proposed a short-term stimulus plan in early 1975. The centerpiece was a temporary income-tax rebate. Congress added a one-time, $50 increase in Social Security benefits and, to bolster the sagging housing market, a one-time tax credit for new home buyers.

The rebate caused only a temporary blip in consumer spending. Economic growth rose to 9% in the first quarter of 1976 but then dropped to only 2% in the third quarter, and unemployment started rising.

Congress enacted a second stimulus plan in July 1976 over Ford's veto. It authorized grants to state and local governments designed to prevent layoffs of public employees or tax increases. This plan also failed to produce the promised stimulus. The economic pause of 1976 was enough to swing the election to Jimmy Carter and cause more incumbent senators to lose their seats than in any election in nearly 20 years.

President Carter took office and by the end of his first month proposed another stimulus plan, which he said would "restore consumer confidence and consumer purchasing power." His plan called for another round of one-time tax rebates and Social Security bonus payments, federal public infrastructure grants and countercyclical aid to state and local governments.

He also added a tax credit for small and medium-size employers hiring new workers. The fine-tuned plan, according to the chairman of Mr. Carter's Council of Economic Advisers, Charles Shultze, was "designed to tread prudently between the twin risks of over and under-stimulation."

In May 1977, Congress enacted the president's proposals in modified form. Although the pace of economic activity quickened for a while, subsequent studies by senior Carter administration Treasury official Emil Sunley and noted economist Ned Gramlich showed that the government-provided stimulus had little effect. The recovery was not sustained and the economy fell into recession in January 1980. The failing economy combined with rapidly rising inflation doomed Mr. Carter's re-election chances, along with the Democratic Party's control of the Senate and 33 Democratic seats in the House.

President Reagan rejected temporary stimulus measures and instead proposed permanent income-tax rate reductions. His tax program, in conjunction with steady monetary policy begun by Paul Volcker, produced the promised results.

By late 1982 the recession was over and in early 1983 employment and investment began to rise rapidly. Nearly two decades of strong, steady, noninflationary economic growth ensued."

"In May of that year (2003), at the urging of Mr. Bush, Congress sharply reduced tax rates on capital gains and dividends and put the 2001 income-tax rate reductions in place immediately.

Within four months, employment began to rise and the unemployment rate began to fall. By 2004, the economic recovery was in full swing."