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The GOP political strategy: Restricting economic growth
By Byron A. Ellis – March 04, 2011

According to economic theory, aggregate demand determines the level of economic output. Therefore, full employment depends on the appropriate level of aggregate demand. Consumption, government, and investment spending make up aggregate demand. Thus, whenever there is a disturbance that reduces the level of aggregate demand, employment falls.

Therefore, it is difficult to understand why the Republicans and Tea Party would want to decrease government spending and establish constraints on certain investments, such as mortgage down payments, when the economy is just beginning to exit one of the most protracted recessions. Such actions, if implemented, are likely to slow the economic recovery.

The Republican and Tea Party argument that reducing government spending is necessary due to the budget deficit could be due to a lack of understanding of the budgetary process, or fiscal policy in general.

A reduction in economic activity, such as a recession, leads to a reduction in government budget, since tax revenues diminishes. This feature of the budget where taxes are automatically reduced when income falls is called automatic stabilization.

Automatic stabilizers are those elements in the economy that reduces the impact of negative disturbances in aggregate demand. However, as the economy moves into the recovery phase and consumption and investment increases, tax revenues will rise.

If, however, the Republicans and Tea Party representatives understand the budgetary process, which they should, then their strategy of reducing aggregate demand during the early stages of the economic recovery is a callous political calculation at the expense of the unemployed.

It is a known fact that election results are affected by the state of the economy. For instance, when aggregate demand is low, high unemployment is the norm and the party in power often loses the elections.

Republicans appear to be keenly aware of the political economy process. As a result, many Republican governors rejected stimulus funds. And, the new GOP and Tea Party congressional members are working hard to further reduce the portion of aggregate demand due to government spending.

The Republican and Tea Party strategy if successful would continue to deprive millions of Americans of gainful employment and income opportunities. However, there is nothing new here; they, under the Bush administration, wrecked the economy.

Unfortunately, many Americans are not aware that many political representatives, Democrats and Republicans, are not acting in the voters’ best interest.

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