July marks the tenth anniversary of the revival of discretionary countercyclical fiscal policies in the U.S. Such Keynesian policies -- sending checks to people to get them to spend more, temporarily increasing government purchases, offering temporary tax credits -- are intended to counter economic downturns.
They were popular in the 1970s, but then fell out of favor during the 1980s and 1990s, largely because they didn't seem to work: in the 1970s, the economy performed very poorly, with both high inflation and high unemployment. In 1978, Nobel Laureate Robert E. Lucas Jr. and his distinguished co-author Thomas J. Sargent wrote an influential, devastating critique of these policies called "After Keynesian Macroeconomics."
Even so, the policies have returned in the past decade, beginning in 2001 when the U.S. Treasury started sending one-time stimulus checks to people in the hope of jump-starting consumption and creating jobs. The first 8 million checks went out in July 2001.
