There was a time when Republicans believed that both monetary and fiscal policy had a role to play in recessions, monetary policy in particular. Milton Friedman, for example, believed the Fed should intervene to stabilize the economy during a financial crisis. Today, however, Republicans do not believe that the Fed and Treasury should bail out banks even in a severe crisis. Saving banks, no matter how big, creates the incentive to take on too much risk and delays the necessary cleansing that needs to occur before we can return to economic health. Thus, no banks should be saved even if it means tolerating high levels of unemployment.
When it comes to interest rate policy from the Federal Reserve, Republicans argue that unemployment should not matter either. Many Republicans would like to see the Fed eliminated altogether, but if that’s not possible then monetary policymakers should worry about one thing and one thing only, inflation.
Even if unemployment is very high, any threat of inflation whatsoever must be met with interest rate increases. Inflation transfers money from those who lend money – the wealthy supporters of policymakers in particular – to borrowers. That could help the economy in a deep recession, but since the wealthy have to give something up the GOP will oppose it no matter how much it might help struggling households.
Republicans also believe that less regulation is better than more. Even now Republicans argue that the market is the best regulator, an indication that either those making the arguments have learned nothing from the crisis or, as is more likely, that the arguments serve the interests of wealthy supporters.
Republicans also tell us that fiscal policy doesn’t work. If widespread bank failure leads to high levels of unemployment – as it does historically – there is nothing that fiscal authorities can do to help. Yes, times will be difficult for many households, but government intervention only slows the recovery and ends up making things worse. Tax cuts are an exception, but the exception doesn’t always apply. For example, Republicans had to be forced to extend the payroll tax cut in Obama’s stimulus package, but there always seems to be an argument for tax cuts for the wealthy.
In short, Republicans have become the “do absolutely nothing to help the economy in a recession” party. Actually, it’s worse than that. They’ve become the “use bogus arguments to reduce the size of government during a recession even if it means higher unemployment” party. There’s considerable evidence that reducing government debt during a recession through spending cuts or tax increases is harmful.