Are Liberals Stimulus Hypocrites?

Doing just fine.
Doing just fine. Photo: Francis Dean/Corbis

Josh Barro, in the course of making some sensible points, argues that liberals are just about as hypocritical as conservatives are about stimulus. They only care about it insofar as it lines up with their long-term preferences about the size of government:

Liberals don't actually oppose all fiscal austerity. They cheered for the expiration of the Bush tax cuts on the wealthy and mostly shrugged at the end of the payroll tax holiday. It's only domestic spending cuts that are really getting the left riled, because they don't want to cut spending.

Is that true? First of all, liberals did sort of accept the payroll tax hike as a fait accompli — everybody knew Congress was going to kill it — but certainly they didn't like the end of the payroll tax cut; see Brad Plumer and Matthew Yglesias for examples of liberals decrying it. (Plus, of course, Barack Obama and congressional Democrats passed the payroll tax break in the first place.)

It is true that liberals fought hard to end tax cuts for the rich, even though the immediate expiration of those tax cuts is a kind of austerity. But there is a policy reason for that. Tax cuts for the rich are a very inefficient form of stimulus. Rich people have a lower marginal propensity to consume their income — that is, they can meet most of their needs and don't cut back their consumption in the face of a tax hike to the extent middle-class or poor people do. That's why tax cuts for the rich are so ineffective at stimulating consumer demand:

It seems perfectly sensible to favor reasonably efficient kinds of stimulus and oppose extremely ineffective kinds. The upper-income portions of the Bush tax cuts produce a return in the neighborhood of 25 cents on the dollar, which is horrible, compared with a return five times as large for other kinds of stimulus.