Democrats are at odds over stimulus package

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WASHINGTON — A rift has emerged within the Democratic Party between liberal economists, who generally view the 2009 stimulus package as a success and say that Keynesian economics should remain the heart of the party’s economic policy, and elected officials, who in growing numbers have shunned affiliation with the $787 billion effort and are expressing doubts about the effectiveness of fiscal intervention.

For decades, Keynesian policies, which call for government spending to make up for the shortfall in private-sector demand during an economic downturn, have been a central element of the Democratic tool kit and a principle of the party’s identity. But the unpopularity of the stimulus package signed into law by President Obama has left many Democrats in competitive races distancing themselves from such programs, raising questions about whether the party is beginning a more fundamental rethinking of its approach to the economy.

The implications could extend well beyond this election cycle. To the extent that faith in deficit spending during downturns is eroded, the Federal Reserve could face increasing pressure to deploy monetary policy to lift the economy out of a rut — a prospect that has unsettled officials at the central bank. A shift among Democrats could increase pressure in Congress to rein in the growth of government spending, slash the budget deficit and reduce the national debt — even during a period of weakness that traditional Keynesian theory would say requires more deficit spending.

Full Story: Democrats Are at Odds Over Stimulus Package – NYTimes.com