The outcome of the midterm elections has left lingering uncertainty in Washington, including the question of what fiscal policy might look like in the new Congress. But even if Republicans regain control of the House of Representatives and/or the Senate, the landscape as we close out 2022 is completely different from the end of 2010, when Republicans last took back control of the House.
In 2010, the economy was weak and Republicans believed that they had a mandate to cut spending, which then held back the economic recovery. This year's economy has been affected by a lot of fiscal drags from policies enacted in 2021, but those are unlikely to be a restraint in 2023. On the contrary, there are fiscal boosts already in the pipeline that a Republican Congress won't be able to undo. This is good news if you're worried about Republicans using their levers of power to slow down the economy. It's not such good news if you’re worried about inflation.
The thing to recall about the economy in the years following the 2008 recession is that state and local government finances were in tatters. There wasn't much political appetite for raising taxes to balance budgets when unemployment was high. When Republicans swept to power in 2010 that became even less possible as spending cuts paved the way for state and local governments to balance their budgets. At a time when the economy could have used a boost, state and local governments cut 278,000 jobs in 2011, and Republicans in Washington worked to cut more than $1 trillion in federal spending that same year.
