The Bush administration began with a $300 billion budget surplus in 2001. In 2005, the budget deficit was $318 billion and rose to $454 billion deficit by the end of 2008. The budget surplus disappeared due to tax cuts by the Bush administration and war spending.

Two different views of the effects of the resulting deficits emerged from the Republicans and the Democrats. The Republicans argued that the economy was in recession when the tax cuts were enacted and, along with the war spending, helped stimulate the economy. The deficits were declining and would disappear in a few years as the economy continues to grow due to the stimulus that was provided. The Democrats argued that the deficits have had no significant impact on economic activity because the government borrowing in financial markets offset the increased deficit from expansionary fiscal policy. As a result, there was more public spending. The public’s buying of government bonds has offset private spending. Basically, what has happened is that government’s share of GDP increased.

Which party is using a long-run argument concerning the effects of expansionary fiscal policy and which is using a short-run one?