Nov 10th, 2008 at 5:44 pm
Big Stimulus
Ben Furnas runs the numbers on China’s huge stimulus package and concludes that an equivalent stimulus in a US-sized economy would need to be $2.4 trillion. That’s probably more than would be advisable for us, since we are actually in an objectively different situation facing less downside risk from slower growth and also a different fiscal situation that probably doesn’t allow us to spend nearly that much. Still, there’s a big gap between $2.4 trillion and House Speaker Nancy Pelosi’s proposal for a $160 billion stimulus package. Democrats need to think bigger.
41 Responses to “Big Stimulus”
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November 10th, 2008 at 5:50 pm
160 Bill? ok that covers AIG for the next two months but what about the rest of the economy?
November 10th, 2008 at 6:16 pm
China’s announced headline figure includes expenditures on things they would spend anyway, so this sort of comparison is kind of meaningless.
November 10th, 2008 at 6:57 pm
Krugman says it’s better to err on the side of too much stimulus. I’d be careful. Historically, we don’t really know what happens when a rescue plan is too ambitious. I agree that we need to go big, but with the debt as deep as it is, let’s certainly be careful.
November 10th, 2008 at 7:04 pm
Matt, you might want to reconsider that “facing less downside risk” line. IMO, we’re facing the mother of all downside risks…
November 10th, 2008 at 7:13 pm
568 billion is very close to the amount that China currently has in treasury securities. Interesting huh? Remember all this fiscal stimulus we are talking about has to come in the form of either new borrowing, mostly overseas, or the fed monetizing the debt. If the Chinese are turning into spenders and net sellers of treasury debt, that is one less place to get the money.
November 10th, 2008 at 8:56 pm
Furnas says the package is 18% of China’s GDP, but the NY Times said it was 7% per year (it is over 2 years). Who’s right?
November 10th, 2008 at 10:15 pm
Most recessions are deviations below the equilibrium level of output and income. But this one is a reversion to that level. This is what Krugman and the rest of the elites just don’t get. Has everyone forgotten the entire Bush 8 years was marked with massive fiscal (trillions in deficit spending) and monetary (easy Greenspan/Bernanke credit) stimulus. And what happened?
November 10th, 2008 at 10:21 pm
But it would be a good start to take back our money from Big Financial and give it to The People. who need it most; working-class and the indigent…
http://www.sunstateactivist.org/ssablog/
November 10th, 2008 at 10:26 pm
Who’s right?
China’s GDP is nominally about 4 trillion, so the 290 some odd billion per year is about 7% of that.
But when you get into PPP comparisons, it becomes an art as much as a science, because some numbers go up, others go down, and none can be seen as completely reliable.
November 10th, 2008 at 10:29 pm
This is also the primary reason why think tanks give estimates of Chinese defense spending that vary from about $50 billion to more than $300 billion. It’s not just unreliable and secretive numbers, it’s how far a dollar or renminbi goes.
November 10th, 2008 at 10:31 pm
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November 10th, 2008 at 11:05 pm
Like Doug (#5), when I heard how much the Chinese planned to spend in stimulus, my first thought was: that’s a lot of T-bills to cash in. Bummer on the timing.
November 10th, 2008 at 11:26 pm
kafka,
excellent point. As a rebuttal,
1. I believe we’ve been in a near recession for the last 7 years or so, only significant govt spending has kept the U.S. out of a full fledged recession. This opinion is supported by looking at the job growth details for the last few years, mostly govt, with some construction, not much other job creation.
2. Where and on what this money is spent has long term significance. Blowing up shit in the middle east vs. rebuilding stuff in the middle west has a significant impact on the economy. One of the failings of GDP is that it can’t tell the difference between ammo and bridges.
3. All net savings in the world must come from govt spending that is not covered by taxes. think about it. Deficit spending, if it matches the demand for savings, is not inflationary. If the govt runs a balanced budget, what is left over to save or even be in circulation? Nothing. This depression is the direct result of the govt surpluses back in the 90’s. Not many people knew how bad surpluses are back then, so we can forgive them…
November 11th, 2008 at 12:10 am
I think 005 may be on to something here.
All we need is to power up some low level characters to get the money we need.
November 11th, 2008 at 12:11 am
Paul Krugman crunches a few numbers and concludes:
He also writes:
November 11th, 2008 at 12:56 am
An interview with a Financial Times editor put air quotes aplenty around this number. The source (I forget his name) said that this number probably included many projects already under way in China, and could not be assessed accurately from outside the country.
November 11th, 2008 at 1:43 am
Mickslam,
That is a very interesting point about government surpluses causing economic downturns. Then how are we ever going to pay back the debt without going into a depression?
November 11th, 2008 at 1:44 am
I would say no. In 1932 America could affod to take on massive amounts of new debt and believe they could pay it off later.
America is now in a situation where, thanks to Reagan and the Bush’s “borrow and spend” policies, it has run up $10 trillion in debt in times of relative – as compared to the ’30s and ’40s – peace and prosperity. The American people, too, cannot merely increase their spending to ward off a recession, because they have lived beyond their means and have massive amounts of personal debt.
Economic “stimulus” at this point can only delay the day when people have to face up to this fact, and make everyone’s fiscal situation worse.
November 11th, 2008 at 4:36 am
Tyler Cowen and other conservatives are pooh-pooing the Chinese Stimulus saying it is just previously planned upgrades of infrastructure already in the works but but their reaction and defensiveness betrays them.
Now Brazil’s getting the Stimulus bug. The fact is their economists (of the BRICs) are just as well educated as ours and less restricted by an overweening conservative ideology promoted by the likes of CNBC and Fox and MSNBC and…..
Nancy Pelosi? With her very wealthy real estate husband and her pearls has led the Democratic Congress into the lowest poll ratings ever. Harry Reid of the Senate isn’t much better. Too much Financial money going their way. a 160 billion stimulus package…is good for maybe a month. That last check I got just went to debt repayment in my household and big construction companies would suck that stimulus up for bridges and such w/o hiring anyone new. But it might help Catapillar stay in business. ”
I say go Big. One Trillion for putting the unemployed to work and building infrastructure. Bill Clinton’s raising taxes on the rich And adding money to local govt.s for police, fireman etc…was the biggest reason for the boom of the 90s. IMO.
November 11th, 2008 at 6:44 am
Hi Ed,
We are not going to pay it all back. It would have been better if we had not borrowed it in the first place, but rather just printed the extra money, but that is another discussion.
Japan had a significant surplus for several years prior to their lost generation. The only place excess money – savings- can originate is from excess govt spending.
Imagine there was no money at all in the world. if the govt required you to pay taxes in govt script, where would you get the money? The govt has to spend. If the govt asks for every cent back in taxes that it spends, how are you going to save money, or put your resources to productive use? You can see why surpluses are so dangerous.
November 11th, 2008 at 8:03 am
China should use it’s money to improve the education and healthcare safety nets. This would free up tons of money for the average consumer. If they just spend it on big infrastructure projects, I’m skeptical about how effective it will be.
November 11th, 2008 at 10:50 am
Given the amount of purchasing power that has disappeared in waves of disintermediation, a stimulus package of 5% of GDP, irrespective of whether the money creation is allowed to stand or is pulled out of circulation by sales of Treasury securities, would certainly be in order. There is no risk, after all, that we will be within 5% of productive capacity within the next year or two.
5% of GDOP is roughly $700b, which would also make for a nice political parity … spending as much on fixing up the Main Street economy as was allocated to bailing out Wall Street.
November 11th, 2008 at 3:22 pm
It’s interesting how stimulus works how. Clinton wanted about $20 billion in stimulus and couldn’t get it. How we have quite a bit more than that, but it’s mainly just writing checks to people. There’s a lot of infrasructure work that could be done with that cash, but won’t be because sending everyone cash offers the most political cover. Of course only giving money to low and middle income people is still pretty good stimulus, but not as good in the two-birds-with-one-stone department.
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