Stimulating
Giant infrastructure/stimulus package unveiled by the government of China.
It’s worth noting that ability to do this is one of the things that responsible budgeting gets you. During boom times, China amassed budget surpluses and built up reserves. Now, during a downturn, they’re able to respond with a huge spending initiative at a time when (a) such spending is needed to keep the economy going, and (b) the downturn makes it cheaper than it would otherwise be to complete such projects.
Unfortunately, in the United States the rules governing state and local budget practices essentially ensure that the reverse will be done. During boom times, tax revenues rise and governors respond by combining tax cuts with spending hikes and watch their popularity soar. During a downturn, revenues fall and balance budget requirements force them to reduce services, scale back planned projects, and raise taxes, all of which has the impact of making recessions worse than they otherwise might be and ensuring that infrastructure projects are undertaken at the time when it’s most expensive to build them.
The federal government can and should step in to fill the gap, both in terms of aid to state budgets and in terms of infrastructure spending. But we would have had much greater capacity to intervene effectively had we stayed on roughly the budgetary trajectory that prevailed at the end of the Clinton administration. In light of 9/11 and the dotcom aftermath the predictions of surpluses from here to tomorrow never would have come true, but Bush took the situation and decided on a combination of irresponsible tax cuts for the Americans who needed them least, an enormously expensive new war whose massive costs involved little if any productive investment for the future, and homeland security spending much of which (like complicated-yet-pointless enhanced airport security) mostly serves as a minor drag on economic activity. Had the administration governed more responsibly over the past eight years we could perhaps have avoided the current crisis, but even if we couldn’t we could at least have been in a position to respond more effectively.
38 Responses to “Stimulating”
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November 9th, 2008 at 11:03 am
yes, how unfortunate that we live in a democracy.
November 9th, 2008 at 11:31 am
Fixed that for ya.
November 9th, 2008 at 11:40 am
Do these infrastructure improvements include large walls?
November 9th, 2008 at 11:41 am
Can we have our airports back now? It’s appalling how much money the U.S. government has been spending making life miserable for people (except for the people it made rich(er)). It’s like BushCo aimed for inefficient, unnecessary, and ineffective and overshot their marks. What a mess these people left.
Unfunded federal mandates have been costing the state dearly, too. If this Congress can’t put a stop to the federal non-sense that is breaking the states, then I’d like to see the states buck hard to get the dead elephant off their backs.
November 9th, 2008 at 12:07 pm
It’s called representative government. If you think a dictatorship will lead to more responsible government, then go ahead and advocate for that.
November 9th, 2008 at 12:36 pm
The “it’s a democracy” line would be more persuasive if in 2000 more people had voted for the side that wanted irresponsible tax cuts than the side that didn’t. And of course those irresponsible tax cuts were sold with lies — during the campaign Bush promised not to run a budget deficit, but he persisted with his tax cuts even after it became clear that they would lead to a large deficit. In true Orwellian fashion, he rewrote history to pretend that he had anticipated deficit spending in case of a war, recession, or national emergency, but he was lying.
What this really means is that a democracy can lead to bad results when the media does not inform people of the facts; Bush’s raving lies about the “trifecta” were badly underreported.
November 9th, 2008 at 12:37 pm
> During boom times, China amassed budget
> surpluses and built up reserves. Now, during
> a downturn, they’re able to respond with a
> huge spending initiative at a time when
Seems to me there is a wee bit of a problem here: China stored those reserves /in the United States/. What exactly is going to happen when the PRC Ministry of Finance calls, say, Lehman Bros or AIG and asks for their invested money back? Oops.
Cranky
November 9th, 2008 at 1:00 pm
I’m not really clear on this concept that we are stuck with poor fiscal management because we are a democracy. Does anyone remember the Clinton years? We were a democracy back then and had sound fiscal policies and healthy economic growth. Sure, China has more flexibility by not having the face the voters. But at the same time, there aren’t really any disincentives to poor performance. Fiscal responsibility is possible in both systems, it just takes wise leaders. We elected such a leader in 1992, and hopefully we did so this year, too. Time will tell, but Obama’s economic advisers are an impressive bunch.
November 9th, 2008 at 1:01 pm
cyd
yes, a poorly run democracy that is also the wealthiest, most successful nation in world history.
of course, it could be better run - by emulating precisely none of china’s policies on anything, for instance.
November 9th, 2008 at 1:15 pm
The “it’s a democracy” line would be more persuasive if in 2000 more people had voted for the side that wanted irresponsible tax cuts than the side that didn’t.
More people did. Taxation measures originate in the people’s house, which had a firm Republican majority after the 2000 election.
Hell, the GOP even had a razor thin majority in the irrespective-of-population senate, until Jeffords defected.
November 9th, 2008 at 1:18 pm
Sure, China has more flexibility by not having the face the voters. But at the same time, there aren’t really any disincentives to poor performance.
Actually, the Politburo has a very real threat of social unrest and even civil war if they don’t act. They’re terrified of this, because the only time China can ever be subdued or conquered is when it falls prey to its own internal strife.
There’s nothing like that fear in this country.
November 9th, 2008 at 1:35 pm
“They’re terrified of this, because the only time China can ever be subdued or conquered is when it falls prey to its own internal strife.”
That has historically been true. And no doubt the leaders of China are concerned about it. But I think it is less true than in the past. The disparities in military technology between the government and its citizens are much greater now, making civil war less likely. Although terrorist tactics would still be effective and likely. I’d also add that the current government in China is actually very popular. It turns out that people like economic progress. They’ll probably like the new stimulus package as well.
November 9th, 2008 at 2:00 pm
That is probably the most devastating critique of the Bush administration’s fiscal policy I’ve read in quite some time.
November 9th, 2008 at 2:19 pm
“During boom times, China amassed budget surpluses and built up reserves. Now, during a downturn, they’re able to respond with a huge spending initiative at a time when (a) such spending is needed to keep the economy going, and (b) the downturn makes it cheaper than it would otherwise be to complete such projects.”
If Obama can make this an article of faith among average voters in America, then his presidency will be a success regardless of anything else he does.
November 9th, 2008 at 3:25 pm
Taxation measures originate in the people’s house, which had a firm Republican majority after the 2000 election.
woo, there went the goalposts!
Bush’s tax cuts were proposed by Bush — hence the name — who got fewer votes than Gore. The President does in fact have a considerable influence over the economic plans that were passed. And of course individual Congressional races were decided on many issues, whereas one of the big differences between Gore, who got more votes than Bush, and Bush was that Gore promised to treat the surplus responsibly.
Anyway, I take consolation in this: You intellectually dishonest morons just got your asses kicked. You’re irrelevant. Keep up the stupid policies and enjoy your permanent minority status.
November 9th, 2008 at 6:59 pm
Anyway, I take consolation in this: You intellectually dishonest morons just got your asses kicked. You’re irrelevant. Keep up the stupid policies and enjoy your permanent minority status.
Asshole, I never said I wanted the Bush tax cuts, nor am I Republican, nor have I ever voted for one. I said that while the presidential race was extremely close, the Congress was firmly GOP - and the Republicans were going to pass tax cuts regardless of who was elected president, that was the entire point of their national campaign in 2000.
The only arguable point was that the form they took were Bush’s. We’d have been a lot better off today if Gore had been president and thus restrained their impulse to cut taxes on the filthy rich, and instead, cut things like the AMT that was going to massacre the middle class.
November 9th, 2008 at 7:33 pm
Massive spending projects for economic stimulus?
Looks like the Chinese have embraced the (actual) policies of Herbert Hoover.
November 10th, 2008 at 4:37 am
Hmmm, China already has a significant problem with overinvestment - hardly a surprise when an economy invests over 40% of GDP in infrastructure. Empty buildings and $100 million airports that handle a few dozen passengers a day abound. And yet the advice you have for them is to ramp up investment further? Keep the bubble inflated - hey, why should it pop NOW, it just might disappear later, if we close our eyes really tightly and pretend it is not there?
Or… maybe, just maybe, China might have to realize that after a binge comes a hangover, and brace for it. China has a ridiculously high saving rate, and currently (with US and demand for their exports not so hot) not many smart investment projects. Sure, there are always “bridge to nowhere” projects… but eventually even a huge dollar stash will vanish. Government spending makes for a nice patch during times of weak demand if your infrastructure investment had been neglected for a while, but if you are already in an over-investment hole, should you not stop digging?
November 10th, 2008 at 4:39 am
Apologies. “with US and demand” should read “with US and world demand”.
November 10th, 2008 at 7:39 am
Speaking of intellectually dishonest morons, is someone here actually claiming that the tax cuts resulted in a loss of revenue? Revenues went up pretty sharply! Let’s talk about spending, where the budget problems actually arose.
November 10th, 2008 at 9:15 am
Bush took the situation and decided on a combination of irresponsible tax cuts for the Americans who needed them least
The Bush tax cuts came during a down turn. Oh how quickly we forget.
November 10th, 2008 at 9:21 am
Speaking of intellectually dishonest morons, is someone here actually claiming that the tax cuts resulted in a loss of revenue? Revenues went up pretty sharply! Let’s talk about spending, where the budget problems actually arose.
Speaking of intellectually dishonest morons, you figure you can separate the tax cuts and the revenue from the spending?
Any moron including Bush can find a way to spend three dollars to get an extra two dollars in income.
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