April 3, 2009

The Big Money: China's Stimulus is Working

A very short but interesting - and I dare say important - article from Slate's The Big Money. Important for two reasons: first, because it reinforces Paul Krugman's argument that the size of the stimulus package matters and that the recently passed economic stimulus bill is most likely too small; secondly, because it refutes the noise coming from the hysterical wing of the Republican party as to why the stimulus bill needed to be passed in the first place.

Many commenters, including TBM's Charles Wallace, have argued that the Chinese stimulus package is superior to America's. Partly that's because it represents a larger proportion of GDP and partly because it is more focused on housing and infrastructure, which can create jobs quickly and thereby circulate money through communities. Those points will continue to be debated.

But there's a case to be made that the Chinese stimulus package is now working, both on a psychological level and an economic level. A Reuters story yesterday pointed out that the mere promise that China will increase its stimulus if it needs to boosts confidence and might therefore paradoxically make more stimulus unnecessary. Now comes today's Wall Street Journal, reporting that both housing sales and construction starts are on a mild upswing in China. This is crucial because the world's metal and oil markets are dependent on Chinese demand; not surprisingly, reports the Financial Times, both experienced a jolt yesterday.

True, the Chinese economy will not grow in 2009 at the dizzying pace of the last decade or so. But it's also not going to shrink, and that will provide a needed cushion for the drops occurring elsewhere. The bottom line, as David Leonhardt wrote in yesterday's New York Times, is: "Yes, stimulus works." Critics can say it's too expensive or doesn't stimulate fast enough or deeply enough. But consider the alternatives.

HT: Economist's View

Update: Robert Reich's most recent post reinforces the message above, that the American government needs to work harder on the stimulus package, saying that the amount allocated so far, $787 billion (as huge a number as that may seem), is not enough. What makes Reich's post important is the second half, where he makes a number of very good concrete suggestions as to how the money should be spent:

All this means that the real economy will need a larger stimulus than the $787 billion already enacted. To be sure, only a small fraction of the $787 billion has been turned into new jobs so far. The money is still moving out the door. But today's bleak jobs report shows that the economy is so far below its productive capacity that much more money will be needed.

This is still not the Great Depression of the 1930s, but it is a Depression. And the only way out is government spending on a very large scale. We should stop worrying about Wall Street. Worry about American workers. Use money to build up Main Street, and the future capacities of our workforce.

Energy independence and a non-carbon economy should be the equivalent of a war mobilization. Hire Americans to weatherize and insulate homes across the land. Don't encourage General Motors or any other auto company to shrink. Use the auto makers' spare capacity to make busses, new wind turbines, and electric cars (why let the Chinese best us on this?). Enlarge public transit systems.

Meanwhile, extend our educational infrastructure. So many young people are out of work that they should be using this time to improve their skills and capacities. Expand community colleges. Enlarge Pell Grants. Extend job-training opportunities to the unemployed, so they can learn new skills while they're collecting unemployment benefits.

Finally, accelerate universal health care.

No comments: