Hey, Krugman, Ask China if Stimulus Is a Good Idea
On Friday, Paul Krugman once again made the case to the Obama administration for more stimulus, calling for $300 billion a year in additional spending “until the economy is back on its feet.” And the resulting debt? “This is not an urgent crisis,” he assured CNN’s Erin Burnett. “Yeah, give me an economic recovery, I’ll become a fiscal hawk, but not now.”
Put the Nobel laureate economist in the same row as President Obama, who is hoping that he can push eurozone leaders to adopt pro-growth policies in the weeks ahead. That was the thrust of his diplomacy as he met in Washington on Friday with French President Francois Hollande, who just ran on an anti-austerity platform, and at Camp David yesterday with G8 leaders. Fiscal restraint is so yesterday in the eurozone.
Yet before the industrialized democracies commit to debt-fueled expansion policies, perhaps they should see what effect that approach has had in China. Chinese leaders have been praised for their stimulative tactics announced in November 2008 to counteract the effects of the global downturn.
In 2009, the first full year of their expansionary program, they pumped about $1.1 trillion of stimulus into their then-$4.6 trillion economy. Premier Wen Jiabao, China’s economic czar, authorized direct disbursements from the central government’s treasury, but most of the money was released into the economy through the large state banks. He in effect ordered them at the end of 2008 to lower their prudential standards and go on extraordinary lending sprees.