Monday, August 24, 2009

Fiscal Policy and Recoveries in Various Large Countries – a National Review Nitwit Opines Before Checking the Facts

It is been a long time since I ventured over to the National Review’s writings on economics but a “friend” suggested I check out Mark Steyn’s Why the Stimulus Flopped:

Meanwhile, in Brazil, India, China, Japan, and much of continental Europe the recession has ended. In the second quarter this year, both the French and German economies grew by 0.3 percent, while the U.S. economy shrank by 1 percent. How can that be? Unlike America, France and Germany had no government stimulus worth speaking of, the Germans declining to go the Obama route on the quaint grounds that they couldn’t afford it. They did not invest in the critical signage-in-front-of-holes-in-the-road sector. And yet their recession has gone away. Of the world’s biggest economies, only the U.S., Britain, and Italy are still contracting. All three are big stimulators, though Gordon Brown and Silvio Berlusconi can’t compete with Obama’s $800 billion porkapalooza. The president has borrowed more money to spend to less effect than anybody on the planet.

Of course the absolute value of our stimulus was larger than that of the UK or Italy but I have to wonder if Steyn bothered to read something Paul Krugman offered:

A number of commenters have argued that Germany’s slight growth in the second quarter proves that you don’t need a fiscal stimulus to fight the slump. Many points here - Germany had a much deeper slump than the US, etc.. But one thing I gather people don’t know is that there’s a dissonance between what Germany says and what it does: the Finance minister denounces Keynesianism, but at least according to the IMF Germany’s actual stimulus package is quite substantial — comparable to that of the United States! Meanwhile, France has suffered a smaller slump, 3.1% over the past year. Not too surprising, given that France didn’t have a big housing bubble and isn’t as dependent on durable manufactured exports as Germany.

Krugman’s post offers two insights that Mr. Steyn seems to have missed: (1) movements in real GDP depend not only on the size of the fiscal stimulus but also on the economic shocks it had to contend with so we should not be surprised that France’s economy is recovering as ours was still declining last quarter (albeit by not as much as before the fiscal stimulus started to work; and (2) Germany did have significant fiscal stimulus. Paul also provided a link to this IMF report with a table entitled “Stimulus Packages in Large Countries (in percent of GDP)”. The totals for 2008 to 2010 for the U.S. and Germany were 4.8% and 3.4% and note that for China, this was 4.4%. Yet Steyn appears to think China did not have significant fiscal stimulus. On the other hand, he thinks the UK and Italy did but their totals were 1.5% and 0.3% respectively as compared to France’s total which was 1.3%. Also note Japan’s total was 2.2% but Steyn thinks Japan has less fiscal stimulus than either Italy or the UK.

It would seem one does not need to know much about the size of the actual fiscal stimuli in different nations to write a comparative analysis on the topic for the National Review.

1 comment:

Shag from Brookline said...

Perhaps future Stimuli legislation should include a Viagra 4-hour warning to consult Treasury and the Fed.