Just ahead of the summit of the G-20 group of countries, a former U.S. Treasury official is warning that the U.S. stimulus program must be as bold as China’s if America expects to weather the global economic crisis.
China President Hu Jintao will arrive at the economic summit in Washington this weekend brandishing a whopping new $586 billion spending package, a brutal signal to the U.S. that its own relatively miserly stimulus package may be disastrously too small, the expert says.
“China’s package amounts to 14 percent of its likely 2008 GDP,” said Albert Keidel, a former Treasury official and now China expert at the Carnegie Endowment for International Peace. “For the United States, this share of GDP translates into a $2 trillion program. The comparison shows how small the amounts under consideration in Congress really are when compared to what it takes to counter a potentially very dangerous recession.”
The United States “is entering the phase in this crisis where the real economy needs substantial direct stimulus, and it needs to think big — like China,” the expert warned.
President Franklin D. Roosevelt failed to drag the U.S. out of the Great Depression in the 1930s because he and Congress fretted too much about the budget, he said. In the final analysis, it took deficit spending of no less than 80 percent of the GDP over five years during World War II to truly jump-start America.
Frank Gong, a Hong Kong-based economist at J.P. Morgan, told USA Today that the largest stimulus plan in China’s history calls for, among other things, new housing, roads, railways, and airports. The idea is that, if you mobilize the vast Chinese countryside, demand for high-end consumer goods will increase. There is little emphasis on direct bailouts in China, he said.
Ting Lu, a China economist at Merrill Lynch in Hong Kong, told USA Today that the big stimulus package is being referred to as “China’s New Deal.”
The ‘New’ New Deal
Keidel sees America’s own new “New Deal” as coming forward in unfortunate starts and trickles, knuckling under to the demands of political correctness and expediency.
“American policymakers . . . need to see a stimulus program — even if only behind closed doors — in terms of a 10 to 20 percent share of GDP, not in $100 billion denominations. Ten percent of U.S. GDP is $1.4 trillion,” he said.
However, Keidel added, if politics demands putting up the cash in $100 billion parcels, so be it. Press ahead with what you have. As to how to apportion and best distribute these hefty chunks of taxpayer dollars, he envisioned an aggressive broad program — necessarily far more comprehensive than China’s — as outlined in the following bullet points: One or more could go directly to state governments. (Last month, California Gov. Arnold Schwarzenegger warned that his state may need an emergency loan to cover short-term cash needs.) A second parcel could go for road, bridge, and port reconstruction and expansion. Another could fund Trade Adjustment Assistance with non-trade-related extensions. That assistance effort is a federal program established under the Trade Act of 1974, as amended, according to the Department of Labor. It provides aid to workers who lose their jobs or whose hours of work and wages are reduced as a result of increased imports. One could restructure troubled mortgages. Another, expand benefits for the armed services and veterans. Still another could be put toward education, pre-kindergarten through college. And another, for Social Security supplements.
The critical list doesn’t end there, said Keidel, who tacks on energy investments, technology transfers to fight global warming, and initial payments to pave the transition to a new healthcare system.
“Depending on the size of these packages, they could add up to a trillion dollars pretty quickly and possibly at an acceptable political price. It may be the only way the United States can match China’s boldness,” he said.
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