Friday, April 3, 2009

David Leonhardt on Stimulus Choices

David Leonhardt’s Wednesday “Economic Scene” column in The New York Times are always worth reading even if you don’t always agree with him.

The April 1 column raised an interesting point: countries that have thicker social safety nets are less inclined to pursue stimulus, while those with thinner nets are likely to spend more.

Specifically, western European stimulus packages are smaller than the American one because their baseline social spending is higher.

He also raises the interesting point that summits in time of crisis are common:

In the summer of 1933, just as they will do on Thursday, heads of government and their finance ministers met in London to talk about a global economic crisis. …

What’s interesting about that one is that:

More than any other country, Germany — Nazi Germany — then set out on a serious stimulus program.

I have a couple of issues.

First, he’s awfully sure that stimulus works, even though economists are a lot less sure of that than pundits and politicians.

Second, one problem with comparing the U.S. with other countries as he does in the accompanying chart is that it isn’t clear whether state and local spending is included for the U.S. Since our system is federal, a great deal of our social safety net is provided at the state and local level (that’s why places like Alabama and California can have such different social services). If the IMF source that he used compares central governments to central governments, it’s going to make the U.S. look lousy.

Funny thing: the IMF, like many international agencies, has a tendency to make choices on data that do make the U.S. look bad. So maybe I’m correct to be suspicious.

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