China Economics Financial Crisis Politics

Stimulus and Stability

[digg-reddit-me]This Wall Street Journal article by Bob Davis accompanied by this graph to the right illustrates just how far from world opinion the Republican right is in it’s rejection of stimulus spending. This is not necessarily a bad thing – but it should give pause to those who are defending the fiscal austerity Republicans are proposing in the middle of this crisis. This issue is not considered a partisan issue for most of the world – and it is mainly Republicans in power today who see stimulus spending during a sharp downturn as something “liberal” or controversial.

David Brooks’s expressed his fair-minded exasperation this Sunday – as he pronounced the idea of the Republican-proposed government spending freeze “insane.” 

The International Monetary Fund – not normally known as a squishy, leftish organization as it promoted free trade and capitalism around the globe – is in favor of large stimulus packages:

The IMF has been urging nations to increase fiscal stimulus by at least 2% of gross domestic product to boost growth. Of the G-20 nations, only the U.S., Spain, Saudi Arabia, China and Australia are expected to reach that goal in 2009, according to the IMF.

More importantly, and more interesting then discrediting an almost powerless political party, is to notice that there seems to be some sort of inverse relationship between a society’s social safety net and the amount of stimulus spending they are proposing. 

This makes sense on a number of levels. Automatic stabilizers which should take some of the pressure off a need for a stimulus are not included here. On another level, these nations without a strong safety net must rely more heavily on economic growth for societal stability. 

If this is true, China and America would be more reliant on constant economic growth to relieve social and political pressure and would be more likely to have larger stimulus packages. France and Germany with stronger safety nets would feel more insulated and be less likely to push for large stimulus packages. This is exactly how this matter is playing out on the world stage today – with some exceptions due to political leadership. 

But both states with strong social safety nets and those without them are dependent on growth over time. But those states without strong safety nets feel the economic bumps more strongly – and downturns end up being more disruptive.