China Stimulus Versus US Stimulus
In an earlier post, I remarked on Brad DeLong’s failure to reflect on the (reported) fact that China has booming economic growth even as its consumer prices are falling. Instead of dealing with that problem (since it is rather inconvenient for those warning about a deflationary trap), DeLong simply titled his post, “China’s Larger Stimulus Program Appears to Be Working.”
At first, I thought DeLong’s title meant, “China’s stimulus program is bigger than the US stimulus program, and that’s why its economy is booming.” As we’ll see below, that theory doesn’t work, because the US deficit is much bigger (even as a share of the economy) than China’s. Another interpretation is that DeLong simply meant, “Now that the Chinese have bumped up their spending, their economy is doing better.” If that’s what he means, OK, but then it’s still odd that with such a punitive (by Keynesian rhetorical standards) deficit, they are having a booming economy.
I didn’t research it too much, but this Reuters story (from back in February) says that the Chinese government’s budget deficit was projected to be about 3% of GDP in 2009.
For comparison, the US budget deficit in FY2009 is projected to be more than 13% of GDP. And for what it’s worth, the US budget deficit in FY1933–this was when the stupid Hoover foolishly tried to balance the budget, much to the chagrin of Krugman–was 4.5% of GDP. So I’m not seeing how the Chinese right now are engaging in more aggressive Keynesianism than Obama & Friends; they’re not even pumping up Aggregate Demand as much as Hoover did right at the time when Krugman scolded him for dooming the economy.
(And note that DeLong can’t say, “Sure China’s overall budget deficit is lower, but their stimulus package is bigger.” Because we all know the object of the spending is irrelevant as far as Aggregate Demand goes. That’s why Keynes said burying bottles of money would work, and remember when President Obama said, in reference to his Republican critics complaining about spending, “Whaddya think a stimulus is?!”)
Explain please, Prof. DeLong.
