China unveils $586 stimulus plan

[partofme]

This is huge. Do you think that this will put more pressure on congress to push through a even bigger plan than already being considered and would president bush sign a large plan or would it have to wait for Obama to take over?

http://www.nytimes.com/2008/11/10/world/asia/10china.html?hp

[Michael]

That's a HUGE package in the context of the Chinese economy - roughly equal to 7% of GDP - and almost entirely based on infrastructure. There's probably nothing new here - just a bunch of already planned projects getting speeded up and getting 'green-light' approval to proceed. But even still, this is a huge increase in Chinese government spending. Keynesian economic policy from the Chinese 'politbureau' - remarkable! :)

* * *

And from what I hear, we can expect a second fiscal stimulus package from Congress to be assembed under the 'lame duck' session. If Bush vetos it, Obama can just indicate that he will sign it in January anyway.

I think the focus has to be on 'relief' for State budgets, a temporary extention of unemployment coverage and a temporary 'bonus' to the foodstamp program.

Those are the most important elements. After that, some increased 'infrastructure' spending will also be announced since that has good PR optics (and is a lot slower form of stimulus). That's it for a recession-stimulus package. Anything else added is just gravy/bribes/pork and pet projects that have nothing to do with 'proven recession-stimulus' policy.

[partofme]

That's a HUGE package in the context of the Chinese economy - roughly equal to 7% of GDP - and almost entirely based on infrastructure. There's probably nothing new here - just a bunch of already planned projects getting speeded up and getting 'green-light' approval to proceed. But even still, this is a huge increase in Chinese government spending. Keynesian economic policy from the Chinese 'politbureau' - remarkable! :)

* * *

And from what I hear, we can expect a second fiscal stimulus package from Congress to be assembed under the 'lame duck' session. If Bush vetos it, Obama can just indicate that he will sign it in January anyway.

I think the focus has to be on 'relief' for State budgets, a temporary extention of unemployment coverage and a temporary 'bonus' to the foodstamp program.

Those are the most important elements. After that, some increased 'infrastructure' spending will also be announced since that has good PR optics (and is a lot slower form of stimulus). That's it for a recession-stimulus package. Anything else added is just gravy/bribes/pork and pet projects that have nothing to do with 'proven recession-stimulus' policy.

Working on infrastructure seems like a focus we should have here since we really need it anyway beyond any stimulus it may provide. Then again my state's budget is in the toilet and that is hurting here since a few projects at the university and a big local road project are being put on hold.

[Michael]

Working on infrastructure seems like a focus we should have here since we really need it anyway beyond any stimulus it may provide. Then again my state's budget is in the toilet and that is hurting here since a few projects at the university and a big local road project are being put on hold.
The structure of state finances are a big reason that regular recessions are particularly damaging in the USA.

According to conventional economic theory, one should increase discretionary government spending in a time of a recessionary economy. However, State law and the nature of the market means that States have to massively cut spending anytime the economy goes south. This is bad public policy.

That's why one of the most important things that the federal government can do during a recession is offer free money to the States to make up for all those massive cut-backs they are going to have to make (and throw people out of jobs). Throwing people out of government jobs when a recession hits is bad public policy.

And as the following chart shows, Foodstamps, extending unemployment benefits and subsidizing State spending programs are the BEST way to stimulate economic activity during a recession. Infrastructure is generally good, but often is already approved spending that is already expected and/or it takes way too long to give the actual effects unless the projects are ready to roll NOW. The best infrastructure spending programs are thus two years away from delivering the jobs - or are already approved.