Economic stimulus plans now global phenomenon
At least 34 countries have plans, worth a total of $2.25 trillion.
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Other critics would like to see more spent on bricks-and-mortar projects. “Japan should carry out large-scale public-works projects to create jobs,” says Minoru Morita, a veteran political analyst and former editor of a major economic magazine. “The government can certainly do more with aggressive fiscal and monetary policy.”Skip to next paragraph
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China’s massive stimulus package – representing more than 6 percent of its GDP – is partly oriented toward boosting spending, much as the US Senate has proposed giving tax breaks to spur auto purchases. The Chinese measures include a 13 percent discount for rural residents who buy household appliances such as refrigerators and washing machines. The government has also halved the sales tax on autos to boost sales and waived taxes on property sales to try to revive the property market.
Very few of the stimulus plans seem to have “buy in my country” aspects to them. Last week in Davos, Switzerland, at the World Economic Forum, Japanese Prime Minister Taro Aso vowed, “In keeping with the lessons of the 1929 Great Depression, we will resolutely fight all protectionism.”
However, the US Congress was considering some form of “buy America” in its package. “If they do, the Europeans will take us to the World Trade Organization [the global trade judge],” says international economist Jay Bryson of Wachovia Economics in Charlotte, N.C. “The WTO can slap us on the wrist; we can appeal it. And then you’re three or four years down the road and, in the meantime, you bought a bunch of steel made in the US.”
“I agree we can’t send a protectionist message,” he said. But, he added, “I want to see what kind of language we can work on this issue.”
Yet economists expect much of the spending to stay at home even if there is a need to import heavy equipment. “There is so much excess capacity around the world, I’m not sure how much imports will be needed,” says Mr. Sohn.
That doesn’t mean that countries won’t try to protect their own industries, says Sohn. In November, the White House held a meeting of 20 nations, and every leader agreed not to raise protectionist barriers for a year. “The day after it ended, Russia and India raised tariffs, then Vietnam and Brazil,” says Sohn.
For some countries, large spending packages are either not possible or politically difficult. According to UBS, the countries that have had the least interest in big spending plans include Argentina, Mexico, Germany, Italy, Spain, the Netherlands, and Switzerland.
Although many of the spending packages are contentious, the reasons are different. In the US, conservatives object to the huge deficit and potential for abuse. But last week in France, the Sarkozy plan was attacked as not ambitious enough as thousands of strikers hit the streets of Paris.
Socialists and other parties on the left want a 40 billion euro plan to address injustices in the French social system, jobs, and unemployment, which rose by 42,000 at the end of 2008. The left advocates more consumer spending, in France known as “purchasing power,” for ordinary people.