China Going Keynesian

This is big news:

SHANGHAI — China on Sunday announced a huge economic stimulus package aimed at bolstering its weakening economy and perhaps helping fight the effects of a global economic slowdown…The package, announced by the State Council Sunday evening, is the largest economic stimulus effort ever undertaken by the Chinese government and would amount to about 7 percent of the country’s gross domestic product during each of the next two years.

Robert Reich is calling for the same thing in the US.

China’s growth rate is going to take a big hit this year.  The 10-11% growth rates are going to be culled to about 5-7% and they clearly understand what is going on–worldwide recession. What Reich calls calls a mini-depression.  And hoarding will take place without big outlays (while Bush, Hoover-like dithers about) on the scale the Chinese have going for them.

As Yglesias points out:

It’s worth noting that ability to do this is one of the things that responsible budgeting gets you. During boom times, China amassed budget surpluses and built up reserves. Now, during a downturn, they’re able to respond with a huge spending initiative at a time when (a) such spending is needed to keep the economy going, and (b) the downturn makes it cheaper than it would otherwise be to complete such projects.

Unfortunately, in the United States the rules governing state and local budget practices essentially ensure that the reverse will be done. During boom times, tax revenues rise and governors respond by combining tax cuts with spending hikes and watch their popularity soar. During a downturn, revenues fall and balance budget requirements force them to reduce services, scale back planned projects, and raise taxes, all of which has the impact of making recessions worse than they otherwise might be and ensuring that infrastructure projects are undertaken at the time when it’s most expensive to build them.

Alternatively we could start an unnecessary war and cut taxes for the rich.

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