Friday, January 23, 2009

NYTimes China Stimulus Article

Is here.

It argues that China's stimulus package is actually smaller than the US's. While this may be true, the article ignores some evidence to the contrary, and just gets other things flat-out wrong.

First, it does not mention Chinese local government's planned $1 trillion in announced new spending. This may be all smoke and mirrors, but it at least deserves mention.

One thing it gets wrong is that the US government plan is not "all new spending" either. With massive cuts in state and local budgets, much of the US federal stimulus is merely offsetting cuts elsewhere... As written before on this site, in the next three years, state govt's face expected shortfalls of $350-70 billion, and this is after many have already cut their budgets. City and local governments are also in cutting mode. This might pair the true size of the US stimulus in half... And since that is the government spending half, it means trimming the expected effect of the stimulus by about 2/3rds.

Another thing it gets wrong is that much of the stimulus spending in the US plan is not shovel ready, and so it will take more than two years for the whole thing to kick in...

Given those three crucial errors, the article's conclusion that our stimulus package is larger than China's would probably not stand. (That's understated for dramatic effect.)

One interesting part of the article, though, is this: "Bank lending jumped in November at the fastest annual pace in nearly five years, as the state-controlled banking sector responded to regulatory pressures to step up lending." This is really what we need in the US...

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