A 2nd stimulus for the US ?

Increasingly there is talk in the United Sates of a second stimulus package. Already other major economies, including China and Japan, have done so. The US package of almost $800 billion announced by President Obama and approved by the Congress as ARRA in February has prevented the worst, including in the nation’s public schools, where 500,000 teaching and school support posts were at risk. But as Paul Krugman pointed out in the New York Times this week, the Federal package is offset by State and local budget cuts across the country. Unlike the Federal government, States have to balance their budgets. As revenue drops precipitously, so does spending which means less stimulus nation-wide.

At the Annual Representative Assembly of the NEA in San Diego last week, delegates highlighted the differences between States. As NEA met, the host State, California, was locked in a budget impasse with a $24 billion deficit and no agreement between the State Congress and Governor Schwarzenegger on how to proceed. School districts may be getting no more than “IOUs” from their State government.

Driving out from San Diego across the State, there are signs everywhere of boom and bust – mile upon mile of new housing developments, shopping malls, commercial buildings – all constructed since 2000 with easy, unregulated credit. But the credit bust that followed the boom is no longer just the problem of States like California and Florida. It affects the entire US economy and beyond.

Economists give the theoretical way out. It was the conventional wisdom among economists for over 50 years that the world could not suffer another Great Depression like that of the 1930s because “we know what to do now”. That is only partially true.

Good policies have not only to be adopted but also to be implemented. In the case of the US, there will be vigorous opposition to a 2nd stimulus package, opposition driven partly by ideology, and partly by genuine concern over the rising national debt. Meanwhile as we have seen, compensating for the dramatic drop in State and local government revenues with federal money while generating real fiscal stimulus, is extraordinarily difficult.

Taking the problem of policy implementation to the global level, which is really necessary in a globalized economy, adds a whole new degree of complexity. That was evident at the G8 in Italy last week (it was described as the G8 + 5 + 1 + 5 – more on this tomorrow). The national and global imbalances underlying the financial and economic crisis have not gone away. Yet the world does not have a global governance system capable of dealing with them.

For my presentation to the NEA’s Global Education Summit in San Diego on 27 June, go to
http://download.ei-ie.org/Docs/WebDepot/NEA%20Responding%20to%20the%20Global%20Economic%20Crisis%20-%2027%20June%2009.pptx
and
http://download.ei-ie.org/Docs/WebDepot/NEA%20GES%20Script%20for%20PP%20financial%20crisis%20%20-%2027%20June%2009.doc