Trade is contracting again, at a rate unmatched in the post-war period. This week the World Trade Organisation (WTO) predicted that the volume of global merchandise trade would shrink by 9% this year. This will be the first fall in trade flows since 1982.Not only is this the first drop in trade since 1982, it is percentage wise, the biggest drop since WWII. So, what's a politico or bureaucrat to do? Stimulus, I dare say. Leonhardt points out that of all the economic lessons we've learned, and often had to unlearn or relearn, one that seems to hold water is:
Does stimulus work? Fortunately, this is one economic question that’s been answered pretty clearly in the last century.
Yes, stimulus works.
When governments have taken aggressive steps to soften an economic decline, they have succeeded. The Germans did it in the 1930s. Franklin D. Roosevelt did so more haltingly, and had more halting results. Even the limp Japanese recovery plan of the 1990s makes the case. Although dithering over a bank rescue kept Japan in a slump, government spending on roads and bridges made things better than they otherwise would have been.
The primary impediments to additional stimuli likely has less to do with the costs or benefits, but with politics and nationalism. The politics portion of the argument against a bigger, more coordinated worldwide stimulus can be noted by looking at the Republicans in Congress being dead set against the stimulus. Finding little pieces of pork here and there, they parade around the media circus as if they were saving all America's future babies from sure fire death by debt. So, is this stance predicated on a truly ideological purity against bigger government spending, or more likely is it a political game? I'm going with the latter, because if it were a truly a conviction of such deep GOP significance, I would expect to see more GOP governor's joining in with Mr. Sanford in turning down cash. (I duly note that there are rumblings that some other GOP guvs will follow suit, at least in part.)
The second, and perhaps more problematic, antagonistic force is that of economic nationalism, or protectionism. From the earlier linked Economist article:
Some countries (notably Western European ones) have been reluctant to work the budgetary pump for fear that their extra demand will leak abroad to the benefit of foreigners. To stop the seepage, some governments have inserted discriminatory conditions into their fiscal programmes, the prime example being the “Buy American” procurement rules.It seems highly irrational (which, may be more real in economics that we like to admit) for a nation to not pursue what is in its best interest, based upon a fear that action may have positive effects on other nations. I thought this was the basis for the entire argument for globalization. The G20 leaders need to realize that even if some "leakage" occurs, the preponderance of the benefits will remain in the country that activates the stimulus. With this confluence of short-sighted partisanship and chauvinistic politics from the so called friends of globalization, I'm not sure free trade needs the anti-capitalists protesters to bring it down. Just let the people running it keep making decisions defunct of logical coherence.
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