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Giant infrastructure/stimulus package unveiled by the government of China.

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.

The federal government can and should step in to fill the gap, both in terms of aid to state budgets and in terms of infrastructure spending. But we would have had much greater capacity to intervene effectively had we stayed on roughly the budgetary trajectory that prevailed at the end of the Clinton administration. In light of 9/11 and the dotcom aftermath the predictions of surpluses from here to tomorrow never would have come true, but Bush took the situation and decided on a combination of irresponsible tax cuts for the Americans who needed them least, an enormously expensive new war whose massive costs involved little if any productive investment for the future, and homeland security spending much of which (like complicated-yet-pointless enhanced airport security) mostly serves as a minor drag on economic activity. Had the administration governed more responsibly over the past eight years we could perhaps have avoided the current crisis, but even if we couldn’t we could at least have been in a position to respond more effectively.

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