Stimulus Packages Floated Across The World India, Spain, South Korea and China may all see stimulus packages. MIT economist Simon Johnson explores whether a bailout movement is taking shape or whether it's just more of the same.
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Stimulus Packages Floated Across The World

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Stimulus Packages Floated Across The World

Stimulus Packages Floated Across The World

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MADELEINE BRAND, host:

From the studios of NPR West, this is Day to Day. I'm Madeleine Brand.

ALEX COHEN, host:

And I'm Alex Cohen.

BRAND: Stocks are higher today here and around the world on news that the U.S. and other governments announced plans to stimulate the various economies around the world. Simon Johnson is an economics professor at MIT Sloan. He's here now. Welcome to the program.

Dr. SIMON JOHNSON (Sloan School of Management, MIT): Hi.

BRAND: So how big a deal is this, the plan, at least in the United States, that Barack Obama plans a massive public works program and a stimulus plan? Is this going to do it for the economy?

Dr. JOHNSON: I think we will start to make progress that will impact the rest of the world, hopefully turning a corner and getting a recovery started sometime in 2009.

BRAND: I know that's what governments in the rest of the world are doing. I know there are various stimulus packages in countries in Europe, for example?

Dr. JOHNSON: Yes, everybody, it seems, has a got a little bit of the stimulus package bug, so there's a fair amount of stimulus going in, one percent of GDP, a little bit more in most economies. The headline accounting sea is often a little bit misleading, but when you strip it all down, a little bit more than one, 1.5 percent of GDP in industrialized countries is what I'm expecting that we'll end up with. And that's also helpful.

BRAND: So tell us a little bit more about these policies. I mean, we're sort of throwing around the world stimulus, but it can mean many different things.

Dr. JOHNSON: That's (glitch), and it should mean different things in different countries. You know, the IMF started calling (glitch) stimulus as a response to the slowing global economy back in January. But it has always emphasized that what you need to do and how you do it should vary with your circumstances.

So in the U.S., for example, I think infrastructure, say, makes a lot of sense. We have a fair amount of decrepit infrastructure, and there's lot of projects that are so-called ready to go. So you can get the money out quickly. And normally, that's not the case. An infrastructure (glitch) in general takes more time to get into the economy than do, for example, tax cuts.

So different countries are mixing it up in different ways. The British are going for a bit more of a tax cut, for example. (glitch) for government spending.

BRAND: Well, here in the United States, you said that these projects are ready to go. How soon would we see the effects from this investment in public works?

Dr. JOHNSON: Well, there'll be a package. The fiscal package will be not just public works. It will have some shorter-term income-support features. The unemployment benefits piece is already in the works, and there's going to be more money for food stamps, and there's more money probably supporting student loans.

And these are things that get into economy fairly quickly. I think (glitch) it looks like some sort of tax cuts to come through that hopefully what would be intended to have some immediate consequences in the infrastructure. (unintelligible) comes in, let's say, into the first quarter, beginning second quarter of 2009. It doesn't ramp up that quickly. It's a problem.

Ready-to-go projects, you can get them out the door, and you can start building the roads or rebuilding the bridges. But then there's a bit of a hiatus until you can get more (glitch) (unintelligible). And you do want to spend the money wisely. You don't want to have any kind of backlash against this increased government spending. There are sensible projects in the U.S. They've got to be selected at the (glitch) and so on. So I don't think you should really expect a miracle from these policies.

BRAND: So you're saying that they could start at the end of the first quarter. So, hmm, maybe sometime by the end of the year we might be seeing the effects? The end of 2009 I'm talking about.

Dr. JOHNSON: Yes. And this is one of the gambles that by the time it really hits the economy, you just don't know whether the economy's going to need it anymore. So it's possible that the economy will start to recover by itself, and this fiscal stimulus will be overkill.

I don't think that's the case. I think it will arrive actually just when we really need it the most. But there's no question about it, it's a gamble.

BRAND: Simon Johnson, a professor of global economics at MIT Sloan. Thank you very much.

Dr. JOHNSON: My pleasure.

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