Stimulus Too Small? Nein!

by Don Boudreaux on January 12, 2011

in Myths and Fallacies, Stimulus, The Crisis, The Economy

Here’s a letter to the Wall Street Journal:

You report that “Germany’s economy in 2010 grew at its strongest rate since the country’s reunification” – by about 3.5 percent (“German Economy Grows at Record Pace,” Jan. 12).  You report also that Germany’s government-budget deficit for 2010 was 3.5 percent of German GDP, and that government spending there rose by 2.9 percent in 2009 and then by 2.2 percent in 2010.  You might also have reported that Germany’s unemployment rate fell in 2010, from 7.8 percent in November 2009 to 7.1 percent in November 2010.

These data on Germany cast further doubt on the wisdom of those pundits, politicians, and economists – most famously Paul Krugman – who insist that the continuing sluggishness of the U.S. economy is caused by insufficiently copious fiscal stimulus spending here at home.

In 2010, Uncle Sam’s budget deficit was 10.65 percent of U.S. GDP – triple the size of Germany’s figure.  And Uncle Sam’s spending increased by a whopping 17.9 percent in 2009 and then by another 5.8 percent in 2010.  Yet unemployment here remains high, at 9.4 percent, and our GDP in 2010 likely will be no more than 3.0 percent higher than its 2009 level.

Sincerely,
Donald J. Boudreaux

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