cutting and economic consolidation makes good fiscal sense
particularly during difficult economic times. Conversely,
stimulating your economy with investments that contribute to
sustainable growth and job creation also makes sense.
The recession of 2009 put these two approaches to the test. At the start of the recession, the IMF’s
managing director said:
“If there has ever been a time in
modern economic history when fiscal policy and a fiscal stimulus
should be used, it’s now” and that it should take place “everywhere
where it’s possible. Everywhere where you have some room concerning
debt sustainability. Everywhere where inflation is low enough not to
risk having some kind of return of inflation, this effort has to be
Conservatives oppose this view suggesting that
governments cannot allocate resources as effectively and as
efficiently as the private sector.
The Obama administration poured hundreds of
billions of stimulus dollars into the US economy. The $787 billion
stimulus bill included $150 billion in clean energy and $21.6 billion
for efficiency measures. By most standards the American economy
responded well to these initiatives.
Post article said, “If you ask the Obama administration,
economists are virtually united in thinking that the 2009 stimulus
package worked.” Justin Wolfers, professor of economics at the
University of Michigan, points to what he thinks is solid evidence:
“The big Stimulus Bill for 2008, 2009, 2010 had specific
formulae, which ended up giving different amounts of stimulus to
different states.” Wolfers explained. “You can look at those
states which happened to get a bigger chunk of stimulus. Did their
economy subsequently outperform other states over the next few years?
The answer is yes.”
To answer the question of whether
stimulus spending makes sense, you have to factor where exactly the
money is going and what are the returns. The current and future size
of the green economy make sustainability investments a smart move.
Forbes reports that there is already a $6
trillion clean energy business opportunity and NRDC predicts that
the clean energy market will be worth up to 13
trillion over the next two decades.
A 2010 report by
Jobs for the Poor: A Public Employment Approach,
supports this the stimulus approach. The report suggests that
economic growth, green jobs and poverty alleviation all benefit from
On the World Bank Blog, Augusto
Lopez-Claros argues that, “this debate [between austerity
and stimulus spending] is largely a false one, in the sense that many
countries, in fact, do not have the luxury of entering into a
prolonged period of fiscal expansion in the hopes of revitalizing
anemic growth rates. Some form of fiscal consolidation, supported by
other structural and institutional reforms, may be the only viable
path in coming years.”
Lopez-Claros says that fiscal
tightening including economic reforms should exist alongside stimulus
spending. To work, debt levels must be manageable. This means that
for less affluent nations, fiscal loosing can be very dangerous and
lead to accruing unsustainable levels of debt that may prove
insurmountable. This is part of the problem we see today in Greece.
They have dug themselves a hole from which it will be very difficult
stimulus spending to have real and lasting value it must be done in
the context of structural reforms.
economic recovery—essential to successfully address the debt
problem—will only come when governments implement reforms that will
help remove supply-side barriers that have long undermined
competitiveness and reduced potential growth. If anything, the global
financial crisis has shown the high costs associated with delayed
reforms, ” Lopez-Claros said.
the IMF Director said, stimulus should be used, “rverywhere
where you have some room concerning debt sustainability.”
is not free, it is only borrowing from tomorrow, however,
sustainability is an investment that will provide returns well into