G20 stimulus of $2 trillion may fall short

March 29, 2009, 11:38

According to Anatole Kaletsky in The Times of London the G20 has agreed on a total stimulus of the order of $ two trillion U.S.. Clearly about half of that amount will come from the U.S. whose 14.6 trillion $ GDP represents about one third of the total G20 GDP of 46 trillion . The G20 deficit is thus about 4.3 % of the G20 GDP. This is a very good start at spending enough to reduce the impact of the recession and begin the process of reversing it. But given that the slump in growth has been over 6 % in the last quarter of 2008 in a number of countries, even if we assume a multiplier of close to 2, the rumoured deficit could well fall short of what is required to do the job effectively.
We shall see when the announcement is made on Thursday but it would be a shame for the G20 to miss this historic opportunity to advance the cause of constructive globalization by showing that the leading economies of the world can work together not only to promote free trade and capital flows but humane, effective and progressive fiscal and monetary policy to reduce the duration and amplitude of business cycle downturns in the interests of the general welfare and the common good.

If it did so it would go a long way to diffuse some of the sharp hostility that is being shown by the general public throughout the world to much of the G20's political and business leadership.