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Three leading economists exchanged differing views on whether President Obama’s stimulus package has revved up the U.S. economy during a roundtable discussion hosted by the student-led Chicago Asia Pacific Group at the Harper Center on May 17.
Justin Lin, chief economist and senior vice president of the World Bank, said he believes U.S. recovery has been stronger than expected, partly due to government stimulus.
Lin, the first World Bank chief economist from China, said his country adopted fiscal stimulus measures in 1998, using government funds to improve infrastructure following the Asian financial crisis. He said fiscal stimulus works if it’s used to enhance productivity, which can increase the economic growth rate and government revenue, thereby alleviating the debt burden and boosting consumer confidence.
“China used stimulus money to expand the highway system,” said Lin, who was one of the first citizens of the People’s Republic of China to receive a PhD in economics from a U.S. university, which was the University of Chicago, in 1986. “The growth rate increased from 9.6 percent to 10.8 percent. This, in turn, increased government revenue and the size of the economy. So we need to learn some lessons from China.”
The danger of misdirected fiscal stimulus, Lin cautioned, is “the huge, quick accumulation of public debt,” ultimately begetting increased taxes or inflation.
Nobel laureate Gary Becker, University Professor of Economics and of Sociology, said fiscal stimulus was “a mistake” that “hasn’t stimulated very much.” He said the government’s “wrong public policy reactions” to the recession are discouraging investment and keeping the economy from rebounding as rapidly as it did after the 1981–82 recession.
“Businesses have concerns about what direction future American polices are going in terms of taxation of business and of higher income,” Becker said. “Are we going to be heavily taxing energy emissions or changing anti-trust policy greatly? These and other policy changes being discussed have worried investors, and this is one reason we don’t see such a boom in investment, which we did see after previous recessions.”
Kevin Murphy, George J. Stigler Distinguished Service Professor of Economics, said fiscal stimulus won’t keep the economy going in the long term.
“You create short-term opportunities but when they evaporate, that just leaves a bigger hole to fill further down the road,” said Murphy.
The three economists said the United States and other rich nations could be rescued from the recession through investment in developing countries, such as China, India, and Brazil, which are rebounding quite well.
“The way for developed countries to generate high growth is to help less developed countries have a high growth,” Lin said.
Lin, Becker, and Murphy predicted that U.S.-trained MBAs will soon market themselves globally instead of trying to find jobs here.
“Job opportunity will exist in the U.S., but not as much as before,” Lin told the audience of MBA students. “At the same time, you have economic growth in other parts of the world. If you can help poorer countries reach their potential, then you will be helping yourself, helping developing countries, and doing good for the world.”
— Mary J. Paleologos