Now that the patient seems to have survived, the world’s economic doctors are trying to determine what the treatment — trillions and trillions of dollars in government stimulus spending — did to the long-term health of the global economy.
The longest, deepest global recession since the Great Depression ended last summer. For the final quarter of 2009, China and India reported strong growth and the United States said gross domestic product rose at an annual rate of 5.7 percent.
But the recoveries of key economies in Europe and in Japan have been tentative and halting, despite government stimulus spending.
Many Republicans in the United States argue that President Obama’s $862 billion stimulus package — despite the recent growth — is a failure.
“In the year since the Democrats’ ‘stimulus’ program was enacted, over 3 million jobs have been lost, billions of dollars have been wasted, and an unprecedented debt has been passed on to our children. These are not the results that America hoped for,” House Minority Whip Eric Cantor, Virginia Republican, said earlier this month.
Obama administration officials sharply dispute that, arguing that the rate of job losses has plunged.
Such debates have erupted around the world as governments sort through the results of an unprecedented attempt to prime the economic pump through spending, tax cuts and slashed interest rates.
In Britain, economists have aired their differences in open letters after the government of Labor Party Prime Minister Gordon Brown announced that the country’s stimulus spending will continue at least through national elections set for June.
A group of 20 top economists — including former International Monetary Fund Chief Economist Ken Rogoff and Oxford economist John Vickers — argued in the London Sunday Times that a “compelling case” has been made to throttle back on stimulus spending. That position is in line with the opposition Conservative Party.
But a second group of economists, in a pair of letters to the Financial Times, said Friday that “history is littered with examples of premature withdrawal of government stimulus, from the United States in 1937 to Japan in 1997.”
“With people’s livelihoods at stake, a responsible government should avoid reckless actions,” they wrote.
As policymakers around the world contemplate winding down some of their unprecedented stimulus programs, economists are scrutinizing the fallout.
“Governments and central banks around the world have spent more than $11 trillion to support the financial sector and about $6 trillion on fiscal stimulus programs,” said Ruth Stroppiana, chief international economist for Moody’s Economy.com. “Without these extraordinary policy measures, private demand would have collapsed, and the resulting social and economic costs would have been even greater.”
Echoing Mr. Obama, the International Monetary Fund recently concluded that “extraordinary policy support forestalled another Great Depression.”
While central banks around the globe have used monetary policies as aggressive measures to spur economies, fiscal efforts have generated the most heat and political debate.