The economic stimulus package – more formally, the American Recovery and Reinvestment Act of 2009 – is a series of measures aimed at halting the economic downturn and accelerating recovery in the USA. The package, worth a nominal $787 billion, includes federal tax cuts, greater provision for social welfare, and increased domestic spending in education, health care, and infrastructure. A major feature of the stimulus would provide most Americans with a tax credit of $400, which would increase the average taxpayer’s salary by about $8 a week. This is the equivalent of a $500 salary increase, after taxes, which should increase consumer spending considerably. While the Act is restricted to the US, the benefits of an American economic recovery are considerable for all its trading partners, including South Africa.Globally, no Acts of a similar scale have been implemented, with only China and (lagging some way behind) Japan introducing new internal spending programmes to compensate for shrinking private demand. Certain major European governments have launched stimulus initiatives of sorts – Germany, for example, ordinarily a relatively reluctant government spender, has approved stimulus efforts worth around $106 billion – but these have been modest in comparison to the US and China.

There have been mixed responses to the United States’ passing of the stimulus package, and Nariman Behravesh, chief economist at IHS Global Insight, predicts that the bills’ biggest effects will only be felt in 2010, this from the bills’ spending on infrastructure. Another major concern is that the current stimulus plan is a far leaner version of the package initially drawn up by the Obama camp, which was scaled down to win the necessary Republican votes in Congress. Many economists say much more is needed to revive the economy, given its critical condition.

Further to this, a separate group of economists worry that government spending is the wrong way to improve economic performance, citing the government response to the Great Depression in the 1930s as a more suitable approach. The argument here is that policymakers should focus on reforms that remove obstacles to investment and production. According to this school of thought, lowering tax rates and reducing the role government has to play in the economy are the best ways of boosting fiscal growth.

Along similar lines, a rift has developed between the Obama administration and European governments, as the US presses for a coordinated package of stimulus plans by G20 members, while almost all of the European governments (Germany and France in particular) are adamant the focus should be on reform and stricter regulation of financial markets. With China also pushing hard for reform, even going so far as to suggest the creation of a new global reserve currency, it seems unlikely that Obama will be able to convince the world to spend on anything like the scale he believes is required to drag itself out of the recession.

Liam Kruger is a first-year BA student at UCT