Opinion | Surge in US government spending pits America against China’s state capitalism. Which is doing better?
- The trillions of dollars the US is throwing at reviving jobs and repairing crumbling infrastructure has to be funded by higher taxes and borrowing from the rest of the world
- In China, the state owns a quarter of the net national wealth and can modernise infrastructure without imposing higher taxes on citizens
The American Jobs Plan can be broken down into four major spending components over the next decade or so: US$621 billion on upgrading and repairing transport infrastructure and transit systems; US$650 billion on improving life at home, quality of drinking water and broadband access; US$400 billion on improving elder care and caregiver salaries; and US$580 billion on research, development and manufacturing, with a focus on clean energy. The underlying strategy is to deliver a green lifestyle and combat climate change.
The US$2.3 trillion plan for infrastructure and jobs in the US is long overdue. Also, the US$1.9 trillion American Rescue Plan may be what the world economy needs to recover from the pandemic. The Organisation for Economic Cooperation and Development estimates that this stimulus package, together with a US$900 billion bill in December, will add 1.5 per cent to global growth this year.
However, can the US invest so much without inflation? Can the rest of the world fund this without higher interest rates? As economists Charles Goodhart and Manoj Pradhan point out, global disinflation in recent decades came as China became the source of cheap goods and services.
They think this trend will not last. Similarly, the headline of an article by economist James K. Galbraith warns: “China Is Missing from the Great Inflation Debate”. He, however, thinks that China will not rock the boat by pushing up prices.