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Comparing international stimulus plans

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When the world’s economies were collapsing last year, governments across the globe passed stimulus plans to help jumpstart their economies. Is it possible to say if one county did a better job than another? The World’s Jason Margolis has been in British Columbia where he looked at one area of the Canadian and U.S. stimulus plans — stimulus money for home renovations.

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KATY CLARK: As Simon Johnson pointed out, it’s hard to compare the stimulus plans of different countries, but if you narrow it down a bit, you can draw some conclusions.  This next story is about Canada versus the U.S.  Which country scores better?  The World’s Jason Margolis traveled to British Columbia to compare one aspect of the two countries’ stimulus plans, home renovation.

JASON MARGOLIS: Your home needs some work. If you’re an American, and from a low-income household, the U.S. government will help you weatherize your home, adding caulking and insulation.  That kind of thing.  In Canada, the approach toward helping homeowners and stimulating the economy has been a little different.  Take the case of Maurice Levi.  He wanted to build a porch.  He’d seen the commercials put out by the Canadian government.

COMMERCIAL: The home renovation tax credit gives us a good reason to do it now. We could save up to $1,350 dollars on home improvements purchased before February 2010.  We just have to remember to keep our receipts for when we file our taxes.

MARGOLIS: Levi saved his receipts, mailed them off, and got his tax credit from the Canadian government.

MAURICE LEVI: That’s like cash.  That’s cash in your pocket.  That particular stimulus, yeah, I think was very clever.

MARGOLIS: That’s saying something coming from a man like Levi.  Levi is an economist at the University of British Columbia’s Sauder School of Business. He earned his Ph.D. under the tutelage of Economist Milton Friedman, the 20th Century spiritual godfather of free market capitalism.

LEVI: Poor Mr. Friedman. It seems as if everybody is a Keynesian now.  They’re all favoring government spending, government stimulus to get us through this. I’m not opposed to that, but I do think that we are giving up on some pretty important ideas.

MARGOLIS: For example, Levi points out that when the government borrows to finance its stimulus spending, interest rates can push higher. This makes it more difficult and expensive for private companies to borrow money.  Still, Levi said even Friedman, the trumpeter of free market capitalism, agreed that government intervention is necessary sometimes.  And, Levi likes what the Canadian government has come up with for his porch.  It’s a temporary measure and the money goes directly where it’s needed.

LEVI: Right through to the workman that do the job.  So it’s a very quick way to get a boost from your government spending.  I think it was quite clever.

MARGOLIS: The Canadian home renovation tax credit might work for Levi, but it doesn’t work for Seth Klein.  Klein directs the Vancouver Office of the Social Justice Organization, The Canadian Center for Policy Alternatives.  While the Canadian plan helps some in construction find work, Klein asks who benefits most from a subsidized porch or a kitchen or bathroom renovation.

SETH KLEIN: So who’s going to have money to do a home renovation, and benefit from getting some of that back in the form of a tax credit?  My own orientation is that it makes much more sense to focus a stimulus lower down the income scale, where people don’t have the luxury of saving.

MARGOLIS: Klein likes the American home renovation plan which directly benefits the poor.  On the other side of town in Vancouver, Niels Veldhaus works at the Fraser Institute, a free market think tank.  Veldhaus is also not wild about a temporary tax credit, but for a different reason.

NIELS VELDHAUS: We know if you have temporary tax relief.  People change their behavior only temporarily, and they typically don’t have a lasting effect on the economy.

MARGOLIS: Veldhaus favors permanent tax cuts.  The conservative Canadian government in Ottawa has done that, but Veldhaus says more would be better. So let’s cut to the chase, Canada versus the U.S.A.  Which stimulus plan got it right?  Helping people renovate or making low income homes more energy efficient?   Now, of course, the Canadian and U.S. stimulus plans are much broader than just the home renovation components.  But, is it possible to say which stimulus plan is better, or is that an overly simplistic question?

ESWAR PRASAD: No, actually that’s a very profound question, in fact, how one even thinks about that.

MARGOLIS: Eswar Prasad is an economist at Cornell University. He says economists do compare the effectiveness of stimulus plans by looking at a few key indicators.

PRASAD: One is how much of the proposed stimulus package is actually been implemented?  The second is to look at outcomes in terms of growth, employment and so on.

MARGOLIS: To the first issue, implementation.  The Obama Administration has awarded just half the money Congress budgeted for home weatherization. The Canadians claim that all funding for the home renovation tax credit has been committed.  It hasn’t all been spent, but   Canada’s stimulus spending is further along.  Score that, Canada one, the U.S. zero.  To Prasad’s second point, outcomes.  On one key indicator, unemployment, Canada is doing better as well.  The new tally: Canada two, the U.S. zero.  So…

PRASAD: By and large it looks like the Canadians have done somewhat better.

MARGOLIS: But, unlike a hockey match where a winner is clearly determined by the team that puts more pucks in the net, comparing two stimulus plans just isn’t quite as simple.  And, Prasad adds a big caveat; Canada’s victory might have been secured before the two countries ever passed their stimulus plans.  When the U.S. financial system was collapsing, Canadian banks were healthy and making loans. Canada’s housing market remained relatively strong. And Canada carried a much lower debt load.  So the question, Canada versus the U.S.A., is probably best left for the hockey players to sort out.   For the World, I’m Jason Margolis, Vancouver, British Columbia

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