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A successful fiscal expansion in the US requires a succesful fiscal expansion everywhere? December 10, 2008

Posted by jasonized in news.
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Dani Rodrik notes that a Keynesian stimulus in the US will have extraordinarily limited impact if much of the money goes to buying now-cheaper imports. He poses a curious dilemma:

“…unless we come up with a solution to the credit constraints in the developing world, we are going to either endanger the effectiveness of Keynesian policies in the U.S. and other advanced nations, or risk a sharp increase in protectionism.  Not a pleasant choice.”

He puts out two possible solutions: way more liquidity via the IMF, or a Tobin tax with revenues redistributed to developing countries. I can’t say whether either would work, but it is definitely an interesting thought that a successful US fiscal expansion may hinge on a successful global fiscal expansion. Has the US ever before so badly needed the rest of the world to march to the same tune?

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