An amazing mea culpa from the IMF’s chief economist on austerity

[n2doc]

Posted by Howard Schneider on January 3, 2013 at 12:17 pm

Consider it a mea culpa submerged in a deep pool of calculus and regression analysis: The International Monetary Fund’s top economist today acknowledged that the fund blew its forecasts for Greece and other European economies because it did not fully understand how government austerity efforts would undermine economic growth.

The new and highly technical paper looks again at the issue of fiscal multipliers – the impact that a rise or fall in government spending or tax collection has on a country’s economic output.


That it comes under the byline of fund economic counselor and research director Olivier Blanchard is significant. Fund research is always published with the caveat that it represents the views of the researcher, not the institution itself. But this paper comes from the top, and attempts to put to rest an issue that has been at the center of debate about how fast countries should move in their efforts to tame large debts and deficits.

If fiscal multipliers are small, countries can cut spending faster or raise more in taxes without much short-term damage. If they are large, then the process can become self-defeating, at least in the short run, with each dollar of government spending cuts, for example, costing the economy more than a dollar in lost output and thus actually increasing debt-to-GDP ratios.

much more

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/03/an-amazing-mea-culpa-from-the-imfs-chief-economist-on-austerity/?tid=pm_pop

Austerity is a cult. One that needs to be stamped out.

[Jackpine Radical]

1. The only surprise here is that they're admitting it.

Austerity is basically a technique used by the Overlords to loot the treasuries of desperate countries.

Just like here, only moreso.

[tk2kewl]

2. K&R

[magellan]

3. "No one could have foreseen...."

Pull the effing other one. This ain't rocket science.

[muriel_volestrangler]

4. And this, of course, might mean the 'fiscal cliff' might have been more dangerous

(depending on whether anyone had been listening to the IMF, or if they were already ignoring them). The effect of passing no laws over the new year, and letting everything expire, would have been to cut government spending (and cut the ability of the 99% to spend too). It was forecast to cause a recession; this may mean the recession would have been worse than thought.

[Redfairen]

5. It's great to see the bullshit ideologies discredited.

Too bad that so many had to get hurt in the process.

[bemildred]

6. No shit, Sherlock.

The reality based community welcomes you.