IMF Austerity Mea Culpa?


Source: IMF, Washington Post

 

 

A number of folks are looking at the latest IMF paper (here) as a startling admission of the failure of Austerity:

“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 . . .”

The math is quite simple: Simultaneously choke off government spending and raise taxes, and you crimp the economy reduce job creation and hurt tax revenues — creating an even bigger deficit.

To fix a chronic deficit, you need to make the economy grow faster . . .

 

Source:
An amazing mea culpa from the IMF’s chief economist on austerity
Howard Schneider
Washington Post, January 3, 2013
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/03/an-amazing-mea-culpa-from-the-imfs-chief-economist-on-austerity/

 

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