IMF Austerity Mea Culpa?

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 . . .

This piece is cross-posted from The Big Picture with permission.

5 Responses to “IMF Austerity Mea Culpa?”

lucad10January 7th, 2013 at 4:17 pm

Let's hope they will listen to Prof. Krugman and they will start to analyze how to set a proper
x-rate floating regime too in a free global economy !!
(for istance: is it still acceptable a non completely free floating currency regime for renminbi ?)

Simple MindJanuary 8th, 2013 at 10:25 am

" it did not fully understand how government austerity efforts would undermine economic growth" –ROTOFLO.

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Richard has published papers on wages policy, the taxation of financial arrangements and macroeconomic issues in Pacific island countries. Views expressed in these articles are his own and may not be shared by his employing agency. He is the author of How to Solve the European Economic Crisis: Challenging orthodoxy and creating new policy paradigms