IMF Officials: We Were Wrong About Austerity

Donc · Jan 7, 2013

By Mark Whitehouse Jan 4, 2013 1:51 PM CT

Looks like Keynesian theory woulda pulled us out of this recesson a lot sooner if we didn't get on this austerity kick that the Republicans seem to favor whenever a Democrat is in office.

<Sharp spending cuts and tax increases have long played a central role in the International Monetary Fund's prescriptions for governments in financial distress -- most recently for the struggling members of the euro area. Now, officials at the world's primary arbiter of fiscal prudence are recognizing that such austerity can do a lot more damage than previously thought.>

<In a paper presented today at the annual meeting of the American Economic Association, two IMF officials -- chief economist Olivier Blanchard and economist Daniel Leigh -- elaborated on the findings and their implications. The paper contains the boilerplate statement that it "should not be reported as representing the views of the IMF." Nonetheless, given its authors, it provides a good indication of the zeitgeist at the fund.>

<The upshot: Fiscal multipliers can be a lot higher in times of distress than in normal times. The logical conclusion is that Europe's austerity policies were founded on faulty assumptions and should be eased -- something Bloomberg View has advocated. To some extent, that has happened in recent months with the loosening of demands on Greece and with European leaders' tentative discussions of fiscal transfers to stimulate growth in stricken economies.>

IMF Officials: We Were Wrong About Austerity - Bloomberg

Ray410 · Jan 7, 2013

Wrong. The IMF exists for the same reason as the UN, to transfer money to corrupt Third World leaders from others who worked for it.

Donc · Jan 7, 2013

Ray410 said:
Wrong. The IMF exists for the same reason as the UN, to transfer money to corrupt Third World leaders from others who worked for it.

It seems that they had a change of mind about austerity; in your opinion were they wrong about their original stance, which was those countries(Greece, Spain et al) should enact severe austerity programs.

Their current stance, which is “We find that, in advanced economies, stronger planned fiscal consolidation has been associated with lower growth than expected, with the relation being particularly strong, both statistically and economically, early in the crisis. “

This is economist talk for we ****ed up on the austerity bit. Here is a link to a pdf file if you want to take a peek at what the IMF,s chief economist Olivier Blanchard and economist Daniel Leigh had to say on the subject.

Growth Forecast Errors and Fiscal Multipliers

Fletch · Jan 7, 2013

Whipsnade said:
By Mark Whitehouse Jan 4, 2013 1:51 PM CT

Looks like Keynesian theory woulda pulled us out of this recesson a lot sooner if we didn't get on this austerity kick that the Republicans seem to favor whenever a Democrat is in office.

What austerty kick are you talking about? 5 straight years of trillion dollar deficits is NOT austerity.

Donc · Jan 7, 2013

Fletch said:
What austerty kick are you talking about? 5 straight years of trillion dollar deficits is NOT austerity.

I was referring to the group of House conservatives, who announced a proposal last month to pull back $45 billion in stimulus money.That, in my opinion is/was classic austerity. We should be spending that money for what it was appropriated for; stimulating the economy and rebuilding our failing infrastructure.

Were on track towards getting our economic house in order, all we have to do is prime the pump and were off and running. The prime mover of our debt was two unfunded wars, ill-advised tax cuts. Iraq is in the rear view mirror now and the end to Afghanistan is on the horizon. The tax cuts were answered in a half ass way during the cliff watch but whachagoingtodo. We could probably make up for the rest of the wars, tax-cut debacle, by revisiting the prescription drug plan.

eace

Hicup · Jan 7, 2013

Whipsnade said:
I was referring to the group of House conservatives, who announced a proposal last month to pull back $45 billion in stimulus money.That, in my opinion is/was classic austerity. We should be spending that money for what it was appropriated for; stimulating the economy and rebuilding our failing infrastructure.

Were on track towards getting our economic house in order, all we have to do is prime the pump and were off and running. The prime mover of our debt was two unfunded wars, ill-advised tax cuts. Iraq is in the rear view mirror now and the end to Afghanistan is on the horizon. The tax cuts were answered in a half ass way during the cliff watch but whachagoingtodo. We could probably make up for the rest of the wars, tax-cut debacle, by revisiting the prescription drug plan.eace

LOL, the IMF, really? First of all it is NOT the IMF that endorses this viewpoint, it's two nutty economists that have as much cred as our very own Kugman, so spare us. Secondly, who does the priming, and to what pump are you referring to?

Tim-

Fletch · Jan 7, 2013

Whipsnade said:
I was referring to the group of House conservatives, who announced a proposal last month to pull back $45 billion in stimulus money.That, in my opinion is/was classic austerity. We should be spending that money for what it was appropriated for; stimulating the economy and rebuilding our failing infrastructure.

But as you note, it was only a 'proposal' so there is no austerity going on in the US. The fact of the matter is, we are doing $100+ billion in stimulus PER MONTH. And we have been doing it for more than 4 years now. So you really dont have a point here whatsoever.

Were on track towards getting our economic house in order, all we have to do is prime the pump and were off and running.

Again, we are 'priming the pump' to the tune of $1,000,000,000,000 per year and yet we are not 'off and running.'

The prime mover of our debt was two unfunded wars, ill-advised tax cuts. Iraq is in the rear view mirror now and the end to Afghanistan is on the horizon. The tax cuts were answered in a half ass way during the cliff watch but whachagoingtodo. We could probably make up for the rest of the wars, tax-cut debacle, by revisiting the prescription drug plan.eace

The Iraq war has been over for a couple of years now, so it is not contributing a penny to the current trillion dollar deficit. As for the tax cuts, 98% of them were retained and made permanent by Obama and the democrats. There are no Bush tax cuts any more. What we have now is permanent tax rates. Rates that, like it or not, vindicate Bush. The deficit is all Obama now. Time to man up and admit that.

Donc · Jan 7, 2013

Fletch said:
But as you note, it was only a 'proposal' so there is no austerity going on in the US. The fact of the matter is, we are doing $100+ billion in stimulus PER MONTH. And we have been doing it for more than 4 years now. So you really dont have a point here whatsoever.

Again, we are 'priming the pump' to the tune of $1,000,000,000,000 per year and yet we are not 'off and running.' The Iraq war has been over for a couple of years now, so it is not contributing a penny to the current trillion dollar deficit. As for the tax cuts, 98% of them were retained and made permanent by Obama and the democrats. There are no Bush tax cuts any more. What we have now is permanent tax rates. Rates that, like it or not, vindicate Bush. The deficit is all Obama now. Time to man up and admit that.

It’s kinda hard to debate someone who evidently thinks that the bills for the Iraq war stoped coming when the war officially ended. AND thinks that “we are doing $100+ billion in stimulus PER MONTH. And we have been doing it for more than 4 years now.“ :roll:

But, to get the thread back on track…$45 billion in stimulus spent on infrastructure would be a good start on getting a lot more people working and paying off some of the money that was wasted on Iraq and Afghanistan. Austerity seems to be losing favor of some of the top economist, including the Chief Economist at the IMF,Olivier Blanchard. Who previously had been a big advocate of austerity.

Fletch · Jan 7, 2013

Whipsnade said:
It’s kinda hard to debate someone who evidently thinks that the bills for the Iraq war stoped coming when the war officially ended. AND thinks that “we are doing $100+ billion in stimulus PER MONTH. And we have been doing it for more than 4 years now.“ :roll:

Well, I suppose if you had an intelligent response, you would have laid it out there. And no, :roll: is not an argument.

But, to get the thread back on track…$45 billion in stimulus spent on infrastructure would be a good start on getting a lot more people working and paying off some of the money that was wasted on Iraq and Afghanistan. Austerity seems to be losing favor of some of the top economist, including the Chief Economist at the IMF,Olivier Blanchard. Who previously had been a big advocate of austerity.

$45 billion is about as impactful on a $15 trillion economy as pissing in the ocean is on sea level. Austerity is just living within ones means. It is not without consequence. But then again neither is the endless printing of money.

Donc · Jan 7, 2013

Fletch said:
Well, I suppose if you had an intelligent response, you would have laid it out there. And no, :roll: is not an argument.

$45 billion is about as impactful on a $15 trillion economy as pissing in the ocean is on sea level. Austerity is just living within ones means. It is not without consequence. But then again neither is the endless printing of money.

<The Congressional Budget Office estimated that because of the Recovery Act, the unemployment rate has been lower each year since 2009 than it otherwise would have been. CBO estimates that in the third quarter of 2012 the unemployment rate was 0.1 to 0.5 percentage points lower than it otherwise would have been and employment was between 0.2 million and 0.9 million jobs greater than it otherwise would have been.>

Stick that $45 billion In now and watch the jobs take off.:2wave:

Fletch · Jan 7, 2013

Whipsnade said:
<The Congressional Budget Office estimated that because of the Recovery Act, the unemployment rate has been lower each year since 2009 than it otherwise would have been. CBO estimates that in the third quarter of 2012 the unemployment rate was 0.1 to 0.5 percentage points lower than it otherwise would have been and employment was between 0.2 million and 0.9 million jobs greater than it otherwise would have been.>

Stick that $45 billion In now and watch the jobs take off.:2wave:

By the looks of your chart, unemployment would be only slightly higher today if we had spent zero dollars on stimulus. Yet we spent $900,000,000,000. But you have to look at government spending as a whole. We already are spending more than $100 billion per month more than we are taking in. Everyone, even you I presume, believes that if we stop spending that extra money we dont have each month we would go right back into recession. That tells me that the recovery we have is not real but reliant totally uponborrowing an debt. That is not sustainable. And the idea that if only we inject another $45 billion into the economy this year we will achieve economic nirvana strikes me as a bit unrealistic. Look at it this way, the president just raised taxes by $60 billion per year. That is $60 billion taken out of the economy. Putting $45 billion back in wont even get us back to where we were. The US economy is just too big to be impacted, one way or the other, by $45 billion.

Fisher · Jan 7, 2013

Fletch said:
By the looks of your chart, unemployment would be only slightly higher today if we had spent zero dollars on stimulus. Yet we spent $900,000,000,000. But you have to look at government spending as a whole. We already are spending more than $100 billion per month more than we are taking in. Everyone, even you I presume, believes that if we stop spending that extra money we dont have each month we would go right back into recession. That tells me that the recovery we have is not real but reliant totally uponborrowing an debt. That is not sustainable. And the idea that if only we inject another $45 billion into the economy this year we will achieve economic nirvana strikes me as a bit unrealistic. Look at it this way, the president just raised taxes by $60 billion per year. That is $60 billion taken out of the economy. Putting $45 billion back in wont even get us back to where we were. The US economy is just too big to be impacted, one way or the other, by $45 billion.

The extra unemployment would have cost us more money via benefits, but no, I do not believe that we would go back into a recession without the extra spending--I believe we are going into it with it. Time will tell. I do agree that $45B would be irrelevant stimulus to the size of our economy unless maybe you put it directly into the hands of people most likely to spend it on new goods and services (but even then any measurable change would be a flicker on the screen)