When Will the Republicans Apologize for Austerity

The IMF says they were wrong, and that they underestimated how much of a drag on growth austerity policies (tax increases and spending cuts) would be.

So when will we get an apology from the Republicans for insisting on deficit reduction the past 4 years?

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. 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.

Comments

  1. GDub says:

    Jon,

    Obviously, there’s a lot more apologizing than this decision that needs to go on.

    I know its 2013. But its not illegal to read all the way to the end of the article!

    “As for fiscal policy – an issue of interest as the U.S. debate turns towards austerity – Blanchard and Leigh said a better understanding of multipliers does not produce any definitive conclusions.

    Many countries still need to cut their deficits – some faster, some slower, depending on a host of other factors.

    “The results do not imply that fiscal consolidation is undesirable,” the two write. “Virtually all advanced economies face the challenge of fiscal adjustment in response to elevated government debt levels and future pressures on public finances from demographic change. The short-term effects of fiscal policy on economic activity are only one of the many factors that need to be considered in determining the appropriate pace of fiscal consolidation for any single country.””

    The policy problem is that there are two intersecting problems–both of which have an impact on the economy. You can’t fully deal with both simultaneously, so you have to find a formula that does more good than bad. This isn’t NCIS.

    More interesting as a policymaker was this sentence:

    “Blanchard – effectively the top dog when it comes to economic science at the fund – writes in the paper that he could not actually determine what multipliers economists at the country level were using in their forecasts. The number was implicit in their forecasting models – a background assumption rather than a variable that needed to be fine-tuned based on national circumstances or peculiarities.”

    So beyond Greece lying about its official fiscal statistics, the organization trying to solve dozens of problems simultaneously doesn’t have access to the required specificity of information to make an informed decision. That’s “suboptimal.”

    As always in these situations, its a lot more grey than journalists like to make it out to be. The real question is what was the chain of policy decisions that led to a small economy like Greece being chained to a currency system that facilitated its spending much more than GDP for years and years?

    • Jon Geeting says:

      Of course the appropriateness of fiscal contraction depends on the country’s fundamentals. And in the United States, the fundamentals are high unemployment, low inflation and low interest rates. There has not been a case for US austerity for the past 4 years, there is no case for austerity now, and there is probably not a case for reducing the deficit before 2015-2016 or so.

  2. GDub says:

    I don’t argue for “austerity” in the US, but I see the dilemma that economists, planners, and politicians face in places like Spain, Greece, and Ireland.

    Articles like this, which try to pin “blame” for extremely challenging policy determinations in a highly snarky way, are more comical than serious.

    • Jon Geeting says:

      Well at what point are we supposed to stop watching every country that tries to boost its economy through austerity fail and say definitely that’s not going to work? The whole concept of growth through austerity is nuts. The problem people are having is that they have no jobs and no money. How is taking even more money away from people supposed to help?

      • GDub says:

        I guess I missed the point when overspending GDP for years in Greece under the Euro positioned it well for long-term stability and economic growth.

  3. Jack Contado says:

    so Jon, are you saying that taxing our way to prosperity os preferable to austerity?

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