TuffaloDeac10
🌹☭
I don't think this is getting enough attention.
The IMF has released their new World Economic Outlook. It's gloomy, but there's a fascinating (maybe?) bit at the end of Chapter 1 - Box 1.1, "Are We Underestimating Short-Term Fiscal Multipliers?," co-written by the IMF's chief economist - that deals with the all-important fiscal multiplier. Essentially, Keynesians believe that multipliers are larger than 1 at certain times and government spending will boost economic output in those conditions. If you can spend $100B to get, say, a 125B increase in GDP, that's a good deal. Austerians, on the other hand, believe that multipliers are less than 1 and that increases in government spending don't grow the economy by as much as their cost. The IMF has long been in the <1 camp (of course, as a lender of last resort, it's sort of their job to think that way).
So we have this multiplier, which pretty much everyone thinks exists, but the size of it has a lot of implications for policy. If it's less than 1, fiscal stimulus isn't a great idea and it's actually a good time for fiscal consolidation. If the fiscal multiplier greater than 1, we should open the Keynesian stimulus floodgates in order to end this depression now. I'll let the IMF's Chief Economist take it from here (Emphasis mine):
But fiscal consolidations have been more costly than realized, and they have a chart to show that
I also really like this chart, though it is from the unabashedly partisan Brad Delong and not something the IMF used
But why has this been so? The IMF is back,
In other words, fiscal policy may act differently in depressions than in boom times. This makes sense, there isn't exactly a lot of private investment for government borrowing to be crowding out today. Monetary policy may play a role as well; a low multiplier seems very plausible when Alan Greenspan says he'll lower interest rates in exchange for deficit reduction but when monetary policy is committed to working alongside and not against fiscal policy, a larger multiplier seems obvious. I don't expect to see Rick Santelli get on TV and say "Wow I blew my load over some pretty bad economics."
Another current IMF report weighs in:
Even in light of larger-than-realized multipliers, the IMF can't entirely shake its institutional bias in favor of austerity and advise countries with with low borrowing costs to forget austerity instead of "smoothing" it, but that's part of its institutional makeup and culture; dear reader, it need not be a part of your thinking.
The findings from the IMF suggest that Obama, DeacMan, jhmd, 2&2, DODO, Romney, Ryan, and ESPECIALLY Pete Peterson and Erskine Bowles are all barking up the wrong tree. We don't need to fiscal consolidation in the short term, we need J-O-B-S JOBS and they way to get them is through stimulus, as much monetary stimulus as we can do, and as much fiscal stimulus as possible. There's a scheduled payroll tax increase later this year, hopefully politicians will remove their heads from their anuses and cancel that. That would be a good start.
The IMF has released their new World Economic Outlook. It's gloomy, but there's a fascinating (maybe?) bit at the end of Chapter 1 - Box 1.1, "Are We Underestimating Short-Term Fiscal Multipliers?," co-written by the IMF's chief economist - that deals with the all-important fiscal multiplier. Essentially, Keynesians believe that multipliers are larger than 1 at certain times and government spending will boost economic output in those conditions. If you can spend $100B to get, say, a 125B increase in GDP, that's a good deal. Austerians, on the other hand, believe that multipliers are less than 1 and that increases in government spending don't grow the economy by as much as their cost. The IMF has long been in the <1 camp (of course, as a lender of last resort, it's sort of their job to think that way).
So we have this multiplier, which pretty much everyone thinks exists, but the size of it has a lot of implications for policy. If it's less than 1, fiscal stimulus isn't a great idea and it's actually a good time for fiscal consolidation. If the fiscal multiplier greater than 1, we should open the Keynesian stimulus floodgates in order to end this depression now. I'll let the IMF's Chief Economist take it from here (Emphasis mine):
But fiscal consolidations have been more costly than realized, and they have a chart to show that
I also really like this chart, though it is from the unabashedly partisan Brad Delong and not something the IMF used
But why has this been so? The IMF is back,
In other words, fiscal policy may act differently in depressions than in boom times. This makes sense, there isn't exactly a lot of private investment for government borrowing to be crowding out today. Monetary policy may play a role as well; a low multiplier seems very plausible when Alan Greenspan says he'll lower interest rates in exchange for deficit reduction but when monetary policy is committed to working alongside and not against fiscal policy, a larger multiplier seems obvious. I don't expect to see Rick Santelli get on TV and say "Wow I blew my load over some pretty bad economics."
Another current IMF report weighs in:
Even in light of larger-than-realized multipliers, the IMF can't entirely shake its institutional bias in favor of austerity and advise countries with with low borrowing costs to forget austerity instead of "smoothing" it, but that's part of its institutional makeup and culture; dear reader, it need not be a part of your thinking.
The findings from the IMF suggest that Obama, DeacMan, jhmd, 2&2, DODO, Romney, Ryan, and ESPECIALLY Pete Peterson and Erskine Bowles are all barking up the wrong tree. We don't need to fiscal consolidation in the short term, we need J-O-B-S JOBS and they way to get them is through stimulus, as much monetary stimulus as we can do, and as much fiscal stimulus as possible. There's a scheduled payroll tax increase later this year, hopefully politicians will remove their heads from their anuses and cancel that. That would be a good start.
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