IMF Report

[BillyStubbsTears]

Absolute bombshell today in the IMF Report.

Since the financial crisis exploded, there has been a worldwide assumption that cutting Govt spending would lead to only small drops in GDP. It's called the Multiplier.

The IMF and the Tory Govt have assumed that the multiplier is 0.5 - so, £1 of Govt cuts leads to a drop in GDP of 50p. That suggests that the Govt spending wasn't very efficient. So it fits in with the ideology of the Right. And they argue that if you get rid of the pound of Govt spending, the private sector moves in, works more efficiently and in fact more than makes up the 50p drop in GDP.

Trouble is, it hasn't worked. Countries that have gone that route have tanked. Like us. Or even worse, like Greece. Two years ago, the IMF were telling Greece to cut like mad, and they said the result would be 1% growth this year. In fact it's looking like they will have MINUS 6% growth and accelerating. A total, utter f***ing catastrophe.

We've not been as bad as that but we've been bad enough. For the last 2 years the IMF and OBR have been saying that growth was coming  despite the cuts. But it hasn't. We've gone headlong back into recession and our economy has shrunk over the last 2 years since Austerity started.

That wasn't in the script.

So, today the IMF issue a report in which, buried deep inside is a grovelling admission of failure. They have gone back and looked at 28 industrialised countries, at how they have implemented Govt cuts over the last 2-3 years, and what has happened to GDP.

Guess what.

The Multiplier turned out to be 1.0-1.7.

So, every pound the Govt spends results in £1.00-1.70 of economic growth. So much for inefficient Govt spending.

And of course, every £1 the Govt cuts results directly in £1.00-1.70 of reduction in our overall economic output. THAT is why our economy has tanked when the predictions are that it should have grown. Because they have massively underestimated how effective Govt spending is.

Two years pissed away on a f***ing stupid, ideologically driven Right wing experiment that has f***ed up economies around the world.

[Dagenham Rover]

and it was actually muttered about by some economists a couple of years ago  you don't have to do anything to cut the deficit it will cut itself if you don't increase spending ..................oh sorry this government have actually increased borrowing

[BillyStubbsTears]

Dagenham

Exactly. The argument from the Left was always that the debt CANNOT be reduced by Austerity. Because Austerity would pull the rug out from under the economy.

The Right laughed at that idea. Because everyone knows that spending by the Govt cannot possibly be efficient.

That IMF report blows the Right's approach out of the water. And we're not talking about theory or predictions here. We're talking about assessment about what has actually happened over the last 2-3 years. Austerity has destroyed, and is destroying whole economies. Ideological madness dressed up as economic theory.

[BobG]

It's not like these buffoons have been walking in the dark either is it? even I, a mere oik, knows about President Herbert Hoover and Prime Minister Stanley Baldwin. Funny, isn't it, how no one on the right has ever bothered to gain even a passing knowledge of history? God knows what their mental images are of FDR and Clem Attlee..... Whatever they are, they're bloody wrong.

Tossers. Complete tossers. Messing up peoples lives simply to peddle their own clap trap. I despise them. All of them.

BobG

[big fat yorkshire pudding]

The ironic thing is though, reading between the lines Ed Balls also believes in cuts and he's clearly saying that he'd have to do very similar.

Greece IMO is a poor example, above, the problem they had is they delayed and didn't cut, which only made the problem worse.  My views have been clear, there's a long term attitude change required in this not just the next year or two.

[BillyStubbsTears]

Bob.

It's not simply to peddle their own claptrap. There is a very specific reason behind the policy decisions. The Tories took advantage of the financial crisis to try to push through a revolution against the State.

That's fine. That's a perfectly arguable political case (I disagree vehemently with it, but I appreciate that people may agree with it). The problem is that this requires them to argue at every turn, the case that Govt involvement is harmful. Specifically, Govt involvement in the economy is harmful.

As the IMF multipliers study shows, this is a deeply, deeply misguided attitude. It is driven by ideology rather than sensible economics. And it is doing real and lasting damage to our economy.

PS: Here's a laugh. Cameron's speech today denigrated Government spending and put forward the Olympics and British Olympic winners as examples of what British spirit can do. In the same bloody sentence. Has he reflected on where the funding for the Olympics venues and the training facilities and living costs of the athletes came from? Farcical.

[BillyStubbsTears]

BFYP.

You are wrong on Balls.  Labour's plan in 2010 was to cut MUCH less severely. The plan was to reduce the deficit by half in 5 years, not to eliminate it.  That is not just a minor difference. It is crucial. And to be fair to Balls, he wanted slower cuts still, but was over-ruled by Darling and Brown. The point is that the IMF report underlines how right Balls was all along. Go and have a look what Balls was saying two years ago, and tell me he was wrong, given how things have worked out.
http://www.bloomberg.com/news/2010-08-26/balls-warns-plans-to-slash-u-k-s-budget-deficit-might-cause-second-slump.html


Greece: I don't understand your logic. They have cut Govt spending. Hard. The results have been catastrophic. because of the Multiplier effect. The economy has tipped right off the cliff - they have a genuine Depression going on there. 25% reduction in GDP. 5 Years of GDP contraction. And STILL the debt goes up! That's the rub. The debt cannot come down as a proportion of GDP when GDP is collapsing.

My point was that the supporters of Austerity said this wouldn't happen. They said that if the cuts were made, the private sector would grow and Greed would be back in net growth by now.

Totally, utterly wrong. Because, for ideological reasons, they assumed that the multiplier effect was much smaller than it actually is. And the same reason explains why we have an economy that is smaller than it was in 2010, when the Tories' predictions were that the economy would be £150bn larger.

And you know what is the most farcical outcome? As a result of this GDP contraction, we are not getting the debt down. Just wait until the Chancellor's Autumn Statement in December. He's going to have to admit that the deficit this year will be BIGGER than last year. It is an utter shambles.

This IMF report is so important because it is a game changer. For 2-3 years, the Right have had a more or less free run in claiming that Austerity will work. They have said that it will bring down the debt without harming GDP.

The IMF report blows that out of the water. They are saying that there is clear and unequivocal evidence that the effect on growth of cutting Govt spending has been drastically underestimated. Our Govt has said that the reason we are back in recession is due to the EU struggling, not due to our own cuts. But the EU is struggling precisely because they have gone down the same madcap Austerity route. The Govt wants to have an explanation for economic failure that doesn't pin the blame on Austerity. This report has just pulled the towel away and left them bollock naked. Austerity is what has caused the double-dip recession. Just like people on the Left were saying it would, back at the time of the last Election.

Last one. I know that you think a different philosophy is required in the long run, although I don't know what that is. The point is that, over the last 2 years, the Right have called the economic issue totally wrong. They have used ideology rather than economics to drive their decisions. And they have produced 2 years and more of TOTALLY UNNECESSARY economic stagnation. Until we get that right, looking into the future is pointless. Because the damage done right here and now will multiply through the forthcoming years. Every year that our economy performs 2,3,4% lower than it should be doing adds up. After several years of that, this  means that to get back on trend, we've got to have literally incredible growth.

[BobG]

Don't worry Billy.  Removing government intervention in the economy will allow the kids to be put to work - it'll no doubt be good for them of course, the unemployed to be forced to work for fourpence halfpenny or lose their ever reducing benefits, education to collapse (because if that's not an economic activity I don't know what is) except for the offspring of the favoured few of course (and thus perpetuating the oligarchy), and, of course, corruption, incompetance and malfeasance to run riot.

I'm emigrating. And if I can't I have been encouraging Alexander for several years already to do so as soon as he possibly can. Tanzania or somewhere like that looks good to me.

BobG