Friday, October 01, 2010

FT v IMF

The Tories and Liberal Democrats have been shouting about how the report from the IMF vindicates their cuts strategy, even though the same organisation in February was supporting Labour's plans to cut later, once the economy is back on track to sustained growth. But that isn't all the IMF report says. Their economist David Leigh is quoted in the FT as saying,
We should not kid ourselves. In the short term, tax hikes and spending cuts will reduce growth and raise the unemployment rate.
In a blow to the oft-cited example of Canada, the report adds
"Our findings suggest that in today’s environment, fiscal consolidation is likely to have more negative short-term effects than usual... If many countries adjust simultaneously, the output costs are likely to be greater – since not all countries can reduce the value of their currency and increase net exports at the same time"
Canada drastically slashed the state services and exported its way out of trouble, an option not available in today's depressed global economy. Further criticism of the Canada example comes from the then Canadian Finance Minister, Paul Martin, who has told a conference in Seoul
"We sent down one of the most austere budgets ever, but we did so during a rising economy... The issue is not whether you cut spending but whether you cut the deficit – in some cases that will mean doing the opposite with spending."
It isn't as rosy as the Tory/Lib Dem spin would have you believe. But is it ever?

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