The IMF
know what to do in a crisis
expansionary fiscal policy seems particularly effective in shortening recessions associated with financial crises and boosting recoveries.
They have already
hit the panic button
BRUSSELS — The International Monetary Fund, known throughout its history for urging governments to slash their budgets, is now worried that a global round of austerity may trigger a new recession and is urging countries to look for ways to boost growth.
On Monday, the agency warned the world’s leading economies that belt-tightening by governments, companies and consumers has been become so aggressive that the global economy could falter because of anemic demand.
“The immediate risk is that the global economy tips into a downward spiral. . . . Even in a less severe scenario, key advanced economies could suffer from a protracted period of low growth,” the IMF said. The agency report urged all but the most debt-strapped nations to boost growth through expansive government budget and spending policies or through central bank measures such as lowering interest rates to stimulate the economy.
Christina Romer
argues
the importance of the policy response in determining the effects of
crises argues strongly against complacency here at home. A country as
creditworthy as the United States can continue to use fiscal stimulus to
help return the economy to full employment.
The evidence is there yet there are those that, like Robert J. Samuelson, who refuse to
accept it
What might have worked in the 1930s offers no panacea today.
The reason?
High debt complicates the analysis and subverts the solutions.
High debt?
in the mid-1930s, governments in most wealthy nations were relatively
small and their debts modest. Deficit spending and pump priming were
plausible responses to economic slumps. Now, huge governments are often
saddled with massive debts.
Paul Krugman questions the assertion that
things are different now
It’s also interesting to note — contrary to what you often hear — that
at the time Keynes was writing, and calling for fiscal stimulus, Britain
was substantially deeper in debt than Britain or the United States are
now.
