Thursday, January 10, 2013

IMF Admits More Mistakes

Doesn't the title sum it up nicely.  From Delusional Economics, by way of NC:
[T]he latest research from the IMF and statements from their chief economist ... appears to suggest that they simply didn't know what they were doing.
Consider it a mea culpa submerged in a deep pool of calculus and regression analysis: 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.
The new and highly technical paper looks again at the issue of fiscal multipliers – the impact that a rise or fall in government spending or tax collection has on a country's economic output.
"Forecasters significantly underestimated the increase in unemployment and the decline in domestic demand associated with fiscal consolidation," Blanchard and co-author Daniel Leigh, a fund economist, wrote in the paper.
That somewhat dry conclusion sums up what amounts to a tempest in econometric circles. The fund has been accused of intentionally underestimating the effects of austerity in Greece to make its programs palatable, at least on paper; fund officials have argued that it was its European partners, particularly Germany, who insisted on deeper, faster cuts. The evolving research on multipliers may have helped shift the tone of the debate in countries like Spain and Portugal, where a slower pace of deficit control has been advocated.
...the IMF teams appear to have taken non-dynamic estimates of the outcomes of their programs under the assumption that even the most radical cuts to the government sector would always deliver a net economic positive.
See that?  They just assumed that tax cuts always lead to economic growth.  Even though their own research told them the assumption was false.

That assumption may be presiding over the unwinding of society on a global basis. It's certainly delivering a lot of pain and suffering along the way.

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