Tuesday, 10/5/2010 by Mike Konczal for New Deal 2.0
IMF cannot conceal the reality that cutting will not spur recovery for Ireland or for any other economy in a steep deflationary spiral.
…Their full paper, Will it hurt? Macroeconomic effects of fiscal consolidation, is worth your time if you find this interesting.
What we found when we dug into the OECD data was that you can cut your way out of a recession as long as you can lower interest rates. Or export your way out of the recession. Or if you are comfortable blowing up your debt-to-GDP ratio. Or if you let unemployment skyrocket further. Or if you are a really small country. The big two factors are interest rates and exports, and neither are available at the zero bound or in a global recession. And without being able to put this in motion, an austerity measure would be very, very ugly. There’s a reason economists and governments know to cut during the upswing and not during a weakened state. (link to full article)
