CHRISTINA ROMER: "deliberate deficit reductions typically reduce growth substantially"

[Kurt_and_Hunter]

To simplify the situation: any actual attempt to reduce the deficit at this time will cause unemployment to go up.

Economic View
Now Isn’t the Time to Cut the Deficit
By CHRISTINA D. ROMER
Published: October 23, 2010

. . .

Some advocates of austerity argue that, contrary to the conventional view, fiscal tightening now would lower long-term interest rates and improve confidence so much that the impact could be positive. But an ambitious new study in the World Economic Outlook of the International Monetary Fund confirms that fiscal consolidations — that is, deliberate deficit reductions — typically reduce growth substantially.

http://www.imf.org/external/pubs/ft/weo/2010/02/pdf/c3.pdf

The study considers a wide range of advanced economies over the last three decades, so it doesn’t put too much weight on unusual episodes or focus on examples supporting particular conclusions. It also breaks new ground by looking specifically at times when governments changed taxes or spending with the aim of reducing deficits. Previous studies looked at summary measures of the budget situation, and likely included cases when strong economic performance caused lower deficits, not the other way around.

The recent experience of countries already carrying out austerity measures is consistent with the central finding of the I.M.F. study. Ireland, Greece and Spain have all had rising unemployment after moving to cut deficits.

Taking budget actions now that would further increase unemployment would be not only cruel, but also short-sighted. The longer unemployment remains high, the more likely it is to become permanent as workers’ skills deteriorate and they gradually drop out of the labor force.

. . .

http://www.nytimes.com/2010/10/24/business/24view.html

[alanquatermass]

1. This jibes with what I have been thinking intuitively...

-- which is that Obama needs to start attacking this Recession head on and go all New Deal on its ass. This means MASSIVE new spending and investment in Infrastructure. The Government needs to create new jobs a la the WPA in order to get people working again. And finally, Obama needs to do what FDR did in the 1930s which is to print. More. Money. LOTS OF IT. Trillions of dollars if necessary and then starting spreading those bucks around like manure around the garden until things start flowering again.

Joe Biden himself said we need to start spending our way out of this Recession and he was spot on (as usual!)

[bemildred]

2. Yep, gotta tax the rich. nt