January 14, 2013

Say what?

The IMF ... solemnly advised the nations of Europe coming out of the financial crisis to raise taxes and wind back government spending. Its commandments had weight. Yes, it had failed to foresee the crisis in the first place, but it was the lender of last resort. They might need it.

And it had modelled what would happen if they did what it said. For every dollar they cut their budgets, their economic growth would suffer just 50¢. Its forecasts said so.

On Friday, in its first working paper of the year, it revealed the full horror of what did happen. Personally authored by the fund's chief economist, Olivier Blanchard, the paper said that for every dollar those nations cut their budgets their economies crumpled something more like $1.50.

Rather than suffering far less than the savings they made on their budgets, the economies suffered far more. As mistaken advice it's monstrous - like going to see a doctor who tells you the medicine won't hurt much and finding it lays you low for years.

Economic multiplier effects (and minus-effects?) are taught in about week one of economics 0.5 in high school, aren't they?
Numerous posts addressing this very point, mostly within the Australian context of state and federal governments cutting jobs, cutting spending, not investing in serious infrastructure projects with multi-generational benefits, and then being astonished that the future has not been catered for and tax revenues are plummeting, with the latter leading to more cuts.  

This is so simple you don’t need to know anything about economics, don’t even need to know how to spell the word, never need to have read a book or an article or seen the film.   

Unfortunately for us, the flip side of our economic management, is the ever-grander sums of money being tossed about - oh yes, quite contrary to the breast-beating and belt-tightening - but one needs to understand that a dollar cut here and five dollars spent over there do not have the same multipliers.  This too requires no diagram or PowerPoint slide or economics degree. 

And hey:  hasn't that super tax on super mining profits been absolutely super?  

Six months in and not one dollar collected by the federal government, and mining investments shrinking as fast as a perfectly decent penis on a Canberra winter morning.

When a guess is as good as a forecast


  1. Anonymous8:05 PM

    An abundance of pricks in Canberra, but you'll be hard pressed finding a decent one in any type of weather.


  2. Let me rephrase that: penises that would in some other circumstance would be adequate for ordinary use.

  3. Anonymous11:04 PM

    Yeah, I know what you mean Caz: pissing on the punters - and that's really ordinary, but they can't help themselves.


  4. We could distribute incontinence undies to all parliaments and local councils?