In a column in today’s FT, new IMF chief Christine Lagarde appears to be hitting out at the austerity drives we’re seeing in many countries.
Her problem is that the austerity measures implemented in countries such as the UK might be sending debt lower, but they’re hitting growth as well.
Debt-reduction strategies must be based on concrete and substantive commitments – not just words – but the impact on the economy can be set with a delay. Policy actions can focus on areas where the pressure is mounting tomorrow, but have little effect on demand today – such as reforming entitlements or restructuring the tax system. At the same time, short-term measures must be supportive of growth, yet economical in terms of the impact on fiscal sustainability, and can include policies supporting employment creation, advancing planned infrastructure and easing adjustment in housing markets.
Nor will spending cuts alone do the trick – revenues also must increase, and the first choice must be measures that have the lowest effect on demand.
Over at the New Statesman, David Blanchflower notes the apparent shift. Back in June, George Osborne, British Chancellor and prime cost-cutter, had been touting the IMF’s support of his economic policy.
Now, the release of data today has shown that Britain’s cost cutting measures are not helping growth and Osborne must realise that Lagarde words are (at least indirectly) aimed at him.
“[George Osborne] needs to real ise that tax rises and cuts which go too far and too fast have crushed confidence and seen our economy flatline since last autumn. His reckless and incautious policies have left Britain vulnerable in the face of the global economic problems we are now seeing. And without strong growth and more people in work the government will find it much harder to get the deficit down.”