shows the choice americans are facing, whether they know it or not. the choice offered by romney of following the european model, with the high fiscal multiplier associated with policies of austerity, debt reduction and high unemployment (save a euro or dollar from your budget here, lose more than a euro or dollar there in gdp); or the growth-enhancing fiscal multiplier that accompanies policies of monetary easing, debt expansion and lowering unemployment, as seen under obama.
choose the former, choose romney, expect a resumption of recession. choose obama, expect a continuing slow recovery. make the best choice - the one that ain't available - provide additional stimulus. the imf has done the study. anyone listening?
of course, the news is about the horse race rather than actual economic sense. so who cares. but the knowledge is available.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9607828/Eurolands-debt-strategy-is-an-economic-and-moral-disgrace.html
" The "fiscal multiplier" is not the hallowed 0.5 assumed by every finance ministry in Europe. The awful evidence since the global bubble burst in 2008-2009 is that the multiplier is between 0.9 and 1.7, or even higher for EMU's crucifixion belt.
The model constructed over the long boom years -- and largely drawn from isolated cases, each able to export its way out of trouble -- is dangerously wrong in a 1930s-style excess savings crisis with much of the world [in] slump.
Steen Jakobsen from Saxo Bank says the IMF's mea culpa is the "biggest financial story of the year". Indeed it is. The authorities have repeated the blunders of the Great Depression, but with fewer excuses.
The IMF has now called for a change of course. The Greco-Latins should be given more time to cut their deficits. The AAA creditor bloc should stop cutting altogether until the eurozone is off the reefs.
"Reducing public debt is incredibly difficult without growth," said the IMF's Christine Lagarde. "Instead of frontloading heavily, it is sometimes better to have a bit more time." "
Or this:
http://notthetreasuryview.blogspot.co.uk/2012/10/more-on-multipliers-why-does-it-matter.html
"There was, however, a third view. This was advanced most strongly by Paul Krugman and Brad Delong in the US, and here by Martin Wolf (in the columns of the FT) and Simon Wren-Lewis; [and by the alea board, of course] it was that the experience of the last three decades (except, perhaps, in Japan) was not relevant to that of a world where monetary policy was limited by the zero lower bound on interest rates (or, for those like Scott Sumner who think that monetary policy could have been even more aggressive, by political or institutional constraints). In such a world, multipliers would be significantly higher, and almost certainly greater than one. Simon explains why here, concluding perceptively that this may be "an occasion where thinking about macroeconomic theory can be rather more useful than naively following the evidence of the past." Meanwhile, Antonia Fatas and Ilian Mihov argued on empirical grounds that the Fund and others were consistently underestimating the size of the multiplier, as they explain here.
So what then is the significance of the IMF analysis published this week? For reference, I will repeat the key paragraph:
"In line with these assumptions, earlier analysis by the IMF staff suggests that, on average, fiscal multipliers were near 0.5 in advanced economies during the three decades leading up to 2009. If the multipliers underlying the growth forecasts were about 0.5, as this informal evidence suggests, our results indicate that multipliers have actually been in the 0.9 to 1.7 range since the Great Recession. This finding is consistent with research suggesting that in today’s environment of substantial economic slack, monetary policy constrained by the zero lower bound, and synchronized fiscal adjustment across numerous economies, multipliers may be well above 1"
So, in contrast to the Fund's 2010 view, multipliers are much larger than 0.5 - large enough to have a very substantial, and negative, impact on growth.
....The IMF clearly now agrees with this, as Christine Lagarde has made clear in the case of Greece. They need now to point out to the European Commission and the German government as forcefully as possible that if they do not belatedly come to their senses, they will run the economies of Southern Europe - and possibly the euro itself - into the ground on the basis of an economic analysis that has now been discredited both theoretically and empirically."
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