Do you remember the report by IMF advisors Blanchard & Leigh “Growth forecast errors and fiscal multipliers, who were admitting the negative effects of the austerity measures? French weekly magazine Marianne wrote an article about the fatal mistakes made by the International Monetary Fund and located the calculation error – the wrong multiplier!
The incredible error by IMF experts
The main funder of the planet has admitted his fault: he has seriously underestimated the negative effects of austerity cures it advocates. “Simple miscalculation,” he said, but the consequences are devastating. But, guess what: the proponents of rigor continue to act as if nothing had happened …
The admission is incredible, almost unimaginable. Four years after the onset of the Great Depression that shook western economies with unparalleled violence since 1929, one of the greatest economists of the world, namely the Director of the Research Department of the International Monetary Fund recently published a report in which he admits that the IMF – and with it, all the European leaders, finance ministers, central bank, European Commission … – have seriously underestimated the negative effects of austerity policies imposed on countries most debt.
Yes, you read that right: Olivier Blanchard, one of the most renowned economic luminaries in the world, admits black and white, in a 43-page report published on 3 January, the IMF was wrong about the whole line. And the fault comes from a simple calculation error, a factor well known in the discipline: the multiplier.
Between 1970 and 2007, the IMF forecasters had found that 1% of public spending less – or more tax – resulted in an average 0.5% growth in less developed countries. Is a multiplier of 0.5, they learnedly retained in the preparatory plans of aid to Greece or Portugal. But that was before the crisis and its share of uncertainties that disrupt the behavior of consumers.
In its “Panorama of the global economy,” published last October, the IMF initially recognized at the turn of a page marked only by specialists, current multipliers could be understood “between 0.9 and 1, 7 “. That is to say, between two and three times more! The detailed study by Olivier Blanchard, Marianne offers you see below (in English), confirms the blunder. The consequences are abysmal: forcing governments of Southern Europe to drastically reduce the salaries of civil servants and retirees’ pensions, the IMF has plunged domestic demand two to three times faster than expected.
Subsequently, alas, is known: serial failures, soaring unemployment and mass demonstrations in the streets of Athens or Lisbon. As the Japanese proverb, “If your only tool is a hammer, everything looks like a nail”
(translation from French into English was done by automatic google translate. Apologies for mistakes. See original text HERE)
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