Imf And Gop

The IMF and the GOP
Econowonks are still buzzing about the new IMF World Economic Outlook, which offered grim warnings about the world economy, and also argued forcefully if discreetly that a bigreason for the worsening outlook is that policy makers have gotten the basic economics wrong.
Of particular interest is the discussion in Chapter 1 (pdf) on fiscal multipliers. I and others have beenarguing for a while that the experience of austerity in the euro zone clearly suggests pretty big Keynesian effects. Here, for example, is what a scatter plot of fiscal consolidation (from the IMFFiscal Monitor) and growth (including an estimate for next year, from the World Economic Outlook) looks like:

But, you might object, maybe the causation runs the other way; maybe countries in troubleare forced into fiscal consolidation, so it’s not the austerity what did it. But the IMF has an answer to that: it looks at forecast errors versus austerity. Part of the reason for doing this is tofigure out why things are going so much worse than expected; but there’s also the fact that the forecasts already included the known problems of the economies in question, so that you’re more or lessgetting an estimate of the impact of austerity over and above the known problems (and the initially assumed effect of austerity, which was supposed to be small). It looks like this:

As it says, thisindicates that the contractionary effects of fiscal consolidation are substantially bigger than policy makers were assuming.
So one thing I haven’t seen pointed out is that this directly contradictscurrent GOP doctrine. To the extent that the GOP has a theory of recession-fighting, other than the view that the animal spirits of job creators will soar once that evil Obama is gone, it was embodiedin the Joint Economic Committee manifesto Spend Less, Owe Less, Grow the Economy, which declared that
In the short term, fiscal consolidation programs that rely predominately or entirely on...