Wednesday 24 January 2018

Brendan O'Connor : The straw poll sure to break the camel's back

The majority of us believe this Budget will be a step too far – and with grave consequences

Brendan O'Connor

Brendan O'Connor

WE considered presenting both sides of the austerity debate today but, to be honest, we had a bit of trouble thinking of anyone, apart from the Government, who thinks austerity is a good idea.

Even the people who are enforcing austerity, people like the IMF, don't actually believe in it anymore. The IMF have gone so far as to admit they got it drastically wrong. "Activity has disappointed in a number of economies undertaking fiscal consolidation," they admitted recently. "Negative short-term effects of fiscal cutbacks have been larger than expected."

In fact, it turns out that the traditional multiplier applied to the effects of austerity on an economy has been wildly wrong. Since the beginning of the crisis the negative effects of austerity on economic output have been up to three times what the IMF thought they would be. They were operating under the assumption that for every euro cut from government spending a country's output would fall by 50c. In fact the case has proven to be that for every euro cut from spending, 90c to €1.70 is wiped off output. It was a huge miscalculation, and the observed outcomes of austerity have actually led to Christine Lagarde becoming one of the leading anti-austerity campaigners on the European scene.

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