The IMF's recent back-tracking on austerity is significant, since the IMF is basically the inventor of modern austerity prescriptions:
The fund warned earlier this week that governments around the world had systematically underestimated the damage done to growth by austerity. [IMF Chief] Ms Lagarde said that, given this reassessment of the impact of fiscal consolidation on output, it was no longer sensible for governments in Europe to stick to budget deficit targets, should growth disappoint.“It’s much more appropriate to apply the measures and let the [automatic] stabilisers operate,” Ms Lagarde said. Automatic stabilisers allow for the lower tax revenues and higher benefit payouts associated with a weak economy. “That applies to pretty much all the countries, particularly in the eurozone, that are applying that policy mix.”
I guess it's one thing for the IMF to tell faraway Asian, Latin American, and post-Soviet economies to cut their public sector to the bone and slash public pensions, the people be damned, because this is what global bond traders demand; but when it comes to Western Europe and the U.S., it is another thing entirely, because austerity is hurting the IMF's people at home.
By Claire Jones
October 11, 2012 | Financial Times
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This week, at a seminar at the London School of Economics, I asked Professor Ha-Joon Chang, world renowned economist, if he could name a time in history when austerity measures ever led to prosperity. He said no.
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