The most important paragraph in the IMF World Economic Outlook

68 words of wonkishness.

The IMF's World Economic Outlook (pdf) – a 230-page tome detailing predictions on nearly every aspect of the world's economy collated by the international organisation – always gets attention for the calls it makes.

The October edition downgrades expected global growth for 2013 from 3.9 per cent to 3.6 per cent, and also cuts predictions for China (down to 8.2 per cent for 2013), the US (expected to grow by 2.1 per cent in 2013, down from 2.3 per cent in July's prediction) and the UK (now expected to grow by just 1.1 per cent next year, and to contract by 0.2 per cent this year).

But the predictions are not the most important passages in this edition of the Outlook. Those are found in a short box-out titled Are We Underestimating Short-Term Fiscal Multipliers?

The fisc§al multiplier is the effect government spending has on GDP. Money spent by the government doesn't disappear – it is respent, again and again. If a teacher gets a pay rise, their consumption is likely to rise in line with it; if all teachers get pay rises, that increase in consumption may be enough to affect the aggregate demand in the economy. In an economy which isn't being stretched to its limits – that is, one without full employment, or serious capital equipment shortages – that increase in aggregate demand will result in an increase in GDP.

The existence of the fiscal multiplier is a matter of fact, but the magnitude of it is contested. And that's where the IMF enters the scene, on page 42:

The main finding, based on data for 28 economies, is that the multipliers used in generating growth forecasts have been systematically too low since the start of the Great Recession, by 0.4 to 1.2, depending on the forecast source and the specifics of the estimation approach. Informal evidence suggests that the multipliers implicitly used to generate these forecasts are about 0.5. So actual multipliers may be higher, in the range of 0.9 to 1.7.

Emphasis mine. When deciding how much to spend, governments have been assuming that every pound they spend increases GDP by 50p – but it may increase it by as much as £1.70.

The reason this is so very important is that fiscal multiplier is usually appealed to not when deciding how much to spend, but how much to not spend. When governments are planning austerity packages, they have to be wary of the fact that large cuts to government spending will inevitably cause a decrease in output, and so they either have to be prepared to take that hit, or come up with a reason why slashing spending will cause an increase in output through some other mechanism.

That is easy enough to do if you are trying to account for a fiscal multiplier of 0.5: you can make the arguments, which Osborne and Cameron rehearsed repeatedly, that the public sector is crowding out the private; that the government spending which is being cut is particularly inefficient; or that the confidence fairies will reward your thriftiness with growth.

When there is the chance that the fiscal multiplier is three times that, austerity becomes much more likely to involve damaging drops in output.

There was once a time when the government pegged its credibility to that of the IMF – back when George Osborne was proud about Britain's credit ratings, and the international community was behind his plans. Those days are gone, and have been since Christine Lagarde made her own attack on austerity. But the economists at the treasury may be more inclined to listen to the wonkish findings of the World Outlook than the political interventions of the fund's leader. We can only hope they are prompted to re-do the sums.

The IMF headquarters. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.