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.

Photo: Getty Images
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Autumn Statement 2015: How should Labour respond?

The government always gets a boost out of big setpieces. But elections are won over months not days. 

Three days in the political calendar are utterly frustrating for Her Majesty’s Loyal Opposition – the Queen’s Speech, the Budget and the Autumn Statement. No matter how unpopular the government is – and however good you are as an opposition - this day is theirs. The government will dominate the headlines. And played well they will carry the preceding with pre-briefed good news too. You just have to accept that, but without giving in or giving up.

It is a cliche that politics is a marathon not a sprint, but like most cliches that observation is founded in truth. So, how best to respond on the days you can’t win? Go to the fundamentals. And do the thing that oddly is far too little done in responses to budgets or autumn statements – follow the money.

No choices in politics are perfect - they are always trade offs. The art is in balancing compromises not abolishing them. The politics and the values are expressed in the choices that you make in prioritising. This is particularly true in budgets where resources are allocated across geographies - between towns, cities and regions, across time - short term or long term, and across the generations - between young and old. To govern is to choose. And the choices reveal. They show the kind of country the government want to create - and that should be the starting point for the opposition. What kind of Britain will we be in five, ten, fifteen years as these decisions have their ultimate, cumulative impact?

Well we know, we are already living in the early days of it. The Conservative government is creating a country in which there are wealthy pensioners living in large homes they won, while young people who are burdened with debts cannot afford to buy a home. One in which health spending is protected - albeit to a level a third below that of France or Germany – while social care, in an ageing society, is becoming residualised. One where under-regulated private landlords have to fill the gap in the rented market caused by the destruction of the social housing sector.

But description, though, is not sufficient. It is only the foundation of a critique - one that will succeed only if it describes not only the Britain the Tories are building but also the better one that Labour would deliver. Not prosaically in the form of a Labour programme, but inspirationally as the Labour promise.

All criticism of the government – big and little – has to return to this foundational narrative. It should connect everything. And it is on this story that you can anchor an effective response to George Osborne. Whatever the sparklers on the day or the details in the accompanying budgetary documentation, the trajectory is set. The government know where they are going. So do informed commentators. A smart opposition should too. The only people in the dark are the voters. They feel a pinch point here, a cut there, an unease and unfairness everywhere – but they can’t sum it up in words. That is the job of the party that wants to form a government – describing in crisp, consistent and understandable terms what is happening.

There are two traps on the day. The first is narrowcasting - telling the story that pleases you and your closest supporters. In that one the buzzwords are "privatisation" and "austerity". It is the opposite of persuasion aimed, as it is, at insiders. The second is to be dazzled by the big announcements of the day. Labour has fallen down here badly recently. It was obvious on Budget Day that a rise in the minimum wage could not compensate for £12bn of tax credit cuts. The IFS and the Resolution Foundation knew that. So did any adult who could do arithmetic and understood the distributional impact of the National Minimum Wage. It could and should have been Labour that led the charge, but frontbenchers and backbenchers alike were transfixed by the apparent appropriation of the Living Wage. A spot of cynicism always comes in handy. In politics as in life, if something seems to be too good to be true then … it is too good to be true.

The devil may be in the detail, but the error is in the principle – that can be nailed on the day. Not defeated or discredited immediately, but the seeds planted.  

And, if in doubt, take the government at their word. There is no fiercer metric against which to measure the Tories than their own rhetoric. How can the party of working people cut the incomes of those who have done the right thing? How can the party who promised to protect the health service deliver a decade of the lowest ever increases in spending? How can the party of home ownership banish young people to renting? The power in holding a government to account is one wielded forensically and eloquently for it is in the gap between rhetoric and reality that ordinary people’s lives fall.

The key fact for an opposition is that it can afford to lose the day if it is able to win the argument. That is Labour’s task.