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/Christopher Furlong
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A dozen defeated parliamentary candidates back Caroline Flint for deputy

Supporters of all the leadership candidates have rallied around Caroline Flint's bid to be deputy leader.

Twelve former parliamentary candidates have backed Caroline Flint's bid to become deputy leader in an open letter to the New Statesman. Dubbing the Don Valley MP a "fantastic campaigner", they explain that why despite backing different candidates for the leadership, they "are united in supporting Caroline Flint to be Labour's next deputy leader", who they describe as a "brilliant communicator and creative policy maker". 

Flint welcomed the endorsement, saying: "our candidates know better than most what it takes to win the sort of seats Labour must gain in order to win a general election, so I'm delighted to have their support.". She urged Labour to rebuild "not by lookin to the past, but by learning from the past", saying that "we must rediscover Labour's voice, especially in communities wher we do not have a Labour MP:".

The Flint campaign will hope that the endorsement provides a boost as the campaign enters its final days.

The full letter is below:

There is no route to Downing Street that does not run through the seats we fought for Labour at the General Election.

"We need a new leadership team that can win back Labour's lost voters.

Although we are backing different candidates to be Leader, we are united in supporting Caroline Flint to be Labour's next deputy leader.

Not only is Caroline a fantastic campaigner, who toured the country supporting Labour's candidates, she's also a brilliant communicator and creative policy maker, which is exactly what we need in our next deputy leader.

If Labour is to win the next election, it is vital that we pick a leadership team that doesn't just appeal to Labour Party members, but is capable of winning the General Election. Caroline Flint is our best hope of beating the Tories.

We urge Labour Party members and supporters to unite behind Caroline Flint and begin the process of rebuilding to win in 2020.

Jessica Asato (Norwich North), Will Straw (Rossendale and Darween), Nick Bent (Warrington South), Mike Le Surf (South Basildon and East Thurrock), Tris Osborne (Chatham and Aylesford), Victoria Groulef (Reading West), Jamie Hanley (Pudsey), Kevin McKeever (Northampton South), Joy Squires (Worcester), Paul Clark (Gillingham and Rainham), Patrick Hall (Bedford) and Mary Wimbury (Aberconwy)

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.