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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6 times government ministers have contradicted each other over Brexit

Getting your line straight is slightly more complex than a moon landing. 

“No deal is better than a bad deal,” Theresa May told Jeremy Paxman during the 2017 general election campaign. Almost exactly two months on, her Chancellor, Philip Hammond, has declared the UK will seek a transitional deal that could last three years.

Hammond’s comments come a day after government ministers contradicted themselves over when free movement could end. “Strong and stable”, the Tory campaign slogan, has gone the way of Labour’s Ed Stone. 

Here’s a selection of times government ministers have contradicted each other over Brexit.

1. Free movement

Brandon Lewis vs Amber Rudd and Michael Gove

The immigration minister Brandon Lewis declared on 27 July that a new immigration system would be in place from the spring of 2019.

But his departmental boss, the home secretary Amber Rudd, said the same day that there would be an “implementation period” while the flow of EU workers continued and there would be no cliff edge.

Meanwhile, environment secretary Michael Gove and non-expert Brexiteer said days earlier that there was likely to be a transitional period where free movement continued for two years.

2. Chlorinated chicken

Michael Gove vs Liam Fox

One question emerging from discussion of a potential UK-US trade deal was whether chlorine-washed chicken would be allowed into British supermarkets. The international trade secretary Liam Fox said such chicken was “perfectly safe”.

He may not have been round to Michael Gove’s recently for dinner, then. The environment secretary said he opposed the import of chlorine-washed chicken and that “we are not going to dilute our high food-safety standards” in pursuit of “any trade deal”. 

3. Moon landings

David Davis vs Liam Fox

In June, Brexit secretary David Davis suggested the negotiations to leave the EU were more complicated than landing on the moon.

His fellow Brexiteer Liam Fox, on the other hand, said in July that a future UK-EU trade deal should be “the easiest in human history”. Then again, maybe he just has a different definition of easy.

4. Single market and customs union

David Davis vs Philip Hammond

Perhaps one reason the Brexit secretary is finding it so tricky is that on 27 June he told a conference he plans to leave the single market and customs union by March 2019

But the Chancellor, aka the Mopper Up of Economic Mess, stressed Britain was heading down a “smooth and orderly path”. 

5. EU army

Michael Fallon vs Boris Johnson

In 2016, fresh from a Leave campaign which warned of the dangers of an EU army, foreign secretary Boris Johnson voiced his support for… an EU army.

Defence secretary Michael Fallon, though, had previously said the UK would continue to resist any rival to Nato. 

6. The migration cap

Theresa May vs David Davis and Philip Hammond

As home secretary, Theresa May defended the net migration cap, an idea the Tories thought up while in opposition, even though in practice it was widely criticised and never met. Even though, according to the George Osborne-edited Evening Standard, none of her colleagues privately back the target, it has stayed under her premiership. 

Some ministers have publicly questioned it as well. As early as March, Davis said immigration might go up after the UK leaves the EU.  In June, Hammond said the system for businesses recruiting foreign workers would not be more “onerous” than it is at present. 

(You can see all the ministers in the Brexit government that have realised reducing immigration might be a problem for them here)

 

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.