IMF: austerity wasn’t such a great idea after all

Conservatives, here and around the world, almost certainly don’t want to hear what the IMF is telling them, but the more officials reject a misguided austerity agenda, the better.

The International Monetary Fund, known throughout its history for urging governments to slash their budgets, is now worried that a global round of austerity may trigger a new recession and is urging countries to look for ways to boost growth.

On Monday, the agency warned the world’s leading economies that belt-tightening by governments, companies and consumers has been become so aggressive that the global economy could falter because of anemic demand.

“The immediate risk is that the global economy tips into a downward spiral…. Even in a less severe scenario, key advanced economies could suffer from a protracted period of low growth,” the IMF said. The agency report urged all but the most debt-strapped nations to boost growth through expansive government budget and spending policies or through central bank measures such as lowering interest rates to stimulate the economy.

The IMF has traditionally opposed deficits, and has become outspoken of late about the need for countries to promote growth, not debt reduction, given the larger economic circumstances.

With austerity measures holding Europe back, and the continent facing another recession, the IMF is offering some smart advice. (American Republicans, meanwhile, believe U.S. policymakers would be wise to embrace the same measures that aren’t working in Europe.)

Indeed, it’s heartening to see the IMF become a voice of reason. In August, you may recall, International Monetary Fund Chief Christine Lagarde urged policymakers on both sides of the Atlantic to follow a familiar path: address long-term fiscal issues while at the same time, focusing on job creation and economic growth in the short term. (In fact, yesterday, Lagarde singled out President Obama’s American Jobs Act as the ideal for policymakers to follow.)

Also note, last month, the IMF examined 173 episodes of fiscal austerity over the past 30 years and concluded that austerity “lowers incomes in the short term, with wage-earners taking more of a hit than others; it also raises unemployment, particularly long-term unemployment.”

Taken together, it’s quite a consensus. The IMF’s message to Europe (and the U.S.) is the same message we’re hearing from the Federal Reserve, the CBO, economists, the financial industry, the bond market, and business leaders all saying more or less the same thing: don’t approve drastic spending cuts, do approve short-term stimulus.

The right in the U.S. doesn’t care. Here’s hoping conservatives in Europe show more sense.