Painful Medicine | Leeds on Finance

Painful Medicine | Leeds on Finance.

The IMF put out a short piece (“Painful Medicine” by Laurence Ball, Daniel Leigh and Prakash Loungani in the IMF’s Finance and Development publication) about the effect of austerity measures on economies.  (This was based on a longer piece of research that the IMF had published.)  Ultimately, they refute the idea that deficit reduction will lead to stronger growth and job creation in the short run.  They are not arguing that deficit reduction is bad or that it won’t help in the intermediate to long-term; rather, they are just saying that it will hurt in the short term.

The authors rely on recent IMF research showing that “over the past 30 years, consolidation lowers incomes in the short-term, with wage-earnings take more of a hit than others; it also raises unemployment, particularly long-term unemployment.”  This paper is significant because (if they are right), it tells us that we’re heading for a really long period of economic pain.  Below, you will find the key ideas (with many lifted directly from the paper and all charts are also their work).

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