Howard Schneider, writing at the Washington Post has a column entitled An amazing mea culpa from the IMF’s chief economist on austerity. The IMF has determined that it underestimated the “fiscal multipliers” at work in Greece, such that the austerity measures imposed actually seemed to increase the country’s fiscal problems even as it imposed more pain.
As I’ve suggested before, we seem to have this almost subconscious view of the economy as a morality play. If people aren’t suffering under government economic policy, we’re at least distrustful that it’s encouraging sloth or one of the other deadly sins. It’s like we think medicine can’t possibly be effective if it tastes good.
Anyway, the IMF seems to be acknowledging that Greek austerity has actually weakened its economy. Nobody could have predicted.