David Cameron's boneheaded austerity fetish isn't working. Even the International Monetary Fund, the IMF, says that much is plain. The Guardian's Jonathan Portes has this take on the IMF report.
A non-technical summary of Thursday's International Monetary Fund report on the UK economy would be that we are up the creek – "recovery has stalled" – and that we should use any available paddle to head as fast as possible in the opposite direction. "Demand support is needed. Additional monetary stimulus … credit easing measures … increased government spending on public investment." Stop pretending we're on track, and throw the kitchen sink at the economy.
There are, however, two much more interesting parts to the IMF report. The first is its demolition of the government's argument that this pain was necessary and the alternative would have been worse – that, as George Osborne says, without accelerated fiscal consolidation we would have had higher interest rates and maybe even a debt crisis. This is nonsense: low interest rates reflect not economic confidence but its opposite, and the IMF says so: "Bond yields have been driven more by growth expectations than fears of a sovereign crisis."
But even more important is the IMF's analysis of the consequences of this policy failure: not just low growth now (they estimate fiscal consolidation has so far knocked about 2.5% off output) but permanent economic and social damage. This is primarily because unemployment – especially long-term and youth unemployment – has "scarring" effects; someone who is unemployed now because of recession is more likely to be out of work later in life, even after economic recovery.
...the basic point is spot on. In other words, what the government is offering is not pain today for a better economic future tomorrow. It's pain today for more pain tomorrow. As many of us have long argued, the reason for changing course is not because of the short-term boost to growth, but because of the longer-term impacts.