Where The Debt Is Coming From
One of the small side benefits of the economic crisis has been that the IMF’sWorld Economic Outlook, all too often a somnolent document, has latterly become must-read and really interesting. (Of, course, it’s not just circumstances; Olivier Blanchard, the Fund’s chief economist, has been doing a fine job).
The latest edition isn’t quite as pathbreaking as the last two, but still has a lot of interesting stuff. One thing it does it break down the sources of the actual and projected rise in advanced-country debt due to the crisis, measured as a percentage of GDP:
What’s striking here is that fiscal stimulus is a small player. It would be even smaller if one took into account the fact that stimulus has made economies stronger than they would otherwise have been, leading to higher revenues and smaller unemployment benefits.
What dominates the picture instead is the consequences of the slump, in falling revenues and higher social insurance payments.
And what this tells us is that anyone demanding that countries not run such big deficits is, in effect, calling for higher taxes and slashed spending in the face of a deep recession — Hoovernomics. Is that really what they want? Is that their final answer?
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