The Widdershins

Rosalind Russell in "His Girl Friday"

Here are your Haps for Monday morning, Widdershins – it’s all about Teh Wimminz!

Christina Romer, former chairwoman of President Obama’s Council of Economic Advisors, says cutting the deficit now would be a huge mistake.

Now is not the time. Unemployment is still near 10 percent in the United States and in Europe. Tax cuts and spending increases stimulate demand and raise output and employment; tax increases and spending cuts have the opposite effect. This is a basic message of macroeconomics and a central feature of public- and private-sector forecasting models. Immediate moves to lower the deficit substantially would likely result in a 1937-like “double dip” as we struggle to recover from the Great Recession.

Some advocates of austerity argue that, contrary to the conventional view, fiscal tightening now would lower long-term interest rates and improve confidence so much that the impact could be positive. But an ambitious new study in the World Economic Outlook of the International Monetary Fund confirms that fiscal consolidations — that is, deliberate deficit reductions — typically reduce growth substantially.

The study considers a wide range of advanced economies over the last three decades, so it doesn’t put too much weight on unusual episodes or focus on examples supporting particular conclusions. It also breaks new ground by looking specifically at times when governments changed taxes or spending with the aim of reducing deficits. Previous studies looked at summary measures of the budget situation, and likely included cases when strong economic performance caused lower deficits, not the other way around.

The recent experience of countries already carrying out austerity measures is consistent with the central finding of the I.M.F. study. Ireland, Greece and Spain have all had rising unemployment after moving to cut deficits.

Taking budget actions now that would further increase unemployment would be not only cruel, but also short-sighted. The longer unemployment remains high, the more likely it is to become permanent as workers’ skills deteriorate and they gradually drop out of the labor force.

No wonder she resigned from Obama’s Council of Economic Advisors in August – clearly, no one was listening to her pertinent and historically accurate advice.

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