Wednesday, September 7, 2011

Cross post at TripleCrisis

The current policy consensus in the developed world (i.e. the United States and Europe) seems to be that fiscal austerity (the euphemism used these days is consolidation) is necessary. Christine Lagarde, the new Managing Director of the International Monetary Fund (IMF), said recently in the Financial Times that: “fiscal adjustment must resolve the conundrum of being neither too fast nor too slow.”

That is what she refers to as “Goldilocks fiscal consolidation,” that is, cut spending and increase taxes, but slowly please! She repeated this view in her talk at the Jackson Hole conference, arguing that in order to obtain “credible” consolidation governments must implement: “measures that change the rate of growth of entitlements, health or retirement.” In other words, cut spending and increase taxes fundamentally on social programs that benefit overwhelmingly the poor.

Read the rest here.

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