The IMF Prescription For Fiscal Stimulus


What follows is the Executive Summary of the IMF’s Staff Position Note on suggested cures for the current recession: 


The current crisis calls for two main sets of policy measures. First, measures to repair thefinancial system. Second, measures to increase demand and restore confidence. While some of these measures overlap, the focus of this note is on the second set of policies, and more specifically, given the limited room for monetary policy, on fiscal policy.

The optimal fiscal package should be timely, large, lasting, diversified, contingent, collective, and sustainable: timely, because the need for action is immediate; large, because the current and expected decrease in private demand is exceptionally large; lasting because the downturn will last for some time; diversified because of the unusual degree of uncertainty associated with any single measure; contingent, because the need to reduce the perceived probability of another “Great Depression” requires a commitment to do more, if needed;collective, since each country that has fiscal space should contribute; and sustainable, so asnot to lead to a debt explosion and adverse reactions of financial markets. Looking at thecontent of the fiscal package, in the current circumstances, spending increases, and targetedtax cuts and transfers, are likely to have the highest multipliers. General tax cuts or subsidies, either for consumers or for firms, are likely to have lower multipliers.

I haven’t read the full 38 pages yet, so I will refrain from being too snarky, but I have to ask if you think Congress will be able to reconcile ladling out pork with timely, large, lasting etc. And by the way, they call this a staff note. How frickin long must a real paper be?

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