Sunday, June 16, 2013

The IMF on U.S. Cost-Cutting

Last week, an International Monetary Fund (IMF) report on the U.S. economy included the following comments:
  • deficit reduction in 2013 has been excessively rapid and ill-designed, 
  • automatic spending cuts not only exert a heavy toll on growth in the short term, but the indiscriminate reductions in education, science, and infrastructure spending could also reduce medium-term potential growth, 
  • persistent weak labor force participation rates and high levels of long-term unemployment suggest there is room for active labor market policies to complement efforts to boost domestic demand and
  • growth is expected to slow to 1.9% this year owing to an excessively rapid pace of fiscal deficit reduction, before accelerating to 2.7% next year. 
 IMF Managing Director Christine Lagarde said, “The IMF’s advice is to . . . slow the fiscal adjustment this year – which would help sustain growth and job creation – but hurry up with putting in place a medium-term road map to restore long-run fiscal sustainability.”

It is interesting that the IMF, an organization historically associated with promoted cost cutting strategies, is suggesting that the U.S.’ approach may be too aggressive. At the same time, the report highlights the deficiency in leadership and decision-making by the U.S. Congress.

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