Expansionary fiscal contraction theory emerged despite contradictory IMF field evidence

Evidence

One of the most famous lines attributed (incorrectly) to Milton Friedman is “there is no such thing as a free lunch.” In other words, growth is always costly in some respect, which is generally true. But an offshoot of the public choice literature developed in the late 1980s and early 1990s sought to indirectly challenge that truism by demonstrating that a free lunch of sorts is possible if the government forgoes dinner. That is, you can cut your way to growth while reducing your debt. At the same time, then, that the IMF was proving that such expansionary cuts do not actually work in practice by implementing Washington Consensus economics throughout the developing world, a whole new literature began to spring up proving that, despite such evidence, expansionary cuts do work, at least in theory, and at least in the developed (OECD) world. — Mark Blyth, Austerity, 446

Categorization

• XREF: Sets up the expansionary fiscal contraction literature that Mattei and other austerity critics treat as the intellectual core of the program. — connects to: The IMF’s 2011-12 papers refuted the expansionary austerity hypothesis by name — Mark Blyth, Austerity: The History of a Dangerous…, 582; Postwar IMF Keynesianism concealed classical liberal assumptions derived from 1920s Treasury logic — Mark Blyth, Austerity: The History of a Dangerous…, 443; Expectations-based expansionary austerity theory rests on Denmark and Ireland cases — Mark Blyth, Austerity: The History of a Dangerous…, 457 (+4 more)

Broader Connections

• IMF program participation is associated with lower growth and higher inequality #corroborates (0.78) — Mark Blyth, Austerity, 958
• Austerity theory only holds in a special case unlike actual economies #qualifies (0.78) — Mark Blyth, Austerity, 480
• Expectations-based expansionary austerity theory rests on Denmark and Ireland cases #expands (0.75) — Mark Blyth, Austerity, 457
• Expansionary-austerity theory traces directly to the 1981 German Council of Economic Advisors #expands (0.75) — Mark Blyth, Austerity, 456
• Alesina’s econometrics framed expenditure cuts as growth-promoting and the new policy norm #expands (0.72) — Mark Blyth, Austerity, 462