Tyrie and the IMF on austerity

Suppose you were given advice about the UK economy every year, and these were the outturns for growth. What, in retrospect, would you complain about? I think most people would complain that you should have been advised more robustly that growth would be weak in 2011, and non-existent in 2012. But Andrew Tyrie, chair of the Treasury Select Committee, seems unconcerned about that. He complains that when the IMF did become increasingly worried (as in April 2012 for example), it should have kept quiet. 

GDP Growth rates: source OECD Economic Outlook 2014:1

This is of course just another example of the establishment’s attempt to deny the evidence about austerity. It is particularly rich because the Treasury was also becoming increasingly worried that growth would not return before the election, which is why it eased off on austerity and brought in Help to Buy. Anyone who tells you they just knew the UK savings ratio would fall sharply in 2013 and so there was no need to worry is either lying or a fool.

There are two other absurdities in Mr Tyrie’s article worth noting. The first is that he says the IMF should have been more robust in its advice to the Eurozone. Apart from the fact that it was pretty robust, just exactly what does he expect the IMF to have said that might have prevented the second Eurozone recession? It should (and did) say less austerity, which is understandable given the central role austerity played in that second recession. That is the same austerity that in 2010-12 Mr. Tyrie thinks was sensible policy in the UK.

The second is this line. “Most ill-considered of all was the IMF’s specific policy recommendation to bring forward capital investment. Big infrastructure projects are hard enough to agree on, design and manage as it is.” Would that be infrastructure projects like flood protection for example, which were already on the drawing board but which were postponed?

Of course this article is really just a shot across the IMF’s bows. In your forthcoming report lay of the criticism about things like Help to Buy because there is an election on the way. But what Mr. Tyrie should really write about is this. On austerity the IMF were too sanguine in 2010/11, but they (and particular Olivier Blanchard) have looked at the evidence and changed their minds. That is something the UK establishment, Mr. Tyrie included, have completely failed to do.