Economists at the International Monetary Funds Spend Years and Millions of Dollars to Discover What Every First Year Econ Student Knows.

But Hopefully They Had a Good Time Doing It

The recent economic news is that the U. S. is growing, albeit slower than one would like, and Europe is not growing, and is in danger of slipping into recession.  According to conservative economic thinking this is should not be the case.  Europe is actively fighting budget deficits while the U. S. is actively running $1 trillion plus budget deficits.  According to Conservative economic thinking this should result in low growth and high interest rates in the U.S.  and it should result in strong growth in Europe where business and consumers respond with confidence at the government’s intent to shrink deficits.

Of course, that their predictions are not happening is little cause for the Conservative economists to change their thinking, after all being a Conservative means never ever having to admit you were wrong. Actually  Conservative economists cannot be wrong in their own minds, because their conclusions are built on faith and concepts built on faith can never be proven incorrect.

But the IFM has studied the issue and here is what they came up with.

Carlo Cottarelli and Laura Jaramillo of the IMF say tighter fiscal policy, by hurting the near-term growth outlook, could actually lead to wider, rather than narrower, spreads. Cut the deficit too aggressively, in other words, and the negative impact on growth and the rise in the cost of debt service from higher spreads could result in a higher, not lower, debt-to-GDP ratio.

Yes, there you have it.  A major economic study that showed that if policy to shrink an economy is put in place, the economy shrinks, tax revenues go down, budget deficits go up and the policy to reduce a budget deficit results in just the opposite.

The good news for economists is that if Republicans take full control of the U. S. government in 2013 the studies like the IMF economists do will have another example to put in their data base.  Not that it will do any good.  If a policy is not working, do more of it.