Tom McDonnell: The IMF as an organisation has long been criticised for its dogmatic adherence to the Washington Consensus principles regardless of local context. But a strange thing happened recently. At a recent IMF conference attended by half a dozen Nobel laureates, "Macro and Growth Policies in the Wake of the Crisis", the IMF conceded that their standard prescriptions were at best incomplete and insufficient. In particular, the importance of Keynesian expansion during times of recession was explicitly acknowledged. The IMF’s own research makes clear the damaging impact of consolidation.
Despite this Damascene conversion the expansionary fiscal contraction (EFC) hypothesis of ‘expansionary austerity’ is alive and well, as Paul Krugman points out here.
I would gently suggest that the EFC boosters in the United States should look to the recent Irish experience to see just how successful extreme austerity can be in revitalising growth.