The UK Treasury considers John Maynard Keynes to be an idiot. He famously said that “the boom, not the slump, is the right time for austerity”. The Treasury rejects this view. As so often before, it is wrong.
This debate of the 1930s has been reborn, with Keynes’ role being taken by the International Monetary Fund. In April’s World Economic Outlook, the IMF stated that in the UK, “where recovery is weak owing to lacklustre demand, consideration should be given to greater near-term flexibility in the fiscal adjustment path”.
It is extraordinary for the fund to criticise the fiscal policies of a member of the Group of Seven leading countries for being too tight. This week, it had the opportunity to follow this up strongly in the concluding statement of its Article IV Consultation. It wimped out. I am not surprised: the pressure to do so must have been formidable.