Saturday, May 15, 2010

Krugman on the IMF Report

Paul Krugman astutely comments on a new IMF report on structural deficits and the evolving economic crisis:

It takes careful reading to discover what’s really going on:
The persistence of deficits reflects permanent revenue losses, primarily from a steep decline in potential GDP during the crisis, but also due to the impact of lower asset prices and financial sector profits.
Aha. Most people who look at the IMF report will, I suspect, read it as telling a tale of government profligacy getting us into a hole. But what the report actually says is quite different: it says that the financial crisis has made us permanently poorer, which among other things reduces revenue, and governments have to tighten their belts to make up for that loss.

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