No Virginia, there is no confidence fairy

I'm shocked, shocked to discover that austerity in the face of high unemployment will not actually create jobs.
Who would-a thunk it?

Although advanced economies need medium-run fiscal consolidation, slamming on the brakes too quickly will hurt incomes and job prospects

WHEN British Prime Minister David Cameron announced his government’s deficit reduction plans earlier this year he said, “Those who argue that dealing with our deficit and promoting growth are somehow alternatives are wrong. You cannot put off the first in order to promote the second” (Cameron, 2011).

The challenge facing the United Kingdom and many advanced economies is how to bring debt down to safer levels in the face of a weak recovery. Will deficit reduction lead to stronger growth and job creation in the short run?

Recent IMF research provides an answer to this question. Evidence from data over the past 30 years shows that consolidation lowers incomes in the short term, with wage-earners taking more of a hit than others; it also raises unemployment, particularly long-term unemployment. (more...)