Richard Murphy writes:
[The government and OBR] believe that austerity generates growth and so cuts the deficit. The trouble for them is that all the evidence shows that the opposite is true: cuts shrink national income and government spending increases it.
This has attracted cheap abuse from some of Tim Worstall’s commenters. Such abuse is wrong, and misses the point.
It’s wrong, because – in the context he is writing about – Richard is right to claim that fiscal multipliers are big.
But that’s not actually his claim. In the comments:
Is Richard right the OBR assumed negative multipliers, G down Y up? I’d be surprised
Posted by: Luis Enrique | April 26, 2016 at 03:35 PM
No, he’s not.
Quite so. The Murph doesn’t realise that a multiplier of less than unity does not mean the economy shrinks. But he claims that that is what a multiplier of less than unity means. Wrote a whole paper making that assumption in fact.