The IMF cut its global economic growth forecast at its recent meeting in Tokyo. It also recognized the impact of its forecast. Slow economic growth makes it more difficult for countries with debt problems to reduce their debt burdens. Tax income falls and demand for social welfare spending increases during recessions. The IMF encouraged governments to take some steps to promote economic growth while also making structural changes that will reduce debt burdens over time. Austerity measures in the US and Europe, are supported by economic orthodoxy, and they block the use of government programs to stimulate aggregate demand. Larry Summers describes these issues and the difficulties that they present to governments for political resolution. It is more difficult to reach political consensus in a highly polarized political climate. He makes the case, however, for governments to recognize the need for increasing economic demand in order to deal with the problems of unemployment, and the need to reduce longer term debt projections.
The post below takes another look at this problem. It attempts to explain conservative support for economic orthodoxy and austerity programs. Conservatives believe that structural changes in the global economy are responsible for lower aggregate demand in rich countries, and that policies that might work to moderate cyclical demand problems will be ineffective. Austerity programs are their way of enabling the wealthy to maintain a bigger slice of a smaller economic pie in rich nations.