Image: IMF Image: IMF

It is odd how things go in and out of fashion. Four years, or so, ago, the big debate around the economy related to austerity or not austerity. Suddenly the debate ended, it was as if there was a consensus that the austerity side had won, even though there was absolutely no evidence to support this belief at all. But the debate is back on again.

Now the IMF has chipped in with its contribution towards the debate in advance of the latest G20 summit.

“Global growth remains weak, and downside risks have become more salient,” it said. The IMF warning continued “Growth could be even lower if the current increases in economic and political uncertainty in the wake of the ‘Brexit’ vote continue.”

It said: “Reforms that facilitate the scaling up of infrastructure investment would help raise productive capacity, boost short-term demand directly, and catalyse private investment.”

The IMF has been here before. It repeatedly warned that the UK was hitting the austerity pedal too hard. The UK did, in fact, suffer its longest downturn ever recorded post-2008. History tells us that deep downturns are usually followed by above average growth. This didn’t happen in the UK, but for a while, the UK’s below average performance among the OECD was followed by an above average performance among the OECD, and some said this vindicated austerity.

It is all changing now. The new look UK government is putting less emphasis on cutting government borrowing, and more on infrastructure spending.

But the maths of austerity, or no austerity, is really quite simple. For the global economy, GDP equals consumption plus investment plus government spending. If investment is low – which it is, if consumption growth is low – which it has been, then either governments spend more, or the global economy slows.

And if savings rise across the world – which they have been – without a corresponding rise in investment, which there hasn’t been, then either the private sector borrows more, governments borrow more or there is a recession.

Back in 2012, economist Paul Krugman, venture capitalist John Moulton and Andrea Leadsom, debated this very issue on BBC Two’s Newsnight. It would be great to see a re-run of that debate.