very credible economically, but hugely influential politically. The second view -- pretty mainstream among economists, including the IMF  -- was that austerity would be damaging but not disastrous. Based on historical evidence it postulated a multiplier of around 0.5 -- i.e. a reduction of 1% in public expenditure would lead to a fall in output of around 0.5% The third view was exemplified by the writings of Nobel Laureate Paul Krugman and numerous others, and argued that institutional factors meant that the multiplier was likely to be much higher; these economists crucially argued that rather than relying on historical data to understand an economic situation that had few precedents, it was necessary to revisit the macroeconomic theory. Krugman famously and scathingly caricatured the advocates of the first view as "waiting for the confidence fairy".  They argued that this approach led to the conclusion that the multiplier would be far higher, certainly greater than 1 and possibly as high as 1.7. Portes quotes from the latest IMF Bulletin which shows that the Fund is moving much closer to the third view -- and points out the policy implications: first that the assumptions used by the OBR to feed into UK economic policy were way too optimistic (and its puzzlement over why things have not gone as it predicted misplaced); and that the impact of fiscal expansionism, the obverse of austerity, will be all the greater.  In other words -- the bang for each buck of extra Government spending appears to be