Earlier in the week I was in Britain. Walking around the streets of Brighton, for example, was a stark reminder of how a wealthy nation can leave large numbers of people behind in terms of material well-being, opportunity and, if you study the faces of the people, hope. I am used to seeing poverty and mental illness on the streets of the US cities but in Brighton, England it very visible now as Britain has struggled under the yoke of austerity. Swathes of people living from day to day without hope under the current policy structures, damaging themselves through visible alcohol and substance abuse, cold from lack of shelter and adequate clothing, and the rest of it. And then a little diversion around the City area of London, where the overcoats the men wear cost upwards of £2,000 and the faces are full of intent. Two worlds really. I was thinking about those recent experiences when I read the latest release from the IMF (September 20, 2017) – Growth That Reaches Everyone: Facts, Factors, Tools. Their analysis continues the slow move of the IMF to acknowledging, not only the reality the world faces, but also, by implication, the massive costs that this institution has inflicted on poor people around the world.
The Federal Reserve Bank of Kansas City has just hosted its annual Economic Policy Symposium at Jackson Hole in Wyoming where central banks, treasury officials, financial market types and (mainstream) economists from the academy and business gather to discuss economic policy. As you might expect, the agenda is set by the mainstream view of the world and there is little diversity in the discussion. A Groupthink reinforcing session. One paper that was interesting was from two US Berkeley academics – Fiscal Stimulus and Fiscal Sustainability – which the news reports claimed suggested that governments should be increasing fiscal expansion even though they may be carrying high levels of public debt. The conclusion reached by the paper is correct but the methodology is mainstream and so progressives should not get carried away with the idea that there is signs that some give is emerging, which will lead to more progressive outcomes. A progressive solution will only come when the neo-liberal dominance of my profession is terminated and an entirely new macroeconomics paradigm based on Modern Monetary Theory (MMT) is established. There is still a long way to go though.
I have discussed the work of the IMF Evaluation Office before. The IEO “provides objective and independent evaluation” of the IMF performance and operates “independently of IMF management” and reports to the Executive Board of the organisation. It is an independent as one could imagine in this milieu. I have just finished reading the 474-page Background Papers that the IEO released in 2016 and which formed the basis of its June 2016 Evaluation Report – The IMF and the Crises in Greece, Ireland, and Portugal. It is not a pretty story. It seems that the incompetence driven by the blind adherence to Groupthink that the earlier Reports had highlighted went a step further in the case of Greece into what I would consider to be criminality. The scale of the professional incompetence notwithstanding, the IEO found that IMF officials and economists violated the written and constitutional rules of their own organisation and failed to supply relevant documents for audit. So why are all these economists and officials still walking free, given the scale of the disaster they created?
When I was a student, that is, formally studying for degrees rather than the constant-learning approach which makes us permanent students, I was very interested in development economics and have carried that into the career phase of my work, including doing commissioned work for international agencies in Africa and Asia. One of the things I have come up against in that work has been the question of why are the nations in Africa, for example, so poor, when it is obvious to all and sundry that they possess massive resource wealth. My student days introduced me to dependency theory, which provided a solid framework for understanding the nature of underdevelopment. It stood in contrast to the mainstream development theory that was presented in most textbooks and which we would now call the neo-liberal approach. That approach is publicly enunciated by the IMF and the World Bank as if it is reality. In fact, it is a chimera! The framework of development aid and oversight put in place by the richer nations and mediated through the likes of the IMF and the World Bank can be seen more as a giant vacuum cleaner designed to suck resource and financial wealth out of the poorer nations either through legal or illegal means, whichever generates the largest flows. So while Africa is wealthy, its interaction with the world monetary and trade systems, leaves millions of its citizens in extreme poverty – unable to even purchase sufficient nutrition to live. It is a scandal of massive proportions and should become the target of all progressive governments (as they emerge).
Greece is back in the news as the IMF, the Germans and the European Commission slug it out pretending to talk tough and propose solutions to the Greek tragedy. There is no solution of course. All the debate about whether the primary surplus target should be 3.5 per cent of GDP (European Commission position) or slightly lower (IMF position) is just venal hot air. Anybody who knows anything and isn’t protecting their past mistakes would assess that a fairly large and sustained fiscal deficit is required in Greece to rebuild some of the lost capacity and to provide an inkling of hope to the youth who are facing a lifetime of diminished prospects as a result of the decisions the adults around them took. All the talk about ‘deficits mortgaging the grand kids future’ – sick. The austerity has meant the grand kids might not ever emerge given the constrained circumstances their would-be parents will face as they progress through adulthood. The reality remains – firmly – Greece should exit the Eurozone, convert any outstanding liabiliites into a new currency at parity, and stimulate its domestic economy with expansionary fiscal policy. It should continue to impose capital controls. As part of the stimulus, it should introduce an unconditional Job Guarantee at a decent wage to provide a pathway back into employment for the many that the Troika have rendered jobless.
This blog will be a bit different from my normal fare. It provides insights into how entrenched a destructive and mindless neo-liberal Groupthink pervades the economics profession. For the last several years I have been on the ‘expert’ panel for the Fairfax press Annual Economic Survey. Essentially, this assembles a group of well-known economists in Australia from the market, academic and institutional (for example, union) sectors and we wax lyrical about what we expect will happen in the year ahead. To be fair, there is a large element of chance in the exercise as there is in all forecasting. So I am never one to criticise when an organisation such as the IMF or the OECD or some bank economist gets a forecast wrong. The future is uncertain and we have no formal grounds for even forming probabilistic estimates, given we cannot even assemble a probability density function (an distributional ordering of all possible events ) to extract these probabilities. So guess work is guess work and you have to be guided by experience and an understanding of how the system operates and the elements within the relevant system interact. What I do rail against is the phenomenon of systematic bias in forecast errors. For example, the IMF always predicts stronger growth than occurs when it is advocating imposing austerity (thereby underestimating the costs of the policy). The systematic bias in their errors is traceable to the flawed models they use to generate the predictions, which, in turn, reflect their ideological slant against government deficits and in favour of fiscal surpluses (as a benchmark). As luck would have it, in the 2016 round of the Fairfax Scope survey, I was fortunate enough to achieve the status of Forecaster of the Year (shared with 2 other members of the panel) – see Scope 2017 economic survey: Stephen Anthony, Bill Mitchell; and Renee Fry-McKibbin tie for forecaster of the year – for detail. I tweeted over the weekend that as a result “MMT predicts well”. There was a lot underlying that three-word Tweet and it intersected with recent events that demonstrate how far gone mainstream macroeconomics is – it is in an advanced state of denial and has lost almost all traction on the real world.
This blog continues my mini-series of free trade. In The case against free trade – Part 1 – I showed how the mainstream economics concept of ‘free trade’ is never attainable in reality and so what goes for ‘free trade’ is really a stacked deck of cards that has increasingly allowed large financial capital interests to rough ride over workers, consumers and undermine the democratic status of elected governments. The aim of this mini-series is to build a progressives case for opposition to moves to ‘free trade’ and instead adopt as a principle the concept of ‘fair trade’, as long as it doesn’t compromise the democratic legitimacy of the elected government. This is a further instalment to the manuscript I am currently finalising with co-author, Italian journalist Thomas Fazi. The book, which will hopefully be out soon, traces the way the Left fell prey to what we call the globalisation myth and formed the view that the state has become powerless (or severely constrained) in the face of the transnational movements of goods and services and capital flows. In Part 2, I consider the myth of the free market, the damage that ‘free trade’ causes and move towards a discussion of fair trade. I will complete the series in a third part soon.
As I noted in the first two parts of this little mini-series (can a mini-series be anything other than little), multilateral institutions such as the World Bank and the IMF have outlived their usefulness, given changes in economic conditions and a need to abandon the neo-liberal Groupthink that has infested both structures. In the final two parts (today and tomorrow) I will discuss the necessary issues that have to be addressed in reforming these institutions (or replacing them) and what a new international architecture that serves a truly progressive interest rather than the interests of financial capital in the US might look like.
On June 26, 2016, the Bank of International Settlements (BIS) published its – 86th Annual Report, 2015/16 – claimed that “there is an urgent need to rebalance policy in order to shift to a more robust and sustainable global expansion and address accumulated vulnerabilities”. Yesterday (October 5, 2106), the IMF issued its latest – Fiscal Monitor – Debt: Use it Wisely – which as the title might suggest focuses on what it sees as a dangerous exposure to global debt, which it currently estimates to be “at 225 percent of world GDP … currently at an all-time high.” Needless to say, this latest offering from the IMF has attracted news headlines with dire warnings about impending catastrophes. Some of this emphasis is justified but overall the IMF is erring, once again, in the opposite direction to its pre-GFC prediction errors. The context is obvious – mass unemployment continues as economic growth is stalling (or modest at best) because of a combination of non-government sector spending caution and the government obsession with fiscal austerity. The latter obsession has been stoked for years by the likes of the BIS and the IMF and while they do not explicitly recognise that in these latest documents, their stilted support for more fiscal action now, amounts to an admission of prior failures driven by the neo-liberal Groupthink that pervades these institutions.
This blog is the second part (now of three) where I discuss how the international institutional framework has to be reformed to serve a progressive agenda where rich countries (and the elites within them) do not plunder then pillory poor countries. In this blog I detail why we should dissolve the World Bank, the OECD, and the BIS, all of which have become so sullied by neo-liberal Groupthink that they are not only dysfunctional in terms of their original charter but downright dangerous to the prosperity and freedoms of people. The third part will consider what a new international institution might look like and the role it can play in aiding poor nations, particularly those who are reliant on imported food and energy. We will also discuss reforming the foreign aid system.