The IMF has taken to advertising for the ratings agency Moody’s. It is a good pair really. Moody’s is a disgraced ratings agency and the IMF has blood on its hands for its role in less developed nations and for its incompetence in estimating the impacts of austerity in Europe. Neither has produced research or policy proposals that can be said to advance the well-being of nations. Moody’s has shown a proclivity to deceptive behaviour in pursuit of its own advancement (private largesse). The IMF struts around the world bullying nations and partnering with other institutions to wreak havoc on the prosperity of citizens. Its role in the Troika is demonstrative. Anyway, they are now back in the fiscal space game – announcing that various nations have no alternative but to impose harsh austerity because the private bond markets will no longer fund them. They include Japan in that category. Their models would have drawn the same conclusion about Japan two decades ago. It is amazing that any national government continues to fund the IMF. It should be disbanded.
There was a UK Guardian article yesterday (October 15, 2014) – Evo Morales has proved that socialism doesn’t damage economies – that recounted the recent economic history of Bolivia. There has been growing awareness in the Western press of what has been happening there given that the President Evo Morales has been once again re-elected for a third time, against the opposition of the financial elites in the so-called ‘first world’. A New York Times article (February 16, 2014) – Turnabout in Bolivia as Economy Rises From Instability – also noted the way in which Bolivia resisted the GFC to become a growth powerhouse in Latin America. The experience of Bolivia is a classic case of what can be achieved if a nation defies the international elites (such as the IMF and Wall Street) and carves out a path using its fiscal capacity to increase social capital and public infrastructure. When a nation can increase the real minimum wage by 87 odd per cent in a span of 8 years and see unemployment fall and real per capita income head for the stars then you know the mainstream neo-liberal mantras are wrong. Bolivia defied them and has prospered.
The IMF published its October – World Economic Outlook – yesterday (October 7, 2014) and the news isn’t good. And remember this is the IMF, which is prone to overestimating growth, especially in times of fiscal austerity. What we are now seeing in these publications is recognition that economies around the world have entered the next phase of the crisis, which undermines the capacity to grow as much as the actual current growth rate. The concept of ‘secular stagnation’ is now more frequently referred to in the context of the crisis. However, the neo-liberal bias towards the primacy of monetary policy over fiscal policy as the means to overcome massive spending shortages remains. Further, it is clear that nations are now reaping the longer-term damages of failing to restore high employment levels as the GFC ensued. The unwillingness to immediately redress the private spending collapse not only has caused massive income and job losses but is now working to ensure that the growth rates possible in the past are going to be more difficult to achieve in the future unless there is a major rethink of the way fiscal policy is used. The myopia of neo-liberalism is now being exposed for all its destructive qualities.
There are parallel universes operating when it comes to neo-liberal politicians attempting to deal with reality. The G20 Finance Ministers and Central Bank Governors concluded their weekend talkfest in Cairns yesterday and you might be excused for thinking there is a jobs glut across their economies. As an aside, fortunately, this pathetic lot of individuals were meeting about as far north as one can go on the Australian continent, which meant they were kept out of the civilised parts of the nation where the rest of us live. Given Australia is currently hosting the G20 this year, the event gave our buffoon of a Federal Treasurer the chance to bathe in the limelight and deliver the major press conference.
Yesterday the IMF released new analysis of Quantitative Easing, specifically in relation to the Euro Area – Euro Area – Q&A on QE. This is in the context of the ECB beginning to discuss the possibility of introducing a large sovereign debt buy-up as the euro-zone inflation rate looks to be close to deflating (negative inflation). Once again, all the financial commentators are rehearsing their usual claims about driving up inflation etc. The reality is the QE will not provide much help for the euro-zone economies which are mired in recession or stagnant, low growth. What is needed are fairly substantial increases in the fiscal deficits in all Member States and none of the neo-liberal ideologues want to face up to that. So, instead, we get these ridiculous debates and analyses of QE – good and bad and all the rest. The IMF is wrong on QE. But then why should we be surprised about that. An apology or admission of error will be issued down the track, notwithstanding that in between all sorts of spurious forecasts about inflation, inflationary expectations and growth will be issued by them.
The IMF recently called on the euro-zone leaders to In its 2014 Consultation – 2014 Article IV Consultation with the Euro Area Concluding Statement of the IMF Mission – (an annual event the IMF does with each contributing member) the IMF said that the Stability and Growth Pact (SGP) in the euro-zone “has become excessively complicated with multiple objectives and targets. Compliance with fiscal targets has been poor, reflecting in part weak enforcement mechanisms. And there is a worry that the framework discourages public investment.” The IMF might have mentioned that it also discourages private investment. The failure to include that in their warning is a reflection of their continued belief that fiscal austerity is good for the private sector. The evidence is very clear – it is bad for every sector. But at least the IMF is joining the chorus in opposition to the manic rule-driven approach the euro bureaucrats have put in place.
The abysmal performance of the IMF in recent years has been one of the side stories of the Global Financial Crisis. They have consistently hectored nations about cutting deficits using models that were subsequently shown to be deeply flawed. They bullied nations into austerity with estimates of multipliers that showed that austerity would yield growth when subsequent analysis reveals their estimates were wrong and should have shown what we all knew anyway – that austerity kills growth. Their predictions have been consistently and systematically wrong – always understating (by significant proportions) any losses that would accompany austerity and overstating the growth gains. At times, in the face of incontrovertible evidence they have admitted their failures. But a leopard can’t change its spots. The IMF is infested with the myths of neo-liberalism and only a total change in remit and clearing out of staff could overcome that inner bias. Their latest offering – Japan: Concrete Fiscal, Growth Measures Can Help Exit Deflation – is another unbelievable reversion to form.
On Monday (July 8, 2013), the IMF released its “preliminary findings” of the – Article IV Consultation with the Euro Area. The nomenclature and turn of phrase alone are symptomatic of the organisation’s incapacity to come to terms of the problem it is addressing and its own role in creating and perpetuating the problem. On the one hand, they clearly acknowledge that “the economic recovery remains elusive, unemployment is rising, and uncertainty is high”. But on the other hand, they urge more of the same and claim the policies that have created this mess represent “progress”. The Euro area can do two things to improve the situation of citizens who live within it. First, abandon the voluntary fiscal rules which have not theoretical justification and allow nations to expand deficits to address the massive output gaps. If need be, fund the deficits via the ECB. Second, once the crisis is over, create a process whereby the monetary union voluntarily dissolves itself in an orderly manner. That is the only sure way of minimising the on-going damage. Oh, and third, withdraw all funding from the IMF and enter multilateral negotiations to create a new agency that helps poor nations defend themselves against speculative attacks on their currencies. And, while I am at it, fourth, reach an international accord to outlaw any speculative transaction that does not advance the real economy. That will keep them all busy and get the millions of people that the IMF and the Euro elites have deliberately made jobless busy again too.
Imagine a patient that goes in for surgery to fix an in-grown toe-nail. She comes out in a wheelchair after the surgeon has trimmed a little more than expected from the toe. The result is she loses her whole leg in the operation. When challenged, the surgeon says that they underestimated how much damage would be caused when they starting trimming the toe-nail and realised too late that they had actually cut her leg off by mistake. The surgeon also admits that they had major differences of opinion with the other specialists involved in the assessment about the extent of the cutting required and the degree to which the surgery would deliver relief to the patient but chose not to disclose that to the patient before hand because they didn’t want to risk slowing down the rush to surgery. After all, surgeons know only one thing – cutting and stitching. The one-legged patient sues the surgeon under tort and the authorities prosecute under criminal law. The surgeon is found guilty of criminal malpractice and negligence, is ordered to pay out millions to the patient and is sent to prison. The reality of professional risk. While the analogy is not perfect it leads to this sort of question: Why should professional economists working for the IMF, the EC and the ECB be above the professional standards and accountability that apply throughout the professional world?
I recall a professor in my student days (formal that is, given we are always students if we remain open) telling a postgraduate class that economic development could only occur if the social democratic pretensions of the left, including tolerance of trade unions, were suppressed – “in the interests of progress”. He laughed and said that it was no surprise that the most right-wing nations grew the fastest. His poster child was South Korea. I recalled that experience when I read two articles recently in the UK Guardian. They are reflections on how neo-liberalism is really the antithesis to democratic ideals. The so-called free markets have nothing to do with freedom or political inclusion.