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.
The International Labour Organization (ILO) released its latest – Global Employment Trends 2013 – yesterday (January 22, 2013), which carried the sub-title “Recovering from a second jobs dip”. The way things are going in policy circles next year’s ILO Trends report will be titled something like “Heading into a third jobs dip”. There has been a lot of focus in the last few days on how central banks are standing ready or are about to inject liquidity into their respective economies as a further attempt to boost jobs. The press reports I have read (about Japan, UK etc) never also mention that these monetary policy gymnastics (quantitative easing) do nothing as they stand for aggregate demand. Japan will pick up its growth rate in the coming year not because the BoJ is buying bonds but because the Ministry of Finance will be increasing the budget deficit via some large spending injections. Unfortunately, the UK is determined to ensure it has a quadruple(bypass!)-dip recession. The ILO reports highlights the results of the policy folly in very sharp terms but, unfortunately, still situates that organisation within the neo-liberal orthodoxy when it comes to macroeconomic policy. Their heart is at least in the right place, they just have to move their institutional brain – about 180 degrees.
Earlier this year the President of the European Commission declared that “the euro crisis is a thing of the past” (Source). As with most things the President says the reality is different to his political speak. The latest news is that Germany went backwards in the fourth-quarter 2012 as the on-going fiscal austerity chokes any hope of growth. The data continues to negate the logic that emerges from agencies such as the IMF. In recent days, the IMF, fresh from admitting what amounts to professional malpractice (see – The culpability lies elsewhere … always! for example) – has just published a paper that seeks to classify governments as to whether they are fiscally prudent or profligate. As you will see these concepts might be bandied about in religious meetings but have no meaning in the way the IMF seeks to apply them to the real world economic debate. They are loaded terms that are defined without reference to anything that matters. The problem is that the policy advice that follows from this sort of irrelevant analysis causes massive damage to the lives of people by undermining the capacity of economies to meet the needs of these people.
I haven’t a lot of time today (travel) but I thought the latest offering of the IMF was interesting. In their latest World Economic Outlook (April 2012 – which will be released in full next week) they provided two advance chapters – one – Chapter 3 – Dealing with Household Debt – demonstrates just how schizoid this organisation has become. They are clearly realising that their economic model is deeply flawed and has failed to predict or explain what has been going on over the last five years. That tension has led to research which starts to get to the nub of the problem – in this case that large build-ups of debt in the private domestic sector (especially households) is unsustainable and leads to “significantly larger contractions in economic activity” when the bust comes. They also acknowledge that sustained fiscal support is required to allow the process of private deleveraging to occur in a growth environment. But then their ideological blinkers prevent them from seeing the obvious – that sustained fiscal deficits are typically required and that in fiat monetary systems this is entirely appropriate when . Which then leads to the next conclusion that they cannot bring themselves to make – the Eurozone is a deeply flawed monetary system that prevents such fiscal support and should not be considered an example of what happens in fiat monetary systems. Some progress though!
When I read the latest news from the IMF early this morning I sent out a tweet saying that it was the height of hypocrisy for the IMF now to be trying to reclaim the high ground in the current economic debate by lecturing nations about the dangers of fiscal austerity. The IMF will always be part of the problem rather than the solution. They are consistently the architects of misinformation and bully national governments on the basis of that misinformation only to come back 3 months later and say “gee whiz”, look how bad things become. Currently the IMF is pleading for more funds. If I was a national government contributing to this bullying, incompetent organisation I would immediately cancel the cheque and, instead, spend the money pursuing domestic growth for the benefit of the citizens is that rely on my decisions. The current position of the IMF represents the height of hypocrisy. Further their forecasts are significantly error prone as usual. Wrong models will generally produce terrible forecasts that have to be continually revised. In the case of the IMF, these errors are also systematically biased by the ideological nature of their approach to macroeconomics.
In early January 2012, the IMF published the following working day – Central Bank Credit to the Government: What Can We Learn from International Practices? (thanks Kostas). In terms of the title you can’t learn very much if you start off on the wrong foot. The bottom line is that if the theoretical model that you are using is flawed in the first place then you wont make much sense applying it. The other point is that while this paper presents some very interesting facts about the legal frameworks within which central banks operate and provide a regional breakdown of their results, their policy recommendations do not relate to the evidence at all. This is because they fail to recognise that the patterns in their database (the legal practices) are conditioned by the dominant mainstream economics ideology. So concluding that something is desirable because it exists when its existence is just the reflection of the dominant ideology gets us nowhere. Their conclusions thus just amount to erroneous religious statements that make up the catechism of the IMF and have no substance in reality.