Click amount to donate direct to CounterPunch
  • $25
  • $50
  • $100
  • $500
  • $other
  • use PayPal
DOUBLE YOUR DONATION!
We don’t run corporate ads. We don’t shake our readers down for money every month or every quarter like some other sites out there. We provide our site for free to all, but the bandwidth we pay to do so doesn’t come cheap. A generous donor is matching all donations of $100 or more! So please donate now to double your punch!
FacebookTwitterGoogle+RedditEmail

Signs of Intelligent Life at the IMF?

The International Monetary Fund (IMF) held a conference last week devoted to re-examining macroeconomics in the wake of the economic crisis. This conference was evidence of a Glasnost that would have been unimaginable a decade ago. One of the organizers and speakers was Nobel Laureate Joe Stiglitz, a man who had previously been persona non grata at the IMF after he had trashed the institution in a piece in the New Republic back in 2000.

In addition to Stiglitz, the conference included several speakers who were quite critical of the economic policies pushed by the IMF in recent years. Given the format and the large number of speakers, there was limited opportunity for back and forth in these sessions. However, at least the important questions were being asked.

In spite of the increased openness of the discussion at the IMF it is not clear that its policies have undergone a similar adjustment. In particular, it openly touts the route of “internal devaluation” for countries that have fixed the value of their currency to other currencies or don’t have their own currency.

This is an incredibly painful process. The idea is that a country that has high unit labor costs relative to its trading partners will get its costs in line by lowering wages. The way that they lower their wages is to force workers to take pay cuts under the pressure of high rates of unemployment.

Latvia is currently the poster child for internal devaluation. Its unemployment rate is 18 percent. The IMF path would have other countries with serious competitiveness problems such as Ireland, Greece, Spain and Portugal go the same path.

The alternative would be to promote a somewhat higher rate of inflation in the surplus countries, most importantly Germany. Higher inflation in the surplus countries would allow the deficit countries to regain competitiveness simply by having their wages rise less rapidly than the inflation rate in the surplus countries. This could be accomplished without the double-digit unemployment rates that these countries are now enduring.

This route is consistent with the path suggested by Olivier Blanchard, the IMF’s chief economist, in a paper he wrote last year. A higher inflation rate would also have the benefit of eroding the real value of the debt for both heavily indebted countries and heavily indebted homeowners. This would allow these economies to get back on a normal growth path more quickly.

Remarkably, IMF policy still doesn’t seem to allow for the possibility that somewhat higher rates of inflation might actually be the best path under some circumstances. Many of the speakers seemed to still believe that the policy of inflation targeting, in which central banks target a 2.0 percent inflation to the exclusion of all other concerns, is the best route to pursue. This certainly seems to be the practice at the European Central Bank, as well as at many other central banks around the world.

This should have populations everywhere rising up with their pitchforks. Inflation targeting has led to an enormous economic and human disaster, likely costing the world more than $10 trillion in lost output and leaving tens of millions of people unemployed. If this experience is not enough to discredit a policy, it is difficult to imagine any possible set of events in the world that could lead the inflation targeters to change their minds.

In this respect the arguments set out in the IMF conference should be useful for political purposes even if they have little immediate effect on the conduct of central banks or the policy prescriptions of the IMF. The fact that many of the world’s most prominent economists, including even the chief economist at the IMF itself, can make policy prescriptions that are essentially ignored by those conducting policy, provides more evidence that policy is not being guided by neutral individuals seeking the best outcome.

This is yet another piece of evidence that the central bankers and others directing policy place the interests of the financial sector at the center of their concern. For the financial industry, a modest rise in the inflation rate would genuinely be bad news, reducing the value of their assets and the real value of their interest income.

In order to ensure that the major banks of the world do not have to deal with this situation, the central banks are prepared to force tens of millions of people to remain out of work. If we had real democracies, the central bankers who couldn’t do their job would be the ones out of work right now.

DEAN BAKER is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

This column was originally published by The Guardian.

 

More articles by:

Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC. 

Weekend Edition
October 19, 2018
Friday - Sunday
Jason Hirthler
The Pieties of the Liberal Class
Jeffrey St. Clair
A Day in My Life at CounterPunch
Paul Street
“Male Energy,” Authoritarian Whiteness and Creeping Fascism in the Age of Trump
Nick Pemberton
Reflections on Chomsky’s Voting Strategy: Why The Democratic Party Can’t Be Saved
John Davis
The Last History of the United States
Yigal Bronner
The Road to Khan al-Akhmar
Robert Hunziker
The Negan Syndrome
Andrew Levine
Democrats Ahead: Progressives Beware
Rannie Amiri
There is No “Proxy War” in Yemen
David Rosen
America’s Lost Souls: the 21st Century Lumpen-Proletariat?
Joseph Natoli
The Age of Misrepresentations
Ron Jacobs
History Is Not Kind
Ramzy Baroud
The UN ‘Sheriff’: Nikki Haley Elevated Israel, Damaged US Standing
Robert Fantina
Trump, Human Rights and the Middle East
Jill Richardson
Identity Crisis: Elizabeth Warren’s Claims Cherokee Heritage
Sam Husseini
The Most Strategic Midterm Race: Elder Challenges Hoyer
Maria Foscarinis – John Tharp
The Criminalization of Homelessness
Robert Fisk
The Story of the Armenian Legion: a Dark Tale of Anger and Revenge
Jacques R. Pauwels
Dinner With Marx in the House of the Swan
Dave Lindorff
US ‘Outrage’ over Slaying of US Residents Depends on the Nation Responsible
Ricardo Vaz
How Many Yemenis is a DC Pundit Worth?
Elliot Sperber
Build More Gardens, Phase out Cars
Muhammad Othman
Let Us Bray
Gerry Brown
Are Chinese Municipal $6 Trillion (40 Trillion Yuan) Hidden Debts Posing Titanic Risks?
Rev. William Alberts
Judge Kavanaugh’s Defenders Doth Protest Too Much
Ralph Nader
Unmasking Phony Values Campaigns by the Corporatists
James Bovard
Groped at the Airport: Congress Must End TSA’s Sexual Assaults on Women
Jeff Roby
Florida After Hurricane Michael: the Sad State of the Unheeded Planner
Wim Laven
Intentional or Incompetence—Voter Suppression Where We Live
Bradley Kaye
The Policy of Policing
Cesar Chelala
The Catholic Church Fails Sexual Abuse Victims
Kevin Cashman
One Year After Hurricane Maria: Employment in Puerto Rico is Down by 26,000
Dr. Hakim Young
Nonviolent Afghans Bring a Breath of Fresh Air
Karl Grossman
Irving Like vs. Big Nuke
Dan Corjescu
The New Politics of Climate Change
John Carter
The Plight of the Pyrenees: the Abandoned Guard Dogs of the West
Ted Rall
Brett Kavanaugh and the Politics of Emotion-Shaming
Graham Peebles
Sharing is Key to a New Economic and Democratic Order
Ed Rampell
The Advocates
Louis Proyect
The Education Business
October 18, 2018
Erik Molvar
The Ten Big Lies of Traditional Western Politics
Jeffrey St. Clair
Lockheed and Loaded: How the Maker of Junk Fighters Like the F-22 and F-35 Came to Have Full-Spectrum Dominance Over the Defense Industry
Lawrence Davidson
Israel’s “Psychological Obstacles to Peace”
Brian Platt – Brynn Roth
Black-Eyed Kids and Other Nightmares From the Suburbs
John W. Whitehead
You Want to Make America Great Again? Start by Making America Free Again
FacebookTwitterGoogle+RedditEmail