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Home Publications Blogs Beat the Press Are We Better Off Getting Advice from the IMF than a Drunk in the Street?

Are We Better Off Getting Advice from the IMF than a Drunk in the Street?

Sunday, 27 June 2010 07:44

If we look at the track record, probably not. After all, where was the IMF when the housing bubble in the United States and elsewhere was building up to ever more dangerous levels? Was it frantically yelling at governments to rein in the bubbles before they burst with disastrous consequences? No, the housing bubbles were no big deal at IMF land.

This would have been worth noting in a Washington Post article that repeats at length IMF recommendations about reducing budget deficits, cutting back on labor market protections for workers, and rolling back pension and health care benefits. After all, any reasonable person would ask when the IMF stopped being wrong about the economy. 

Actually, advice from the IMF may compare unfavorably to advice from a random drunk. The drunk will just be incoherent. There is reason to believe that the IMF has political motivations in the advice it gives. At the end of 2001 Argentina defaulted on its debt enraging the IMF. Prior to the default Argentina had been an IMF poster child eagerly embracing the IMF's program. 

The IMF's growth forecasts clearly reflected its change of attitude toward Argentina. Prior to the default the IMF was consistently overly optimistic about Argentina's growth prospects projecting much higher growth than Argentina actually experienced. After the default, the IMF was hugely over-pessimistic, projecting much lower growth rates than it subsequently experienced. It is difficult to explain this pattern of errors except by a political motivation.  


Comments (9)Add Comment
written by izzatzo, June 27, 2010 10:40
After all, any reasonable person would ask when the IMF stopped being wrong about the economy.

IMF, When did you stop beating your wife?
IMF: We never did. That's a loaded question.

IMF, When did you stop looking for your keys under the streetlight like a drunk?
IMF: We never did. That's a loaded question too.

IMF, When did you stop being proactive and heading off asset bubbles, and being reactive and cleaning up the aftermath?
IMF: We were never reactive. That's another loaded question. We've always been proactive with austerity programs that prevent bubbles and defaults in the first place. You have to understand that we're all dead in the short run.
We need more "drunks off the street" guiding our fiscal policy.
written by Quiddity, June 27, 2010 12:46
Can't be much worse than the advice doled out so far.
Too general, I know, but still...
written by diesel, June 27, 2010 3:54
In my last post discussing Greenspan's responsibility in overseeing the unfolding bank crisis, I illustrated my point with a portion of a dialogue from Plato's Republic. To sum up, a faction (the banking establishment), contending for power, will enact legislation (Gramm-Leach-Bliley Act etc.) favorable to its cause as it concieves that to be. This legislation may be harmful to the encompasing system in which the faction exists but since the faction can only project its nature, it has no way of avoiding this error.

As may be seen, the Greeks were skeptical of any larger "truth" or "good" emerging out of diverse factions contending for power. Truth was the product of deliberation--the distinctive process only the human soul possessed. Contrast this with our current view, in which we call this struggle an arena, playing field or marketplace and expect the outcome to be not only efficient, but rational and good. There is, as others have pointed out, more than a passing resemblance between the Judeo/Christion God and the power of the Invisible Hand of the Market. Some contend that capitalism is Christianity clothed in the garb of a merchant. Indeed, one can easily, by flipping the telescope over and looking through the wrong end as a Calvinist does, view the achievement of worldly success as an indication of Divine favor.

Nietzsche saw the world of mind as a battle between the Judeo/Christian and Greek ideals. For the Greek, deliberation, not faith, was the characteristic human virtue. To deliberate, to act deliberately, to plan, foresight, to envision an end goal and then work out the intervening steps. How different from our faith in the rowdy push and shove of the market where the end result reveals the working of an invisible hand. To the Greeks factionalism ended in folly as each party revised the rules to their own advantage. How could a coherent system of values endure this continuous assault carried out through seemingly legitimate law and legislation?
fool me once, shame on you, fool me twice... (presidency)
written by frankenduf, June 28, 2010 9:20
amen- the IMF track record is indeed horrible for the countries exposed to it's political leverage
and diesel- no need to go baroque for a philosophical takedown of the empirically crappy IMF- not sure i agree with ur post anyway- i would say that socrates did see truth arising out of a dialectic of opposing factions- the problem today is that the corporatist worldview has come to dominate the corporate owned media, so there really is no functional opposing view (unless u watch chomsky at 230 AM on democracy now on some high # VHF channel)- and careful with quoting nietzsche in a political ethics context- the guy wasn't exactly a poster child for democracy...
written by diesel, June 28, 2010 12:16
You're right frankenduf, my post was completely out of context. I was still chewing on the bone Dean threw out about Greenspan. I'm slow, but I do chew thoroughly. I still stand by my statements about the Greek's mistrust of the arena or market to arrive at truth, justice or goodness. And I agree that Nietzsche can and has been misquoted in many ways and used for all manner of nefarious purposes. In my humble opinion, his most useful insights contrast faith/reason, christian/Greek, a dichotomy he embodied, being himself a philologist and the scion of a number of generations of clergymen.

"Democracy" and "capitalism" make perfect bedfellows because each lends itself to domination by a clique or faction who then covertly manage public policy to suit their own needs--the very antithesis of their alleged virtues (which I believe is what you just said).
written by Joe K, June 28, 2010 3:54
Diesel and frankenduf. Nothing personal but WTF!
not so hard to explain why IMF was wrong about Argentina
written by Andy Harless, June 28, 2010 4:00
I'm guessing that the IMF underestimated the impact that the exchange rate would have growth, which would account for both the pre-default and post-default errors. Granted, you could argue that the IMF has a more general motivation to underestimate the macroeconomic damage done by fixed exchange rates, since much of its raison d'etre concerns the maintenance of fixed exchange rates that often arguably would be better off floating.
written by Jimmy, June 28, 2010 6:45
You sound like Nassim Taleb. And I like it.
Professor Emeritus of Economics
written by Roland Buck, June 30, 2010 1:17
"IMF recommendations about reducing budget deficits, cutting back on labor market protections for workers, and rolling back pension and health care benefits."

Conservatives have long wanted to cut or eliminate government programs that benefit working people and the poor, but have not had the political power to achieve this. The calls for austerity provide a rationalization for making such cuts and they are being made. There is a hidden agenda of class warfare by the haves and have mores against working people and the have nots behind this agenda.


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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.