Do as I say, not as I do...., The IMF in practice

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FionaK
view post Posted on 12/11/2011, 10:09




The IMF is happily insisting that austerity measures be imposed by all the countries who have to turn to it for help. One of those measures is cuts to pensions and raising of the retirement age, and this is imposed on people who don't have much to begin with. It is therefore curious to find that their site has this to say about their own pension arrangements

www.imf.org/external/np/adm/rec/policy/pension.htm#1

QUOTE
Lifetime pensions are payable starting at age 50 with a minimum of three years of service. The normal retirement age is 62 and any pensions starting earlier are subject to early retirement penalties.

The IMF gets its money from member countries on quota basis. It has this to say about the quota rates

www.imf.org/external/np/exr/facts/finfac.htm

QUOTE
Quotas are reviewed at least every five years. Ad hoc quota increases of 1.8 percent were agreed in 2006 as the first step in a two-year program of quota and voice reforms. Further ad hoc quota increases were approved by the Board of Governors in April 2008, resulting in an overall increase of 11.5 percent. The 2008 reform came into effect in March 2011 following ratification of the amendment to the IMF’s Articles by 117 member countries, representing 85 percent of the IMF’s voting power.

The Fourteenth General Review of Quotas was completed two years ahead of the original schedule in December 2010, with a decision to double the IMF’s quota resources to SDR 476.8 billion.

Doesn't even seem that their money is increased in line with the low inflation rate which is the central concern of the ECB.

In their accounts their net administrative expenditure was $813 million in 2009; in 2010 it increased by 6+% to $863 million: and in 2011 by a further 6+% to $917 million. That is nearly a billion dollars and it does not include capital expenditure. Projections for the next three years show an expected rise over the period of a further 10%.

ETA: the 2011 outturn is underestimated if international accountancy standards are applied: in that case net expenditure is $999 million: but I do not have the comparable figures for the previous year, so cannot show the percentage increase as adjusted.

In the financial year 2011 the financial statement and report boasts that staff recruitment has increased. They hired 195 people, as compared with 150 average in recent years. However in line with its recommendations for everybody, else many of those staff reflected their adherence to "flexible" employment, or, to put it another way "about two-fifths of new staff were hired on a limited-term basis.".

It is also interesting to note that they reduced the numbers of staff complement by 380 as part of the restructuring. As far as I can gather that means that they need 380 fewer staff according to the new budget targets: but they recruited 195 instead (or as well: that is not clear). In addition the IMF decided to focus recruitment on higher paid employees, apparently: at least that is what I take from:

QUOTE
To meet evolving business needs, the Fund recruited a higher proportion of midcareer economists, as well as staff with financial sector and fiscal/debt management skills.

I am sure it is coincidence that they are recruiting from the financial sector just when some of the people who formerly worked there are losing their jobs because they trashed the world economy. But it looks to me as if they are getting rid of support jobs and increasing staff in the higher paid positions: I have seen this before when "austerity" is required.

QUOTE
As of April 30, 2011, the IMF had 1,949 professional and managerial staff and 473 staff at the support level

Can you spell "top heavy"?

One of the "austerity measures" the IMF supports for other countries is pay freezes for public sector workers (or, indeed, for all workers if they can get away with it). So it is interesting to note that the accounts show that managers' remuneration is uprated annually, according to the Washington DC consumer price index. The average salary for senior officers was $305,615 a year. So you can see they could not possibly endure a pay freeze like the rest of us.


Maybe it is time they took some of their own medicine? I always like the idea that one should lead by example: and of course if the "austerity measures" are believed to promote efficiency this "bloated public sector" (all one word) organisations should be adopting them: I think at least a 7% efficiency savings target per year would be a good start?

Edited by FionaK - 29/5/2012, 13:16
 
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FionaK
view post Posted on 29/5/2012, 12:41




I have not until now really looked at the IMF: I propose to start doing so now because Ms Lagarde's remarks about Greece seem to me to have let her mask slip, showing the banker beneath. I wondered what the IMF is supposed to do, in principle and so I have gone back to the original statements as a starting place.

The first thing that is clear is that the IMF was set up as part of the Bretton Woods agreement in 1945. It was to operate under Articles of Agreement and started its work in 1947.

The Articles of Agreement are interesting. After an introductory paragraph they set out their purposes in a short section. It says this

QUOTE
The purposes of the International Monetary Fund are:

(i) To promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems.


(ii) To facilitate the expansion and balanced growth of international trade, and to contribute thereby to the promotion and maintenance of high levels of employment and real income and to the development of the productive resources of all members as primary objectives of economic policy.

(iii) To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.

(iv) To assist in the establishment of a multilateral system of payments in respect of current transactions between members and in the elimination of foreign exchange restrictions which hamper the growth of world trade.

(v) To give confidence to members by making the general resources of the Fund temporarily available to them under adequate safeguards, thus providing them with opportunity to correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity.

(vi) In accordance with the above, to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.

The Fund shall be guided in all its policies and decisions by the purposes set forth in this Article.

As you see, it specifically aims to maintain "high levels of employment and real income". This is in line with Keynes analysis that if you look after employment the economy will look after itself. It is the second purpose outlined, and that presumably reflects its importance. It seems to me that this is the only real outcome which is enshrined in the Articles of Agreement, because most of the rest of the purposes are rather an outline of the underlying assumptions about what will lead to that outcome: or descriptions of how those aims will be achieved in administrative terms. Thus is it is inherent in the Articles that stable exchange rates and an international system of payments without foreign exchange restrictions will enhance international trade; and that short term problems for individual members will be smoothed by a permanent mechanism for communication between states coupled with making funds available so that such problems can be dealt with without harming national or international prosperity: all of this will lead to high employment and high real income and good use of resources as primary objectives of economic policy

It is not to be expected that the rationale for the underlying assumptions will be laid out in such a document. That does not matter because the theory is testable in its own terms. Either they are right that policy based on those assumptions will lead to high employment and prosperity for the people: or they are wrong. It is perfectly falsifiable in principle, and that is all we can ask of such a programme.

My understanding of the history of this is that they were very broadly right. From its inception in 1947 there was a period of stability and prosperity at least in the western world. Full employment was the central concern of the IMF and it was also the central concern of post war governments. That is no longer true of the governements, however, and it does not appear to be true of the IMF as currently constituted either. That is not so surprising, because the IMF is not independent: it gets its money from those governments and it has not apparently had the strength or the will to defend those original principles: how could it? He who pays the piper.............
 
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FionaK
view post Posted on 29/5/2012, 13:02




The existence of the IMF was predicated on the consensus reached at Bretton Wood. That consensus broke down during the 1960's and was finally ended when the US president unilaterally abandoned the foundation of the system of setting exchange rates, by suspending the convertability of the dollar to gold.

That may have been a good decision or it may not: I am not really equipped to say. What I will say is that at this point the whole rationale for the IMF was undermined. It necessarily became a different kind of beastie. I think that should have been acknowledged and a new agreements should have been openly and transparently negotiated. It was not. Instead the body continued under the same name and with the same ostensible purposes. Howeve the decision of the USA was not based on Keynesian analysis: Nixon was by now under the influence of the neoclassical economists: and full employment is very far from their agenda.

After the Nixon decision in 1971 the parity of exchange rates was abandoned and quite quickly the currencies of major economies were "floating". That has advantages and disadvantages: but what it certainly means is that the fundamental purposes of the Agreement have been fatally undermined. iii and iv are no longer possible and so it follows that the nature of the IMF enterprise was radically altered.

In support of this view compare the 1944 agreement

http://freetheplanet.net/articles/135/arti...nd-22-july-1944

with the current agreement as amended

www.imf.org/external/pubs/ft/aa/index.htm#art4

In particular it is instructive to read Article IV in both version, as well as Article 1. As you see, the purposes have not been altered: Article 1 is identical in both versions. But Article 1V could hardly be more different and in the current version there is an explicit change of purpose introduced

QUOTE
Recognizing that the essential purpose of the international monetary system is to provide a framework that facilitates the exchange of goods, services, and capital among countries, and that sustains sound economic growth, and that a principal objective is the continuing development of the orderly underlying conditions that are necessary for financial and economic stability, each member undertakes to collaborate with the Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates.

There is no focus there on the effects on working people: no emphasis on full employment nor any suggestion that these arrangements are to be informed by the effect on those things. Economic growth is now central, and while stability is still important it is an end in itself: that was not true before. The capture of the IMF by the neoliberals seems to me to be complete. It is this change which has turned a good institution into an arm of plutocracy, or so I think

Edited by FionaK - 29/5/2012, 13:26
 
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FionaK
view post Posted on 12/6/2012, 12:46




www.ituc-csi.org/IMG/pdf/ituc-imf_background-paper_0412.pdf

The international trades union congress has produced a report which considers what the IMF says as compared to what it does. The focus is employment, as you might expect considering the source.

In an article published in September 2011 in its magazine the IMF reported on inequality and the article quotes it as saying

QUOTE
“The research described here shows that it is important to have realistic expectation about the short-term consequences of fiscal consolidation: It is likely to lower incomes – hitting wage-earners more than others – and raise unemployment, particularly long-term unemployment.

In the same issue the reported research which found that increased foreign and domestic indebtedness was associated with greater income inequality and that this was apt to lead to instability.

In 2011 the then managing director of the IMF made a speech in Washington in which he said

QUOTE
We must get past the binary and unhelpful contrast between ‘flexibility’ and ‘rigidity’ in labor markets and ask instead if policies are effective in creating and sustaining jobs…. IMF research suggests that inequality can make countries more prone to financial crises, especially if associated with a large financial sector [and] also shows that sustainable growth over time is associated with a more equal income distribution jobs…. IMF research suggests that inequality can make countries more prone to financial crises, especially if associated with a large financial sector [and] also shows that sustainable growth over time is associated with a more equal income distribution…. We need policies to reduce inequality, and to ensure a fairer distribution of opportunities and resources. Strong social safety nets combined with progressive taxation can dampen market-driven inequality…. Collective bargaining rights are important, especially in an environment of stagnating real wages. Social partnership is a useful framework, as it allows both the growth gains and adjustment pains to be shared fairly.”

In light of these findings one would expect that IMF conditons on financial help would be different for different places, and that at least in some places they would be conditions designed to increase protection for workers and to reduce income inequality. So what actually happens? The paper looks at the conditions imposed on 6 countries which have had loans from the IMF.

Greece:

One condition of the bail out was a 22% reduction in public sector employment. If achieved that would bring public sector employment 3% below the OECD 2008 average, to 12% by 2015.

A second condition aimed at reducing wages in the private sector by 15%. To do this the minimum wage was to be reduced by 22% for adult workers and 32% for those aged under 25.

Pensions above 1300 euros were to be cut by about 11% and unemployment benefits were restricted as well

Other provisions aimed to increase labour flexibility by allowing longer ours to be worked and restricting overtime: so those with a job worked more: and available work was not shared out

This programme doubled unemployment in two years. All of these measures were aimed at the poorest workers and so serve to increase inequality, despite the research findings noted above. Nor did it produce the results aimed at: Greece is not growing and it is not solvent.

Ireland:

The conditons of the loan to Ireland included reducing state benefits for children and the elderly, and tighter conditions for unemployment benefits with more means testing. The latter was aimed to increase the incentive for people to seek work: a mere insult given there is no evidence that people were unwilling to work. But we have seen that before!

As with Greece minimum wage agreements were to be "reformed" (read abolished) and working conditions reduced

Unemployment increased as a result, to 15% by 2012. GDP did not increase: it fell and then stagnated. Cuts to employment, minimum wages and benefits increased inequality

Portugal:

Here the conditions focussed on reductions in employment protection on the grounds that these were more restrictive than thos in other countries: specifically there was more protection than in Germany or Spain. According to their own research and that of the OECD there is not much evidence that such protection is associated with poor economic performance. But it is just possible that is because they have no idea what they are talking about. They told Portugal that their calculations showed employment restrictions there were tighter than those in Spain: one month later they told Spain that employment restrictions in that country were tighter than those in Portugal. See my sig!!

But who cares about reality: we have an ideology! So Portugal was required to cut unemployment benefits, and limit minimum wage increases. Employers' contributions to social security through payroll taxes were to be cut as well: but government tax income would be preserved by increases in VAT and expenditure cuts. Once again the poor pay the price. This on the basis that such cost cutting increases job creation: a mere assertion not supported by outcomes anywhere, so far as I can see.

Unemployment went up to 12% by 2011. As with Greece the economy performed worse than forecast and GDP fell

Rumania:

The loan to Rumania depended on a reduction of public sector wages of 25% and of pensions and benefits of 15%. As in all the other countries considered, short term contracts of employment were promoted: increasing insecurity for those in work,

The IMF assertion that Rumania's employment legislation was too rigid founded on an "employing workers indicator" from the World Bank, which purports to enable comparison of the "ease of doing business" across countries. It seems that the World Bank abandoned this measure 9 months before the IMF imposed these conditions on the basis of it: and the world bank instructed its staff "to refrain from any recommendation based on the previously published EWI “in Country Assistance Strategies / Country Partnership Strategies, Economic and Sector Work, Doing Business Reform memoranda, policy notes and other strategy or analytical". But IMF staff are not World Bank staff, so that is OK. They don't know what they are talking about: but hey, they have an ideology!

I could go on: the report is linked and you can read it for yourself. To me it is perfectly clear that the IMF has no intention of making objective assessments and framing recommendations on the basis of real world evidence and outcomes: they just want to ensure that the poor pay for the folly of the rich, and they will say anything which tends to that conclusion.
 
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FionaK
view post Posted on 14/6/2012, 12:55




I have been having a look at the IMF magazine of September 2011: which was devoted to questions of equality,and is referred to above. It is very instructive indeed. It is not to be expected that people will admit that what they thought before was wrong just because they have now changed their minds. I find that odd: but it seems to be general rule in politics and economics, at least.

Let me start with a piece called "More or Less" by someone called Branko Milanovic. As an example of muddled thinking caused by the need to pretend that one's views have always been reasonabe it is quite good.

The subheading of the piece is this

QUOTE
Income inequality has risen over the past quarter-century instead of falling as expected

This is the first place you are stopped in your tracks. Expected by whom? The neoliberal economists have been quite explicit in saying that increased inequality is either a good thing, or at the very least irrelevant: and there is nothing at all in their theory which leads them to try achieve income equality. Since politicians in most countries have been persuaded to adopt that theory, there is no justification whatsoever for that "as expected". So what are to make of it? Are we to think that the policies and conditions that the IMF have been pushing for 30 years were predicated on some idea they would increase income equality, and they just made a mistake? For 30 years? All over the world? Did they just mishear the economists? I cannot believe that sentence is honest: I think it is a weaselly attempt to imply they had no idea they would increase inequality. Oops!

The next paragraph says that inequality within countries is increasing: but recently that between countries is decreasing. This is due to levelling down, as is implicit in his expositon, though not properly spelled out. More gloss

There follows an expanation of how inequaity is measured, so that is handy.

The lie in the subheading is made absolutely clear in the next bit:

QUOTE
Historically, the reverse position—that inequality is good for growth—held sway among economists.

As noted in an earlier post the IMF has shifted from a focus on employment to a focus on growth, and the only reason for that is the adoption of neoliberal economic theory. That "as expected" is clearly exposed as a big fat lie, if you had any doubt of it before.

Then comes the explanation for why they were right before when they sought to increase inequality: and right now when they have reversed their position. It is quite amusing. This is what he says

QUOTE
The main reason for this shift is the increasing importance of human capital in development. When physical capital mattered most, savings and investments were key. Then it was important to have a large contingent of rich people who could save a greater proportion of their income than the poor and invest it in physical capital.

But now that human capital is scarcer than machines, widespread education has become the secret to growth. And broadly accessible education is difficult to achieve unless a society has a relatively even income distribution. Moreover, widespread education not only demands relatively even income distribution but, in a virtuous circle, reproduces it as it reduces income gaps between skilled and unskilled labor.

Poppycock!. There is no empirical evidence for the importance of "human capital" in promoting economic growth in the way he implies (see other threads in this section). But even if it were so there is hardly a shortage of education in western europe. Yet when the IMF makes prescriptions for Western European countries they always include measures which will inevitably harm education: for education is provided by the state through public spending and public spending is always to be slashed. It always includes large scale privatisation and that includes schools and universities (or at the very least they are not ring fenced from such measures): but private education is nowhere universal education.

Nor is there any reason at all to suppose that increased inequality is a good in countries where the need is for physical capital. If folk are better off they can pay tax. That tax can be used to invest in the way he describes. If you happen to believe that government led investment is necessarily incompetent you can allow people enough income so that most save a little, and then pool those resources and promote investment that way. There is nothing in either route to suggest that increased inequality is either necessary or desirable. Rich people don't pay tax. The asumption that they invest is just that: an assumption. They do, to some extent, invest their wealth: but more of it sticks to their fingers, and the very rich achieve their position as rentiers, not as entrepreneurs, mostly. If what you want is investment in physical capital there is no empirical reason to suppose that will be better achieved by making some people very rich, and more people so poor they cannot contribute. Self serving rubbish!

He then notes that the rise in inequality (which, unsurprisingly, he dates from the early 1980's just when the neoliberal theories superseded Keynesian models in mainstream economics and in government policies in many countries) is at odds with both of the theories which address the question in economic theory. Economists were surprised: it is claimed. Orly? When they are agreed to have believed that outcome to be desirable and set out to achieve it? I don't think so. What is happening here is a conflation between the abstract models embraced in academia and the actual influence of policies predicated on different models applied to the real world. He knows this fine and explains it quite well in a later section when he goes on to outline various explanations for the observed phenomena, and is reasonably even handed in that expositon, I think.
 
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FionaK
view post Posted on 14/6/2012, 15:48




I learned something astonishing from the second article I read in the IMF September 11th magazine. The measures used in previous studies which purported to show that austerity produces economic growth ensured that the studies could have no other outcome.


www.imf.org/external/pubs/ft/fandd/2011/09/Ball.htm
 
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FionaK
view post Posted on 11/7/2012, 20:57




I happened to be reading the Articles of Agreement of the IMF because of something else I was interested in. As I mentioned before, Article IV is the one which demonstrates the change in the role of the IMF after about 1969, and it is worth quoting Secion 1 of this article in full

QUOTE
Section 1. General obligations of members

Recognizing that the essential purpose of the international monetary system is to provide a framework that facilitates the exchange of goods, services, and capital among countries, and that sustains sound economic growth, and that a principal objective is the continuing development of the orderly underlying conditions that are necessary for financial and economic stability, each member undertakes to collaborate with the Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates. In particular, each member shall:

(i) endeavor to direct its economic and financial policies toward the objective of fostering orderly economic growth with reasonable price stability, with due regard to its circumstances;
(ii) seek to promote stability by fostering orderly underlying economic and financial conditions and a monetary system that does not tend to produce erratic disruptions;
(iii) avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members; and
(iv) follow exchange policies compatible with the undertakings under this Section

As already noted, there is no mention at all of unemployment here: well the article is about exchange rates so you may not think that is important. But the committment to the exchange of capital between countries as an unquestioned good is important.

It is interesting to see that in section 4 there is a firm committment to balanced budgets and that this does not just apply to those members who are in deficit: it specifically states that

QUOTE
arrangements under which both members in surplus and members in deficit in their balances of payments take prompt, effective, and symmetrical action to achieve adjustment,

As I read that it would appear that Germany is in breach of these obligations, since it is my understanding that Germany is runnning a balance of payments surplus. It was certainly doing so in 2011

www.bundesbank.de/Redaktion/EN/Down...publicationFile

There have been calls for Germany to revalue or to take other steps to remedy this, since of course one nation's surplus is another nation's deficit and this is part of the problem for the eurozone. But, as with the nuclear proliferation treaty, the parts which place obligations on those who benefit do not seem to be implemented. In light of this section it seems to me that there should be significant measures to enforce those obligations and perhaps members of the IMF and the ECB should be put in to Germany to oversee its policies and ensure compliance with the terms of the agreement?
 
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FionaK
view post Posted on 17/7/2012, 15:05




The IMF has downgraded its forecast for UK growth, again. As I have mentioned before, their forecasts are generally overoptimistic: a lesser body might just tumble to the fact that their prescriptions make matters worse, but not they: Their latest offering admits a worsening outlook for financial stability and then recommends more of the same policy which is not working.

Why do we pay these peoplel?

http://blog-imfdirect.imf.org/2012/07/17/r...-action-needed/
 
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FionaK
view post Posted on 19/7/2012, 17:46




And another IMF blog is out today. This one is specifically for the UK and it represents something of a departure from their usual script

http://blog-imfdirect.imf.org/2012/07/19/m...wth-in-the-u-k/

They appear to have tumbled to the fact that cutting spending is harmful. Well I suppose that it is gratifying that they now acknowledge something so obvious that my granny's cat has been saying it for at least two yearsl.

What is galling is the brass neck they display, with such statements as " policy makers are not powerless": given their propensity for taking control of sovereign states and their press release a couple of days ago proposing that they should take a bigger role in "monitoring" how those sovereigns behave themeselves that is nothing but cheek. The hubris is tangible and I no longer think these people have any skills at all. We should disband them.

Anyway, in this blog they note that the uk economy has been flat for two years and it is 6% below its level at the start of the crisis: unemployment is high; and there is real cause for concern about all this. They propose three policies for the uk to sort it:

1. More quantitative easing. Well why not? It is working so well so far. They say "evidence suggests [this] can continue to support demand by lowering long-term interest rates and improving banks’ liquidity. Oh yeah? Be nice to see some of that "evidence" because it is not working here nor anywhere else I am aware of. By "evidence" I think they mean "our quasi religous belief system"

2. Make borrowing easier. Hmm.....what a good idea. In another part of the forest we cannot solve a debt crisis by borrowing more money. But let not 6 impossible things before breakfast slow you down. As it happens there is no evidence whatsoever that anybody wants to borrow more just at present: but I suppose it doesn't matter. It is one's civic duty to borrow!

It is interesting to try to cut through the gobbledygook in this part, too. I think the poppets are saying that the private sector would be willing to borrow but the problem is the banks are charging too much interest. That would be the banks who got all that cheap money under 1. above. That part of the private sector which is sitting on mountains of cash. That part which has led the government to promise them even more money if they will only lend to businesses: but doesn't have any way of getting them to do that? They welcome that policy by the way: but they don't think it is going to work. Well my granny's cat doesn't think so either: so you can see why IMF folk get the big bucks.

Since they don't think it is going to work, they go on to say that
QUOTE
further credit easing measures may be needed, including purchases of private-sector assets on secondary markets.

What do you think that means? Go on, have a guess! I honestly don't know what it means: but I am pretty sure it involves giving more government money to private companies, one way or another. Companies issue shares but they also issue bonds: perhaps they intend that the government should buy those bonds since the private sector won't? Or to put it another way, take on worthless assets for real cash. If that is what they mean then what they are prescribing is that company debt should pass to the sovereign for the sole purpose of allowing the private sector to have or borrow more money. Which they will be perfectly free to sit on: just like the banks. My granny's cat does not think that is a good idea. She does accept there is not much reason to believe the banks are special. as we have been told for so long. But she doesn't think that means that poor people should bail out the private sector as well as the banks. She says she heard that the world doesn't owe you a living: though being a cat she has trouble with that idea....just like the private sector really.

In addition the IMF suggests that the government should borrow more money to guarantee large private sector infrastructure projects. But carefully. They do not seem to like PFI: well they are late to the party. Again. My granny's cat told the family that PFI was a stupid idea when it was first proposed in about 19oatcake. And my granny's cat was so obviously right it didn't seem worth saying even then. I cannot see any good reason for increasing sovereign debt to give to private companies when you could do the same thing directly and cut out the profit. I thought the problem was the deficit: at least that is what the government tells me. That being so the IMF advice that "It is important, however, that the choice of projects and the modalities of their operation—public versus private, and financing by issuing public debt versus guarantees—is based on using public funds as efficiently as possible." is good. So forget the private sector altogether. We can't go about propping up "lame duck industries": or so we are told by neoliberals.

3. Slow down the austerity. This is all good clean fun: what they say is that if the two preferred options of giving the banks loads of money directly through QE; and lending private sector business money directly in huge quantities, taken together, do not work even given time, then the government might have to stop cutting benefits and public services as much as they have planned. As ever with the IMF (see earlier posts) this would not mean they have ever been wrong: rather it means that " The government’s reduction of deficits over the last two years has created the space for recalibrating fiscal policy, if needed." Er..wasn't doing that supposed to work all by itself? Why, I think it was.

The ending is beautiful

QUOTE
The absence of growth, even after additional monetary and credit easing measures, would indicate that the ability of monetary policy to mitigate partially the contractionary effects of fiscal tightening is even more constrained than currently assumed, implying higher and more asymmetric multipliers when the economy is weak. This may occur, for example, if heightened uncertainty, including concern about tail risks, deters the private sector from borrowing, even in response to significantly cheaper and more easily available credit.

In a nutshell, the priority for U.K. policymakers is to implement more expansionary economic policies, important elements of which are now in train. Without such policies, they risk weak demand that leads to persistently slow growth and high unemployment, which in turn will affect decisions made by consumers and investors, and permanently damage the long-run capacity of the U.K. economy.

I translate that as: we gave you our advice based on our principles; but we don't like our principles anymore. Never mind: we have others, and with any luck you will never notice that we ruined millions of lives because we have no idea what we are talking about. Please continue to pay our tax free wages
 
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FionaK
view post Posted on 20/7/2012, 16:10




http://cnnibusiness.files.wordpress.com/2012/07/doyle.pdf

This is supposed to be a letter from someone who is resigning from the IMF. Makes quite interesting reading
 
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FionaK
view post Posted on 23/8/2012, 15:34




http://economicsintelligence.com/2012/08/2...conomists-show/

Yet another example of the IMF saying one thing and doing a damaging other: once again one can only conclude that they are intent of claiming they are right no matter what happens
 
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FionaK
view post Posted on 4/1/2013, 02:18




www.imf.org/external/pubs/ft/wp/2013/wp1301.pdf

The link is to an IMF working paper. Such papers explicitly say that they should not be reported as representing the views of the IMF. They are quite good at having their cake and eating it too, as we have noted before. Nonetheless the authors work for the IMF and conduct research designed to elicit comment. If research is to have meaning then it must reach conclusions which are founded on facts: so why would you not accept them? To the extent that economics apes science then any dissent from the findings should be based on flaws in the methodology or flaws in the logic. No such flaws are identified in that general disclaimer so it need not detain us.

The paper purports to examine why the implementation of the IMF sponsored policy on what is called "fiscal consolidation" by them; "austerity" by the press; and "the dismantling of civilised society" by me, has not produced the results they expected. This was already identified in earlier work but this paper seeks to consolidate those conclusions. Basically they are saying that their presumptions about the size of the fiscal multiplier were mince. What that means is that they proceeded on the assumption that for every £1 of government spending cuts 50p or thereabouts would come out of the productive economy. If that is right then there is a net saving of 50p and that is how to get out of the debt and deficit problem. If what comes out of the economy is nearer to £1.60, as they now say, then cuts to government spending cannot solve the problem: they make it worse.

The first thing I noticed in reading it was this: they do not give up their underlying theory. According to the introduction, this failure is only likely to be found at the "zero lower bound". This is an excuse we have seen before, and what it essentially means is that "our theory only works when there is no crisis to solve". Now it is perfectly possible that something can work in normal circumstances, yet fail under extreme conditions. That is the claim, it seems. However it is also obvious that none of the folk who buy into this theory knew that it would fail; or under what conditions it would fail; hence it had no predictive value at all. Their explanation is all after the fact. That can happen when a system faces unprecedented circumstances. Unfortunately for that idea, this has already failed in other parts of the world. Over and over again. Indeed, the authors themselves say

QUOTE
Since episodes characterized by a binding zero lower bound (also referred to
as “liquidity trap” episodes) have been rare, only a few empirical studies investigate fiscal
multipliers under such conditions. Based on data for 27 economies during the 1930s—a period during which interest rates were at or near the zero lower bound—Almunia and others (2010) have concluded that fiscal multipliers were about 1.6.

I note that this research was only published in 2010: so it might be argued that the information was not available until that time. To which the response has to be "why not?" If they had any idea that the zero lower bound made all the difference to their prescriptions they should have had a look before now: and if they did not then their theory is not a theory at all because it has not considered what happens in a perfectly predictable situation: we know it is predictable because it happened in the 1930's and the parallels with that period are intuitively obvious to the most naive of observers (that's me)

As if that were not enough, there are plenty of economists (and ordinary people) who said that is what would happen, on the basis of an alternative theory. So they should have gone and looked before promoting a policy which was certainly not universally agreed to have the effects they predicted. Reminds me of Icarus. It is not like he was not warned that flying too close to the sun would be a disaster: he is not held up as a model of responsible behaviour, generally. Sadly the difference is that Icarus brought the disaster on himself: whereas the IMF and their friends brought it on the rest of us. They still have jobs and influence, for some reason.

The paper has some other interesting excuses things to say. For example, having found that their ideas about the multiplier are flat out wrong they go on to say that

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, lower output and lower income, together with a poorly functioning financial system, imply that consumption may have depended more on current than on future income

No shit, Sherlock? Imagine that! Folk who are not sure they will have a job in the future, who are already in debt and are experiencing wage cuts, spend what they actually have to spend and not some pie in the sky idea of what they might get in the future. Whoddathunk?!? Remember that this has come as a surprise to people who stated 3 paragraphs earlier that they found on "rational expectations". I have mentioned before that they have a very peculiar notion of what "rational" means.

Then there is the startling revelation that the multiplier is higher when there is a lot of slack in the economy. Again there are plenty of economists who subscribe to that view on the basis of a different theory, so this was not a new thought propounded in 2012 by fresh research, as they imply.

There follows a self serving wee whine where they say that they compared their own errors with the errors made by other forecasters, and for this purpose they cite the EC and the OECD as well as something called the Economist Intelligence Unit. And they all got it just as wrong. So what can you do, guv? Well you could start by looking at folk who do not derive their forecast from the same theoretical position, perhaps.

Finally, and unsurprisingly we get the usual conclusion: they were right all along, apparently.

QUOTE
our findings that short-term fiscal multipliers have been larger than expected do not
have mechanical implications for the conduct of fiscal policy. Some commentators
interpreted our earlier box as implying that fiscal consolidation should be avoided altogether.
This does not follow from our analysis. The short-term effects of fiscal policy on economic
activity are only one of the many factors that need to be considered in determining the
appropriate pace of fiscal consolidation for any single economy.

To hell with icebergs: full steam ahead, you might say
 
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view post Posted on 4/1/2013, 03:28
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QUOTE
The short-term effects of fiscal policy on economic activity are only one of the many factors that need to be considered in determining the appropriate pace of fiscal consolidation for any single economy.

"Indeed, the short-term effect of keeping the poor in their filthy stinking place trumps all other factors, and increasing the pace of fiscal consolidation is therefore always appropriate. We just did this research for a bit of fun."
 
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FionaK
view post Posted on 22/1/2013, 14:36




www.imf.org/external/pubs/ft/wp/2012/wp1208.pdf

Another link to an IMF working paper.

This paper is interesting for a number of reasons. First, it demonstrates just how completely useless their modelling is. The reason I say that is that it uses what is called a DSGE model to underpin the findings. Since DSGE modelling has also been used to justify earlier analyses and therefore prescriptions, it seems that it can be used to support any case at all. That is no surprise because models depend on the assumptions made about what is relevant, and that is not science: that is politics. GIGO applies.

Leaving that aside, what are they actually saying? Well it is not that difficult to follow, though they seem to find their conclusions surprising. What this paper says is that increased inequality causes current account deficits in developed nations. Better late than never, I suppose. It goes on to say that the policy responses typically adopted by those who subscribe to the plutocratic analysis, i.e. "financial liberalisation", make matters worse.

The other interesting conclusion of this paper is that the loss of effective trade unions is a direct causal factor in the deficit and therefore the crash. What are they? Communists?
 
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FionaK
view post Posted on 6/6/2013, 12:18




www.imf.org/external/pubs/ft/scr/2013/cr13156.pdf

I linked this paper in the Greece thread as well, because it is important to that country. It is yet another self serving bit of nonsense from an organisation which is utterly blinded by ideology or is completely corrupt. Whichever is true that organisation should be disbanded immediately and all its personnel made to go and look for work in a world where their occupation has been rendered redundant because it is no use to man nor beast in the real world. In that real world professionals who are so incompetent that they harm their clients are sued and they are struck off. That is true if a doctor kills someone through negligence or if a lawyer writes a contract which harms his client's financial interest through incompetence. The IMF and their economic model have killed lots of people in many countries and they have harmed the financial interests of millions of their clients: yet they suffer no consequences at all. They even use their incompetence as a justification for their failure, which is odd if considered from the point of view of professional ethics. Either the whole "profession" is incompetent, as they seem to claim: which is the same thing as saying they are members of the "Confederation of Snake Oil Salesmen" with the professional standards to be expected from such a body; or they are saying that they are members of the "Institute of Homeopaths and Humour Rebalancing Practitioners" in which case they should be dealt with as unscientific woo merchants, and thrown out of a profession which is otherwise evidence based. Either way we should not listen to these charlatans, ever.

The paper is there for you to read, but it is worth looking at some of its statements in detail, I think. It is quite instructive from some points of view

In the first place: one of the questions which any professional needs to keep hold of is "who is your client?" The reason you have to do that is that although it looks simple on the surface it is subject to a lot of pressure in the real world where other interests abound. For example, a doctor's client is his patient. He will be subject to pressure from financial interests such as drug companies who wish to sell their products; and from governments or insurance companies, who wish to cut costs of treatment. If the doctor loses sight of his purpose those other interests will lead to harm for his patient, and the line is fuzzy because financial constraints are real. This is true for all professions, I think, and so that central precept is fundamental to them all. If a profession is worth anything it is worth it because the practitioner has skills you do not have: but equally because that practitioner can be trusted to put the interests of the patient or client first and last.

So who is the IMF's client? On the face of it they are there to help individual countries deal with economic problems through direct assistance and impartial advice and recommendations. It is perfectly obvious from this paper that that is not true. The IMF was not working on behalf of Greece: it was working for the EU and the global economy: for which read the financial and corporate interest.

QUOTE
moving ahead with the Greek program gave the euro area time to build a firewall to protect other vulnerable members and averted potentially severe effects on the global economy.

Would you go to a doctor who was working for a "for profit" blood transfusion service if you had anaemia? That is what Greece was forced to do.

If there was no other doctor in town you might decide that any doctor was better than no doctor, and you would rely on his professional ethic to ensure that he would do the best for you, as patient, if he agreed to treat you. But you would presume that he would openly disclose the treatment options open to you and the risks and benefits of each, honestly. That is a minimum requirement of professional behaviour. The IMF admits that it did no such thing in the case of Greece

QUOTE
There were occasionally marked differences of view within the Troika, particularly with regard to the growth projections. However, the Troika in general seems to have pre-bargained positions so that differences were not on display to the authorities and did not risk slowing the program negotiations.

So far as I can tell that means that the risks of "treatment" were not disclosed to the patient, and the reason for the non-disclosure is contained in the previous quote: it was not in the interests of the EU and financial institutions for Greece to choose euro exit at an early stag,e and so the information was withheld.

As ever the IMF blames everyone but themselves. It is not convincing: but even if it were true that their own assessment was correct but was overridden by other interests who had less expertise and experience (as they claim) did they say so? That is the minimum one would expect from a professional. If the blood transfusion service they work for denies their diagnosis of anaemia and demands a blood donation from that patient the answer from a respectable doctor is not to go to the patient and say: "the best treatment for you is blood letting". It is rather, at a minimum, to say, "I am required by my employer to tell you that blood donation is the right treatment for you: but it is likely you will die if you take that route, and I do not recommend it". Better yet that doctor should resign and give his reasons publicly. But no. The IMF gives the patient the story from the transfusion service and then, when the patient dies, considers it adequate to disclose the conflict of interest and opinion after the event. It is never their fault and never their responsibility to be honest.

Nor is it possible to argue that nobody could have predicted the effects: for the IMF has an outstanding record of being wrong about its projections: and always in the same direction. This is because their economic theory is wrong. But don't let the evidence get in the way of a self serving agenda, will you?

In this paper the IMF does the balance thing: it claims some notable successes and some notable failures.

Successes are said to be:

QUOTE
Strong fiscal consolidation was achieved and the pension system was put on a
viable footing. Greece remained in the euro area, which was its stated political
preference. Spillovers that might have had a severe effect on the global economy were
relatively well-contained, aided by multilateral efforts to build firewalls.

1.You will note that fiscal consolidation is taken as a success without any justification at all: that is because it is an axiom of their approach and they do not think to justify it.

2. The pension system was put on a viable footing: means that support for the elderly was reduced, as is always the aim of these people so far as I can tell. It is a "success" if you drive the elderly into poverty, apparently. Well it is a success when you drive the majority into poverty because that is what is meant by fiscal consolidation and structural reform. Shame it doesn't work, even in their own terms. This, too, is because their economic theory is wrong

3. Greece remains in the euro area, as was its stated preference. A stated preference based on the lies about the consequences, as noted above. With full information would that have remained the "political preference"? We cannot know.

4. The part about "spillover" is sometimes called contagion. Well we are having a slow car crash rather than a quick one, arguably. But to me this means that they used lies to buy time, so that the financial elites could protect themselves from the consequences of their decisions through socialising their losses. It is not what I see as "success" It is certainly not a success for Greece, the apparent patient, on this analogy. In support of that view the paper says:

QUOTE
Given the danger of contagion, the report judges the program to have been a
necessity, even though the Fund had misgivings about debt sustainability. There was,
however, a tension between the need to support Greece and the concern that debt
was not sustainable with high probability (a condition for exceptional access). In
response, the exceptional access criterion was amended to lower the bar for debt
sustainability in systemic cases. The baseline still showed debt to be sustainable, as is
required for all Fund programs. In the event, macro outcomes were far below the
baseline and while some of this was due to exogenous factors, the baseline macro
projections can also be criticized for being too optimistic

Who is your client?

The failures are said to be:

QUOTE
Market confidence was not restored, the banking system lost 30 percent of its deposits, and the economy encountered a much deeper-than-expected recession with exceptionally high unemployment. Public debt remained too high and eventually had to be restructured, with collateral damage for bank balance sheets that were also weakened by the recession. Competitiveness improved somewhat on the back of falling wages, but structural reforms stalled and productivity gains proved elusive.

1. It is a presumption of the economic theory they adopt that "market confidence" is critically important, and that it will be restored if governments surrender their sovereignty to that same market and do what it wants. That is absurd on its face and it is not true in the event.

2. Banks lost 30% of their deposits through capital flight, as I understand it. Why would you expect anything else? Why would you oppose capital controls, as the IMF routinely does in its support for "globalisation"?

3. The recession was deeper than the IMF expected: for the rest of us, not so much. This is related to their ridiculous assumptions about "multipliers" which they now admit are flat out wrong. But you do not make mistakes like that if you think instead of using models based on stupid ideas about how people behave. The IMF imagines that businesses invest and employ people when they have no customers: it is as simple and as wrong as that. They are not alone. Our own Mr Osborne thinks the same. They say:

QUOTE
Part of the contraction in activity was not directly related to the fiscal adjustment, but rather reflected the absence of a pick-up in private sector growth due to the boost to productivity and improvements in the investment climate that the program hoped would result from structural reforms. Confidence was also badly affected by domestic social and political turmoil and talk of a Greek exit from the euro by European policy-makers. On the other hand, the offset to the fiscal contraction from higher private sector growth that was assumed during the program period appears to have been optimistic …

Amazing, isn't it?

4. Public debt remained too high and eventually had to be restructured, they say. Well according to this paper they knew that in advance. It might be a failure (if you buy their nonsense) but it was one they say they predicted. They went ahead with this programme anyway: but it was not their fault, remember

5. Cutting wages, they believe, improves competitiveness. And that worked, they claim. But it did not improve the economy. However that is not because the theory is wrong: it is because it was not accompanied by productivity gains and there was not enough "structural reform". Think about that. Competitiveness means what? It is not clear. Prices can fall if the same number of workers produce more stuff, for the same capital investment: that is a productivity gain. Prices can fall if fewer workers produce the same amount of stuff for the same capital investment: that is a productivity gain as well. Prices can fall if wages are cut and there is no other change: that is not a productivity gain but if competitiveness is taken to mean lower prices it has the same effect. So why the juxtaposition of better competitiveness but no improvement in productivity, as a source of the problem? Surely it should mean that improvement would be slower, perhaps, but not absent? Yet it is absent. If we are talking about international competitiveness (ie cheaper exports) then the claim of some improvement is a flat out lie, in any case. This is demonstrated by Bill Mitchell, who has looked at the evidence (something which the IMF seldom bothers to do) from the Bank of International Settlements which monitors the Real Effective Exchange Rate: the standard measure of international competitiveness.

QUOTE
the real effective exchange rate for Greece was higher in April 2013 (Index value = 101.6) than in January 2008 (Index value = 100) as the crisis was developing.

A higher rate indicates a loss of competitiveness. What is the evidence which leads the IMF to conclude there has been improved competitiveness in face of this? Listen to the crickets...

The IMF does not alter its view, however. According to them Greece is going to return to "growth" next year. Just like it was going to have better "growth" every year since the intervention. It has not materialised. Indeed it cannot materialise if the IMF believes its own tale: because they forecast that Greek debt to GDP will stay over 100% for the foreseeable future: and as we all know, if that ratio is above 90% growth is damaged. But the IMF can believe any number of inherently contradictory things: like any faith based system.
 
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