www.imf.org/external/pubs/ft/wp/2012/wp1208.pdfAnother 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?
