Wednesday, July 7, 2010

The IMF as the worst of the austerity ghouls

Dean Baker gets to the heart of the madness.
Trust Them? Why?
Is Advice From the IMF Better Than Advice From a Drunk on the Street?
That is the question that people around the world should be asking as the International Monetary Fund dishes out its prescription for austerity. The IMF program calls for cutbacks in government support for health care, pensions and a wide range of other public services. It also calls for weakening labor market regulations that provide workers with job security.
These recommendations are being given in a context where the world economy is suffering from a massive shortfall of demand. In other words, tens of millions of people are unemployed right now because there is not enough spending to keep them employed. The IMF’s program is almost certain to reduce spending further leading to even larger shortfalls in demand and more unemployment.
But, the IMF says that we should trust them. The question we should all be asking is “why?”
Where was the IMF when the housing bubble in the United States and elsewhere was inflating to ever more dangerous levels? Was it frantically yelling at governments to rein in the bubbles before they burst with disastrous consequences? After all, what could possibly have been more important than warning of the dangers of these bubbles?
It was easy to both recognize the housing bubbles and that their collapsewould have devastating consequences for the economy. Economies don’t adjust easily to a loss of wealth that in some cases exceeded 50 percent of GDP.
Real economists know this, but apparently the folks at the IMF did not, or if they did, they didn’t think it was worth saying anything. One will look in vain through IMF publications during the buildup of the housing bubble for serious warnings of the potential dangers. While the IMF can scream about the need for austerity today, it couldn’t be bothered to say much about the bubbles that got us here. more

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