Guess which policy your central bank will pursue

[CHIMO]

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 organisers 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. But 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 labour costs relative to its trading partners will get its costs in line by lowering wages. The way 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 was still 16.9% in the final quarter of 2010, falling from 18% the quarter before. The IMF path would have other countries with serious competitiveness problems such as Ireland, Greece, Spain and Portugal go the same path.

http://www.guardian.co.uk/commentisfree/cifamerica/2011/mar/15/economics-imf

[DCKit]

1. The IMF, World Bank and their many, many cohorts are all about the Disaster Capitalism.

Perhaps they've finally realized this economic model will not longer work when all the wealth is in the hands of the top 1%.