Wednesday, April 9, 2014

The New "Washington Consensus" At The IMF

The IMF has long been criticized for imposing fiscal austerity on the nations that it assists.  It now recognizes that fiscal austerity does not produce sustained economic growth.  In particular, cuts in government spending are often counter productive.  The IMF has also changed its outlook on inflation.  For example, the IMF believes that some countries would be better off with a bit more inflation.  Central banks have tended to set inflation targets at 2% even when it is counter productive.  The IMF has also recommended that some countries set capital controls in order to stabilize their economies.  Taken together, these changes suggest that the IMF no longer adheres uncritically to the neo-liberal orthodoxy that has dominated economic thinking in the IMF, and which has formed the basis for its Washington Consensus. 

The IMF has gone beyond the Washington Consensus in another matter that has been receiving a lot attention lately.  IMF researchers have found that high levels of income inequality impede sustainable economic growth.  Furthermore, it has found that income redistribution does not impede economic growth, and that it can contribute to economic growth and social stability.  This is a big jump for the IMF, and it may not go over well in many countries that are placing an emphasis on reducing budget deficits and the curtailment of spending on the social safety net.  Income inequality, and social instability that results from income inequality, have become the new enemies of sustainable economic growth.

No comments:

Post a Comment