I have not been a fan of the International Monetary Fund. This is not a popular position in America because in general unless you come from a failing nation the IMF has little to no effect on your life. If however you grew up in South America, Africa, South east Asia, or eastern Europe in the last thirty years you are intimately aware of the IMF. Chances are the IMF lent your nation money, however going to the IMF is like going to a loan shark. The IMF generally demands nations make radical changes that often have devastating effects on said nation for decades. To many the IMF is like a predator, devouring large chunks of tiny economies. The IMF’s solution is often make drastic cuts to government, and allow outside foreign (most European and American) interest access to natural resources. However the current crisis has even them seeing economic calamity in a different light:
The research described here shows that it is important to have realistic expectations 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. These costs must be balanced against the potential longer-term benefits that consolidation can confer—such as reducing interest rates and lightening the burden of interest payments, permitting cuts to distortionary taxes (those that discourage desirable behavior).
Accordingly, fiscal measures that are approved now but kick in to reduce deficits only in the future—when the recovery is more robust—would be particularly helpful. Examples include linking statutory retirement ages to life expectancy and improving the efficiency of entitlement programs. In contrast, fiscal consolidations that are unduly hasty risk prolonging the jobless recovery in many advanced economies. So countries with the scope to do so should opt for a slower pace of consolidation combined with policies to support growth (Lagarde, 2011). In countries such as the United States, where unemployment remains at historical highs and long-term unemployment is at alarming levels, more active policies are needed to spur job creation and increase consumer confidence, including measures such as mortgage relief for distressed homeowners.
Fiscal consolidation plans should also spell out how policies would respond to shocks, such as slower growth than envisaged in the plan. For instance, plans could specify that unemployment benefits would be shielded from cuts in the event of slower growth than assumed in the plan. History shows that fiscal plans succeed when they permit “some flexibility while credibly preserving the medium-term consolidation objectives” (IMF, 2011; see also Mauro, 2011). ■
It must be stressed that this isn’t some lefty progressive think tank saying hey maybe just maybe cutting the government out of the recovery is a bad idea, ITS THE DAMN IMF. The problem is even this will fall on deaf ears. It’s beginning to feel like 1984 here. Not in the: big brother is watching you kind of way, although that too is happening, but in the: we were always at war with eastasia kind of way. Politicians are shifting policy stances so quickly that facts are irrelevant. Worse still when they make statement they rarely if ever source their information. This makes it impossible to separate stances taken for political gain from stances taken for genuine policy improvements. Without this we are stuck with the mushy and divisive question of how much do we trust said politician. Looking at the polls should indicate how much trust is floating around Washington these days. This is not how to run political discourse it is far too emotional and subject to the prevailing winds of the day. To put it simply we need a far more intellectual discussion these days.