New IMF Paper Challenges Neoliberal Orthodoxy

Naked Capitalism has the post New IMF Paper Challenges Neoliberal Orthodoxy about an IMF paper.

While the IMF’s research team has for many years chipped away at mainstream economic thinking, a short, accessible paper makes an even more frontal challenge. It’s caused such a stir that the Financial Times featured it on its front page. We’ve embedded it at the end of this post and encourage you to read it and circulate it.

The article cheekily flags the infamous case of the Chicago Boys, Milton Friedman’s followers in Pinochet’s Chile, as having been falsely touted as a success. If anything, the authors are too polite in describing what a train wreck resulted. A plutocratic land grab and speculation-fueled bubble led quickly to a depression, forcing Pinochet to implement Keynesian policies, as well as rolling back labor “reforms,” to get the economy back on its feet.

Voters need to become more aware of these ideas before they just accept Hillary Clinton’s economics advisers’ pronouncements over Bernie Sanders advisers’ pronouncements .

For instance, this extract from a section of the paper gives a hint as to the overturn of some cherished economic beliefs.

It is surely the case that many countries (such as those in southern Europe) have little choice but to engage in fiscal consolidation, because markets will not allow them to continue borrowing. But the need for consolidation in some countries does not mean all countries—at least in this case, caution about “one size fits all” seems completely warranted.

So when we say that the need for fiscal austerity does not apply to the United States at this point in time, remember that we are not saying that other countries are immune from this need nor are we saying that the United States will always be immune.

Perhaps this next excerpt best encapsulates what I think is the message of heterodox economists of this day.

Faced with a choice between living with the higher debt—allowing the debt ratio to decline organically through growth—or deliberately running budgetary surpluses to reduce the debt, governments with ample fiscal space will do better by living with the debt.

If we can get people to understand that this is all we are saying, and not some other horrible thing that they imagine, then maybe we can make some progress in having a rational discussion.  To have this rational discussion, we cannot dismiss the provisos as unimportant frills – governments with ample fiscal space. If a government does not have ample fiscal space, then it cannot  follow these prescriptions.

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