Cartoon of the day

Special mention

Cartoon of the day

Special mention

Protest of the day

Greek seamen and farmers continued their protests against austerity measures imposed to satisfy international lenders.

The Greek government is holding talks with the protesters but refuses to budge on any demands that might undermine its deficit cutting efforts, a condition of bailout funds and debt relief from the European Union and International Monetary Fund.

Greece last month invoked rarely used emergency powers to break a strike of subway workers, serving military-style orders instructing them to return to work or face arrest.

Greece’s biggest labor union has called a general 24-hour strike for 20 February.

Cartoon of the day

Special mention

 

Cartoon of the day

Special mention

 

Oops!

The headline news from the latest IMF World Economic Outlook is the downward revision of 2013 growth forecasts—from 1.8 percent  to 1.5 percent for advanced countries, and from 5.8 percent down to 5.6 percent for emerging and developing countries.

But the report contains an even more extraordinary admission (highlighted in Box 1.1, written by Olivier Blanchard and Daniel Leigh): the IMF were wrong about the fiscal multipliers it has been using in its forecasts and policy recommendations by a factor of 3! Yes, instead of .5, which they had been using, Blanchard and Leigh estimate the fiscal multiplier to be closer to 1.5.

What this means concretely is that the IMF and all the other mainstream economists who were using the lower multiplier severely underestimated the negative effects—on investment, consumption, and unemployment—of the austerity measures that have been imposed in the wake of the economic crisis of 2007-08.

Paul Krugman feels vindicated. Jonathan Portes is willing to give the IMF credit for “going back, looking at their forecasts, analysing what went wrong, and saying very clearly ‘We thought the impact of fiscal consolidation on growth would be relatively small. We got it wrong.’”

For me, there can’t be any forgive and forget. The one thing mainstream economists are supposed to get right is the calculation of multipliers. And they didn’t. And the lives of millions of people have been ruined as a result.

“This one is moving on”

Usually, the call is for the IMF to get out. Now, it’s one of their own who has decided to quit.

Brian Doyle, a former IMF division head for Israel and non-eurozone nations Sweden and Denmark, admits in a letter [pdf] to Shakour Shaalan, dean of the executive board of the International Monetary Fund, that he is “ashamed to have had any association with the Fund at all.”

His letter reads, in part,

This is not solely because of the incompetence that was partly chronicled by the OIA report into the global crisis and the TSR report on surveillance ahead of the Euro Area crisis. Moreso, it is because the substantive difficulties in these crises, as with others, were identified well in advance but were suppressed here. Given long gestation periods and protracted international decision-making processes to head off these global challenges, timely sustained warnings were of the essence. So the failure of the Fund to issue them is a failing of the first order, even if such warnings may not have been heeded. The consequences including suffering (and risk of worse to come) for many including Greece, that the second global reserve currency is on the brink, and that the Fund for the past two years has been playing catch-up and reactive roles in the last-ditch efforts to save it. . .

There are good salty people here. But this one is moving on. You might want to take care not to lose the others.

Is this not an indictment not just of the IMF but of mainstream economics as a whole?

 

Cartoon of the day

Special mention

Rethinking economics and culture

A reader sent me a link to one of his new songs, a contribution to the project of creating a culture appropriate to imagining and creating a better world, including a better economy.

Lonnie Ray Atkinson’s songs also include ”Economic Hitmen” (with TSOL and Zep Hurme) and “How We Gonna Make Wall Street Pay” (with Anitek).

Olivier Blanchard can talk the talk but can he walk the walk?

In response to another post, Magpie suggests that Peter Orszag take a holiday in Bolivia and start preaching his ideas there, walking through the poorest slum he can find in the middle of the night.

Maybe that would be good medicine for another neoclassical economist, Olivier Blanchard—to walk through the streets of Greece while the austerity policies he advocates are being imposed. In true neoclassical fashion, Blanchard recommends more fiscal tightening (based on spending cuts) and more export competitiveness (based on driving down wages)—while ostensibly “protecting the most vulnerable.”

Mihalis Panayiotaki, in the comments on Blanchard’s post, calls him on this—in effect, asking him to walk the walk.

No, it doesn’t. It does no such thing. People are lining up in soup-kitchens around Greece in numbers that were last seen during the Nazi occupation of the country. The homeless population has shot up incredibly, to well over 25.000 in Athens alone, in a country where such phenomena were marginal before the troika’s advent, half the flats in downtown Athens could not afford heating petrol for the winter, mental health is in disarray, as is special education, public hospitals are pricing a large part of the impoverished pensioners out of the public health system by demanding a 5 euro ticket. Meanwhile teachers and nurses (a rarity in hospitals anyway now) are on subsistence wages and the trend is towards even lower nominal wages despite the fact that in purchasing power terms we are already, even before the IMF mandated cuts in the minimum wage and the destruction of labor law to the point where a SE Asian dictator would be comfortable with, well below most EU countries. In the meantime, the rich have sent their profits (and they had made incredible profits in the decade before) to Swiss and Cayman Islands Banks, as well as the London real estate market.

So, no. The most vulnerable are left to the dogs.

Meanwhile, research being conducted inside the International Monetary Fund (e.g., by Laurence Ball, Daniel Leigh, and Prakash Loungani) demonstrates that the kind of austerity measures suggested by Blanchard tend to hurt labor and to leave capital untouched.

Even Poul Thomsen, an IMF official and a leading architect of the austerity program in Greece, has admitted that fiscal austerity have perhaps been too harsh.

Finally, Merijn Knibbe has demonstrated that Greece has already cut wages much more than any other country in Europe.

Economists like Blanchard can only talk based on the neoclassical models they use to interpret the world, in which fixing capitalism always comes to down to cutting social programs and lowering wages.

I wonder how long they’d last if they were required to walk the walk through the streets and neighborhoods of the countries in which their austerity policies are being imposed.