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Sunday, April 25, 2021

Bill Mitchell — The IMF is all at sea, stuck in its ways, and sending conflicting signals

Last week, I wrote about how the IMF is presenting a somewhat nuanced view these days. See – IMF now claiming continued inequality risks opening a “social and political seismic crack” (April 21, 2021). But, there was a warning for those who might think this suggests the institution is leaving its mainstream macroeconomics past behind them though. Rather, I think what is going on is a series of ad hoc responses to the growing anomalies that the institution faces between the observed reality and the sort of predictions it has been making based on its core paradigmatic approach. We are observing a specific form of dissonance in many of the current contributions coming out of mainstream economics. This takes two forms: (a) an incomplete response to the current situation (pandemic, GFC aftermath, climate change) where there are conflicting signals being sent; and (b) a tortured attempt to absorb pragmatic narratives within a theoretical structure that cannot consistently accept that absorption. The IMF’s latest blog post (April 20, 2021) – A Future with High Public Debt: Low-for-Long Is Not Low Forever – is a good example of both forms of this dissonance.
The last line of defense of a theory is ad hoc adjustment. This undermines the foundation of theories that are rule-based since it introduces discretion.

Bill Mitchell – billy blog
The IMF is all at sea, stuck in its ways, and sending conflicting signals
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

3 comments:

  1. [off topic]

    Bill mentioned the sea. Well, between the works of Herman Melville and Patrick O’Brian (Master and Commander), if I had to choose an author, no contest: Herman Melville, I bet Bill would agree ;)

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  2. “ The last line of defense of a theory is ad hoc adjustment. This undermines the foundation of theories that are rule-based since it introduces discretion.”

    LOL! Even if the theory is false! ie doing the same thing expecting a different result... yeah never make an adjustment that should work out well for you...

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  3. “ The 19 Member States have unlimited spending capacity at present because the currency-issuer in their system, the ECB, is actively funding their deficits, at least to the point, that keeps yields at low and zero levels.”

    That’s not happening in the us as Fed is buying 120b per month... us rates are a lot higher than Europe...

    Us 10-yr now at 1.6% ... Greece at 0.92%...

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