Friday, January 24, 2014

The double standard of the IMF

Every now and again, I see it in the news: country gets in too deep in debt, International Monetary Fund (IMF) comes around and says that they can help, but only if austerity is imposed to make the upper classes feel better. Isn't it interesting that the IMF is happy to stomp on third world countries, but for some reason, they never bother with the United States?

Case in point, the US Federal debt is estimated to be about 72% of GDP according to the Congressional Budget Office. That seems like a very high ratio of government debt to GDP, doesn't it?

Rewind to 2012 and we find that Spain had government debt equal to 72% of GDP. Spain isn't even a Third World country by any measure, but the IMF came knocking with a painful plan of austerity.

This to me is a double standard. For any other country, the IMF brings the hammer down. But you don't see the IMF coming to the United States imposing discipline, do you? I sure don't. I guess that's what the Tea Party is for.

Unfortunately, there is no empirical evidence to show that austerity has worked. No modern country that has tried it has ever grown their economy by cutting government spending. None. Britain is a great example of austerity gone wrong. They knew it even before they tried it back in 2010. A private UK treasury report estimated that 120k public and 120k private jobs would be lost for *each* year over five years under the austerity plan proposed then. That's more than 1 million jobs lost due to austerity in a country with only 63 million people. Where are they now? 7.1% unemployment with a shrinking economy, still.

This is what the Tea Party is selling in our Congress. The austerity measures promoted by conservatives in Congress have little to do with creating jobs. They wanted to keep the Bush tax cuts, but did they create jobs? NO. Study after study has shown that increasing government spending during a recession can go a long way towards replacing the demand lost in the private sector. That creates jobs.

It is estimated that $900 billion in annual demand was lost by the housing bubble. You'd think that the lowest tax rates and the lowest interest rates in history would allow the private sector to replace that demand. That didn't happen did it? What? You mean those job creators didn't create jobs after the meltdown? No. They didn't and could not.

The reason for this is very simple. Consumers didn't have money to spend. If consumers don't have money, there is no other way to replace that demand than with government spending. Businesses will idle their plants and ship jobs overseas in a recession. That's because short term profits are more important than keeping people employed - just ask any CEO. But the government will never stop spending money.

So don't expect the IMF to come around with an austerity plan for the United States. The standards applied by the IMF to other countries don't apply here. More to the point, our Congress is already doing enough to inflict pain upon the middle class.
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