Radio commentary, December 24, 2009
Just a few words on the economic news today because we’re jam-packed with interview material.
Iceland, whose economy collapsed when its bubble burst last year, is getting the full IMF treatment. At first, I’d wondered if a Nordic country would get some special ethnic exemption from the typical austerity program, imposed on desperate countries in exchange for loans from the Fund. It hasn’t. On the “advice” of the IMF, the country is raising its sales tax to 25.5%. Low-income taxpayers will get a break on their income taxes as partial recompense, but this is a brutal treatment for a country whose economy has fallen into something between deep recession and depression. This medicine will only worsen the economic damage. The IMF fell into some disrepute—not among radicals and other malcontents, where it’s always been in bad repute, but even among more orthodox types—after it prescribed this sort of treatment for much of Southeast Asia after that region’s 1997 financial crisis. During the economic expansion of the mid-2000s, the IMF was sort of marginalized, since there were few countries facing the sort of crises it’s usually called on to “solve” (there are quotation marks around solve which may not come across well on radio). But with the crisis and recession of the last couple of years, the IMF is back on the scene—and little changed.
Well, not exactly—there is one change. Lately it’s been urging the bigger, richer countries not to impose austerity programs on themselves; instead, it’s called for continued fiscal and monetary stimulus. Example: “Premature exit from accommodative monetary and fiscal policies is a particular concern because the policy-induced rebound might be mistake for the beginning of a strong recovery.”
For the rulers of the world, when their economies hit a wall, the appropriate reponse is stimulus; when the economies of the ruled run into trouble, the appropriate response is bloodletting.