Last week saw the annual meetings of the IMF and World Bank take place in Washington, which typically offer a chance for economists and policy types to debate the state of the world. Several friends who attended reported back that the mood was less nervous than similar sessions earlier this summer, if only because the notion that we are in a normal, ordered world has been shattered.
In general, the IMF view is that in the next twelve months, the world economy will experience a low, positive rate of growth, with momentum in Europe picking up, just, and an otherwise troubled US economy flattered by the powerful effects of AI driven investment spending.
In the early years of globalization, the confabs at the IMF/World Bank meetings produced a narrative that became known as the ‘Washington Consensus’ – effectively an approach to world economic development and globalisation, that was denounced by critics on the left as a neo-liberal policy recipe book.
Professor Joe Stiglitz, formerly the chief economist at the IMF, and thus one of its ‘high priests’, became very critical of the running of the IMF as an institution. In 2002 he wrote a book entitled ‘Globalization and its Discontents’ in which he mentioned globalization only 64 times but the IMF some 340 times. Despite that, and two case studies in errant leadership – at least two recent managing directors, Rodrigo de Rato and Dominique Strauss Kahn, were embroiled in scandals, the IMF maintained its place in the global macro discourse.
With the benefit of hindsight today, the Washington Consensus was valuable in the sense that it was a consensus– though perhaps not agreed – it encapsulated an approach that many countries were content to go along with as part of their first foray into real economic development. That consensus is now disturbed.
I have long suspected that Donald Trump would shut down the IMF, but either he seems not to know it exits, or his treasury Secretary is a such a devotee of the IMF meetings and regards it as a useful forum to criticise China (notably, Bessent’s former chief of staff Dan Katz is now the Deputy Managing Director at the IMF). Now, it is not so much that the IMF will change, but the world around it has.
The ‘Fund’ used to be a financial ambulance (social scientist David Graeber had a harsher view calling it the ‘the high-finance equivalent of the guys who come to break your legs’), and in this sense it has rightly faced criticism in recent years – notably for its dealings with Greece (it was too harsh) and Argentina (it was too soft).
Today, it is a beacon of the orthodox, in an economic world where there seems to be a premium to unorthodox policy making. There are plenty of examples.
The IMF has stated that global public debt will hit 100% by 2029 (the highest since 1948) and singled out the US as a reckless player here. However, standard, or ‘orthodox’ remedies such as raising taxes and cutting spending are spurned by the White House in favour of antique policy choices (tariffs) and investment drive by immoral suasion.
Equally, now that Javier Milei’s chainsaw school of economic policy has run out of steam, the now traditional IMF visit to Buenos Aires might be expected, but it instead enjoys a financial support package from the US that will do little to help the underlying issues facing the Argentine economy.
Policy orthodoxy is being jettisoned in other ways. The Nobel (Riksbank) Prize in Economics went to three economists (Philippe Aghion, Joel Mokyr and Peter Howitt) for their work on how economies grow through innovation, as driven by higher education and research – two facets of the American model that are now being undercut.
If the IMF and its meetings are a beacon of the orthodox, governments like the USA are sailing past, on their way to a fiscal adventure, or simply speeding towards the financial rocks. If they hit those rocks, the warnings of the IMF economists that deficits are too high and debt to heavy will ring true, and there will be no money for a rescue.
There is a crisis viewing in the US banking sector as markets question whether lending standards have been compromised. The index of US regional banks has fallen 10% since the start of October and could skid lower. It might give the IMF something to do.
Have a great week ahead, Mike
The Levelling 