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IMF Report Admits IMF’s Obsession with Capitalism Is Killing Prosperity

“By releasing this report, the IMF has shown that ‘trickle-down’ economics is dead; you cannot rely on the spoils of the extremely wealthy to benefit the rest of us.”

By Jon Queally

In light of how the International Monetary Fund has spent most of its existence parading around the world telling governments to make their economies more friendly for multinational corporations by suppressing wages, restricting pensions, liberalizing industries, and more or less advocating they ignore the popular will of workers and the less fortunate—all in the name of market capitalism and endless economic growth—a new report released by the IMF on Monday contains an ironic warning: stop doing all that.

Though it perpetuates the idea that economic growth is the master to whom all should bow, the new research—conducted by the IMF’s own economists and submitted under the title Causes and Consequences of Inequality (pdf)—argues that many of the policies promoted by the IMF have actually harmed nations by exacerbating widespread economic inequality. As many have noted, current disparities between the world’s richest and poorest represent a nearly unprecedented level of global inequality which the report described as the “defining challenge of our time.”

In order to strengthen economies, the report declares, nations should admit that “trickle-down” theories of wealth and prosperity do not work. In lieu of those, the study recommends raising wages and living standards for the bottom 20 percent, installing more progressive tax structures, improving worker protections, and instituting policies specifically designed to bolster the middle class.

“Fighting inequality is not just an issue of fairness but an economic necessity,” said Nicolas Mombrial of Oxfam International in response to the report. “And that’s not Oxfam speaking, but the International Monetary Fund.”

This is not the first time the IMF’s own research has bolstered the arguments of its biggest critics. According to the International Business Times, the new analysis on inequality “echoes previous IMF research that show that redistributive policies have a positive effect on countries’ economic output.”

But as the Guardian’s economics editor Larry Elliott notes, the new paper creates obvious “tension between the IMF’s economic analysis and the more hardline policy advice” it continually gives to countries seeking foreign assistance or development funds. With Greece as the most obvious example, Elliott cites details from the report and writes:

During its negotiations with Athens, the IMF has been seeking to weaken workers’ rights, but the research paper found that the easing of labor market regulations was associated with greater inequality and a boost to the incomes of the richest 10%.

“This result is consistent with forthcoming IMF work, which finds the weakening of unions is associated with a higher top 10% income share for a smaller sample of advanced economies,” said the study.

“Indeed, empirical estimations using more detailed data for Organization for Economic Cooperation and Development countries [34 of the world’s richest nations] suggest that, in line with other forthcoming IMF work, more lax hiring and firing regulations, lower minimum wages relative to the median wage, and less prevalent collective bargaining and trade unions are associated with higher market inequality.”

The study said there was growing evidence to suggest that rising influence of the rich and stagnant incomes of the poor and middle classes caused financial crises, hurting both short- and long-term growth.

No one should be fooled into thinking that the new research aims to alter the IMF’s central commitment to advancing the financial interests of the global elite.

In fact, part of the argument presented in the paper is that such enormous levels of global economic inequality could seriously undermine the institution’s public defense of capitalism’s overall supremacy. “For example,” the paper states, “[too much inequality] can lead to a backlash against growth-enhancing economic liberalization and fuel protectionist pressures against globalization and market-oriented reforms.”

According to a recent report by Oxfam International, almost half the world’s wealth is owned by one percent of the population, while the bottom half of the world’s population owns the same wealth as the richest 85 people in the world. For Oxfam’s Mombrial, who heads the international anti-poverty group’s office in Washington D.C., the IMF’s report is a welcome development that should put a nail in the coffin of the austerity-driven policies prescribed by governments and powerful financial institutions like the IMF, World Bank, and others.

“The IMF proves that making the rich richer does not work for growth, while focusing on the poor and the middle class does,” Mombrial said. “This reinforces Oxfam’s call on how we need to reduce the income gap between the haves and have-nots, and scrutinize why the richest 10 percent and top 1 percent have so much wealth. By releasing this report, the IMF has shown that ‘trickle-down’ economics is dead; you cannot rely on the spoils of the extremely wealthy to benefit the rest of us. Governments must urgently refocus their policies to close the gap between the richest and the rest if economies and societies are to grow.”

As Oxfam and other international campaigners have been saying it for decades, he concluded, “The IMF has set off the alarm for governments to wake up and start actively closing the inequality gap, not just between the rich and poor, but for the middle class too. Their message to them is pretty clear: if you want growth, you’d better invest in the poor, invest in essential services and promote redistributive tax policies.”

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CTuttle

CTuttle

  • http://firedoglake.com/ CTuttle
  • Alice X

    No one should be fooled into thinking that the new research aims to
    alter the IMF’s central commitment to advancing the financial interests
    of the global elite.

    I am trying to reconcile this statement with the title.

  • dubinsky

    second-rate essay

  • dubinsky

    a bit better than the Queally thing.

    perhaps you should have copied out Nichols.

  • http://firedoglake.com/ CTuttle

    Key grafs from the IMF study…

    “Indeed, empirical estimations using more detailed data for Organization
    for Economic Cooperation and Development countries suggest that …
    more lax hiring and firing regulations, lower minimum wages relative to
    the median wage, and less prevalent collective bargaining and trade
    unions are associated with higher market inequality.”

    “If the income share of the top 20% increases, then GDP growth actually
    declines over the medium term, suggesting that the benefits do not
    trickle down. In contrast, an increase in the income share of the bottom
    20% is associated with higher GDP growth.”

  • http://firedoglake.com/ CTuttle

    Well, Christine and the IMF most certainly aren’t about to change their vile ways, despite what their own research flatly states, Alice…! They know full well who butters their toast…!

  • joel

    Was there ever a more precious explanation of “trickle down economics” than peeing on someone’s foot and telling them it’s raining?

  • dubinsky

    nobody able to think it through believed in keeping unemployment and poverty at high levels when Reagan was pushing that “trickle-down” crap and nobody believes in itnow.

    you seem to be laboring to knock down a model that no one seriously is advocating.

  • Alice X

    Michael Ratner at TRNN – talks about the Charter of the Forest

    http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=14009

  • http://firedoglake.com/ CTuttle

    You do realize that Luntz changed the lexicon to ‘Austerity’ long ago, eh dubs…?

  • jo6pac

    What?

  • jo6pac

    Want to expand on that thought?

  • dubinsky

    and it didn’t change the theory or the lack of merit, tut……you’ve got this correct and there isn’t a serious counterargument.

    the only controversy is about whether it’s wise for nations to take on more debt than they can comfortably afford

  • dubinsky

    I’m agreeing with tuttle about the link he just posted and

    I’m saying that the Nichols essay in the Nation is more valuable than the Queally thing.

    what don’t you understand?

  • dubinsky

    google “voodoo economics” for an idea as to how few people accepted Reagan’s economic buuspit

  • John Smith

    So does this mean the IMF will stop doing what it just reported is harmful? Doubt it.

  • bsbafflesbrains

    Earn Less = Spend Less
    Money = Food
    Amassed Wealth(not earned) = Hoarding Food
    IMF needed to study this? Now we know why we starve

  • http://firedoglake.com/ CTuttle

    Of course not, JS, but, one can hope this awakens the global masses…!

    https://youtu.be/UOM9tM5dOnU

  • http://firedoglake.com/ CTuttle

    the only controversy is about whether it’s wise for nations to take on more debt than they can comfortably afford

    Can they afford not to do so, dubs…? Once again, you fail to grasp the obvious…!

  • dubinsky

    no, tut, you fail to think past the surface, again.

    when you borrow to service pension debt and, by doing so, add another layer of debt to service, are you doing something akin to deepening the hole that you’re in?

    someday, perhaps, you’ll figure out that other people don’t always fail to grasp the points of your comments, but simply are able to see a few other things.

  • Hugh

    Supply side economics never dies. It just comes back under another name: Say’s law, Reagonomics, trickle-down, and its most recent incarnation the rich as job creators. The essence of supply side economics is the privileging of capital over labor. It can be seen in virtually all of the economic policy of the last 40 years, most notably in the Fed’s use of interest rate hikes to suppress workers’ wage gains, its easy money policy for the rich and corporations under Greenspan and Bernanke, Clinton’s neoliberalism, the Bush tax cuts, and the Obama/Geithner policy of “foaming the runway” after the 2008 meltdown to save banks and capital, at the expense of workers.

  • Hugh

    Voodoo economics was, I believe, coined by George HW Bush when he was running against Reagan. After Reagan made him his running mate, he became a dutiful adherent.

  • dubinsky

    yes it was Poppa Bush and no, he became quiet in his disagreement.

  • http://firedoglake.com/ CTuttle

    *huh* …add another layer of debt to service, are you doing something akin to deepening the hole that you’re in?

    Get a grip, dub…!

  • dubinsky

    don’t need to go around gripping my own, tut, but you go right ahead and enjoy yourself.

  • EverNewEcoN

    “Capitalism’s” used as a decoy, perhaps. It’s
    privatization, or crony capitalism.

  • FukTheArmy

    Yet, the party of “family values” continue to flog the long-dead horse with even MORE tax cuts for the filthy rich while telling working people trying to support families to “tighten their belts” and “pull yourself by your bootstraps”

  • Tremolux

    As we used to say when I was a teenager, “No shit, Sherlock. What was your first clue?”