Benevolent lying...

****

A wonderful observation by Dan Murphy about the IMF and World Bank:

Over the years current and former employees of both groups have explained that bias is down to the belief inside the financial institutions that their rosy projections can take on a life of their own by inspiring that elusive beast "investor confidence" and unleashing a deluge of cash upon their clients. They see it as a form of benevolent lying.

I find this a fascinating take on the problem of these international - and essentially unaccountable - organisations. I recall being taught - back in the early 1980s - that the two babes in the Bretton Woods were essentially superior bodies since they didn't suffer from the self-interest or realpolitik of bilateral interventions. Now it seems that the truth is sneaking out - their guesses are just as self-serving as the guesses of political leaderships in client countries. And the prescriptions - based on these optimistic guesses - have dreadful consequences:

"However, not tackling the public debt problem decisively at the outset or early in the program created uncertainty about the euro area’s capacity to resolve the crisis and likely aggravated the contraction in output. An upfront debt restructuring would have been better for Greece although this was not acceptable to the euro partners."

However Murphy suggests we shouldn't be surprised:

In the middle of that decade (1990s), the so-called Asian financial crisis hit much of the region, with capital flight threatening private banks, government coffers, and project finance alike. Thailand and Indonesia accepted IMF loans in exchange for "structural adjustment programs" (government spending cuts, foreign investor friendly legal changes, promises to have fully convertible currencies), while Malaysia, against dire warnings from the IMF, imposed currency controls and sought to stimulate the economy out of the downturn with an expansive government budget. The results? Malaysia weathered the crisis better than its neighbors, with fewer job losses and much less political turmoil.

Perhaps the time has come for politics to reassert its ascendancy over the cosy internationalist boondoggle. It seems that, whatever the choices made, it is better for them to be made by politicians we can kick out rather than on some distant scapegoat of an international institution. Especially one with as lousy a record as the IMF!

....

Come on Christine put your money where your mouth is...

****

Christine Lagarde called the other day for Greeks to pay their taxes:

And I think they should also help themselves collectively [by] paying their tax"

Today we discover that this grand lady doesn't pay any taxes either:

As an official of an international institution, her salary of $467,940 (£298,675) a year plus $83,760 additional allowance a year is not subject to any taxes.

So come on Christine put your money where your mouth is...if you want others to pay taxes, pay some yourself.

....

"Pay your taxes..." Or how to annoy a Greek.

****

As ever, I start with the caveat that I'm not an expert on Greece's economy or how it might resolve its current problems. But I am pretty sure - no absolutely sure - that the solution to Greece's economic problems does not lie in getting the populace to cough up more taxes. That might make a small dent in that suffering country's problems with government finances but it won't deal with the consequences of the 'big lie' visited on Greece by its politicians - that the Drachma was equal to the Mark.

Yet - in a great campaign slogan for the Greek worshippers of the Mystic Money Tree (usually referred to as Syriza) - this is precisely what Christine Lagarde, boss of the IMF has done:

"As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax.

"I think of them equally. And I think they should also help themselves collectively [by] paying their tax"

If anyone out there really believes that getting people to pay more taxes is a route to economic salvation they should be gently removed from any positions of decision-making (and probably kept away from sharp instruments). The resolution is always - absolutely and every time - in the private sector, in economic activity rather than the legerdemain of public financial manipulation, currency fiddling and regulation. These are the things that created the problem and we aren't going to resolve the problem through more self-important central banking.

In the end, the solution lies in the real economy - in the decisions of consumers, in the promotion of economic activity. And the drivers of that economic activity in Greece are the folk who dodged the taxes - take more money off them and, as sure as eggs is eggs, there will be less economic activity. Meaning that next time, there's less money to take off folk in taxes...

As ever, in this matter, government is most of the problem and very little of the solution.

....