Mar 6, 2008

Let's all get inspired

Allright I'm gonna be the one that breaks the silence. I mean come on people, this has got to be an inspiration source of research motivation, not another abandoned project. So what is it? No one had anything interesting to write about? This might actually be the case. Yes indeed it is highly likely.

We were a bunch of economics students last week at the projection of Life and Debt and we were asked at the end what we thought of the situation in Jamaica and what happened there with the IMF. We had nothing to say. I have to admit I had absolutely no idea. Was it the IMF's fault? Were its structural adjustment loans a deadly weapon? We, as economics students, should have an opinion about this. I don't. I never was taught anything about this and I haven't read anything convincing either. But at the same time I think that when economics professors teach us that everybody is wrong except economists, we get scared to have false opinions, so we end up with no opinion. Y'all know what I mean?

We were then asked if it was possible that the WTO, by promoting free trade, was making the same mistake the IMF did with its conditional loans. We had no idea. I mean, if we thought free trade was good, we didn't want to say too much, probably scared of being wrong on something. The truth about free trade is that we don't know. Who wins? Who loses? Who knows? That's what empirics say, and even Krugman is back at it with a new working paper (on trade and wages in the US). Of course, trade theory has many answers but, as Markusen would say, "give me anything you want and I'll build a model to prove it" On this, read this.

Anyway, here's some things you might be interested in. In this new book, Stephen A. Marglin argues that market relationships erode community. I agree. Here's an extract.

"In the past, for example, when a farm family experienced a setback--say the barn burned down--neighbors pitched in. Now a farmer whose barn burns down turns, not to his neighbors, but to his insurance company. Insurance may be a more efficient way to organize resources than a community barn raising, but the deep social and human ties that are constitutive of community are weakened by the shift from reciprocity to market relations".

If we subtitute social capital with formal institutions aren't we gonna destroy humankind? Sometime I do believe I'm becoming stupid by applying economic theory ot my personal life dilemas...

So Tim Harford has a new book, "The logic of life". Thomas C. Schelling, 2005 Nobel Laureate in Economics liked it:"This is a terrific read. It’s one those books that forever changes the way you look at things. It proves economics is not a subject for dull textbooks; but is really a way of thinking that can shed light on all aspects of life." Apprently, it explains that racists, drug addicts, revolutionaries and rats – comply with economic logic, always taking account of future costs and benefits, even if they don’t quite realise it.

Finally, here's a preview of the unoffical t-shirts and hoodies you will be able to purchase soon.

OH! and most importantly, see you all next Monday at Bain des Paquis for the department's annual fondue dinner! Bring 30 chf cash!


Dany said...

Yes, professor Leitner (History faculty, the one that lead the cinema club) asked me for second time if there is at least one example of successful country to support the recipes used by the IMF and established by Washington Consensus 30 year ago, and that seems to be well grounded in core academic economics belief .... "Mmmm, difficult -I said- and I do not want to play devil advocate for these guys". A lot of people use to mention my beloved Chilito as the missing link, a big mistake for several reasons. Other people talk about countries like Botswana…. What about one third of the population having VIH?....... anyone can give a good example?

Cam said...

Love the T-shirt design Pierre - Louis, it must celebrate the wildlife that we share the lovely Rigot with:).

Talking about 'successful' IMF interventions, the IMF would probably cite numerous examples where the raw macro indicators improved by X% in the years after the intervention. But as for social outcomes, I think that it is harder to find a good example of where these have been improved due to IMF actions.

I guess it all depends on where you think the applicability of economics finishes - does it stop at improving the macro indicators or do we still care about improving social welfare?? I think that many of the papers mentioned by Pierre - Louis show that the latter still applies....anyone else's thoughts??

T-Viddy said...

It is great that someone took the initiative for a cool shirt again.

As for the IMF, I think that it is important to keep in mind that the real problem is that any Structural Adjustment Program (SAP) treats only outcomes, but not the root causes of domestic macro imbalances in the first place.

This is only because the Fund comes in when the crises is alreaddy happening. So it is like you are trying to cure cancer from someone who is dying after 30 years of smoking. It is not so easy and straight forward.
The same could be said of some countries with macroeconomic mismanagment. It is difficult to fix a decade of macroeconomic mismanagment in just 2 - 3 years that the SAP is designed for. SO maybe this is one reason why we almost always see SAPs fails. The fund tries to rescue a terminally ill patient. Maybe the IMF should realize that they ar eno all knowing when it comes to economic reform and that maybe the cure is much more complicated than a simple SAP.

On the other hand, should we just sit back and do nothing while we watch hyperinflations and resulting political riots across the world ?

I think that a priori this is a very difficult call to make. It is almost like Catch 22.....

Anyways going back to the arguments about treating roots rather than causes. Take my own country Poland. I would argue that we had decent economic institutions prior to the 2nd world war. We are the one example where Shock - Therapy seems to have worked well. So maybe this is one example where the IMF did help us a lot. In particular, thanks to Jeff Sachs and the FUND, out international debt was slashed in half when we became a democracy.
Although we did have some inflation in the beginning, I would argue that today most people can afford a standard of living which was unimaginable to most just even a decade and a half ago....

Katya said...

just my two cents. i think that when many ppl blame the fund for not solving dev-ing countries problems, the key word is "structural reforms", something macroeconomists populating the institution are just not qualified to do or advise on. this is world bank ppls job. imf is not a development insitute. yes, they put them as conditions in the loan packages, because it is important to recognize that they matter and it gives local politicians clout to actually implement them. but thats it. so just scratch that.

the other thing is when imf advice goes on the free ride when it gets in local politicians hands. which brings to mind the case of zambia a few years back for example. everyone knows that you cant run fiscal deficits forever and have your debts balooning out of sight. so it is only reasonable to recommend to cut them. but then it is up to politicians how they go about it. in zambian case they decided to up their own (public servants) wages, but when they could not pay the bill (because of IMF conditionallity, since it would be either printing money or borrowing even more and increasing already high domestic interest rates, hence scratching whatever private sector development you can hope for), they decided not to hire teachers, doctors and nurses. i think they actually hired more for central administration though. and then they (or rather the increasingly vocal ngos) said that imf told them to do so. and then you have crowds protesting on the 19th street and hate mail in external relations department. same applies to other issues, like aids.

i just feel that some of the criticism against the fund is misguided and misinformed. of course, i dont follow all the cases, so cant speak for all.

who is t-viddy? :-)

T-Viddy said...

You can guess who T-Viddy is by his country, his love of hip-hop (hence the name) and his insatiable appetite for economic research.

Katya said...

had no idea you like hip-hop, man :-)

Pierre-Louis said...

yeah...i thought i knew who you were...but then that hip hop thing...who could you be? i mean i know lech walesa likes hip hop but hes not in i guess you're someone else...