Mea Culpa: Bankers admit to being responsible for global inequality
The world’s largest evangelist of neoliberalism, the International Monetary Fund, has admitted that it’s not all it’s cracked up to be.
Neoliberalism refers to capitalism in its purest form....
In analyzing two of neoliberalism’s most fundamental policies, austerity and the removing of restrictions on the movement of capital, the IMF researchers say they reached “three disquieting conclusions.”
One, neoliberal policies result in “little benefit in growth.”
Two, neoliberal policies increase inequality, which produces further economic harms in a “trade-off” between growth and inequality.
And three, this “increased inequality in turn hurts the level and sustainability of growth.”
The top researchers conclude noting that the “evidence of the economic damage from inequality suggests that policymakers should be more open to redistribution than they are.”
Wow! Coming from the Church of the Free Market (i.e. the International Monetary Fund).
It's like the Pope saying, "we might have been wrong about that Jesus guy".
The report points out the damage that unrestricted capital flows can cause.
These boom and bust cycles are not merely “a sideshow… they are the main story,” the economists add.
“Capital controls are a viable, and sometimes the only, option,” the IMF concludes.
Then comes the real kicker. The one thing that was so obvious that even the man on the street understood.
“Austerity policies not only generate substantial welfare costs,” the IMF researchers continue, “they also hurt demand — and thus worsen employment and unemployment.”
“The increase in inequality engendered by financial openness and austerity might itself undercut growth, the very thing that the neoliberal agenda is intent on boosting,” the IMF researchers write. “There is now strong evidence that inequality can significantly lower both the level and the durability of growth.”
The IMF couches it's criticism of neoliberal economics. “There is much to cheer in the neoliberal agenda,” they write.
The report points out the success of it in Chile. Of course, the IMF leaves off an important detail.
The IMF report cites Chile as a case study for neoliberalism, but never mentions once that the economic vision was applied in the country through the US-backed Augusto Pinochet dictatorship - a major omission which was no casual oversight on the part of the researchers. Across Latin America, neoliberalism and state terror typically went hand in hand.
But wait! There's more
The IMF report alone is a stunning admission. Yet it comes only days after a significant mea culpa by the Federal Reserve.
Assistant Vice President and Economist Michael Owyang and Senior Research Associate Hannah Shell noted that increases in stock prices and capital returns may benefit the wealthy more than others, as they have better access to markets. They wrote: “Thus, as stock prices and capital returns increase, the wealthy might benefit more than other individuals earning income from labor.”
This isn't news, except to see the Fed acknowledge it. Standard & Poor’s recently said:
QE boosts asset prices through a “portfolio rebalancing effect”… However, ownership of such assets is highly concentrated. Before the financial crisis, the 10 per cent wealthiest UK households directly owned 77 per cent of all stocks and 64 per cent of bonds, according to the OECD Wealth Distribution Database… It was therefore the wealthier households that gained most from the strong rise in financial asset prices after the onset of QE.
Former Fed officials have noticed the very same thing recently.
Kevin Warsh, a former Fed board member and one of the Brookings panelists, held a different view explaining that quantitative easing as a policy works purely through an “asset price channel” enriching the few who own stocks or other financial products (and not the 96% of Americans who receive the majority of their income through labor).
This comes just two years after the Bank for International Settlements made the admission that "financial globalisation itself makes booms and busts far more frequent and destabilising than they otherwise would be".
Does this mean we are finally witnessing the long death of the neoliberal ideology? It's too early to say, but we can hope.