Rethinking Economic Principles: Join the Debate

By iMFdirect

The global financial crisis caused immense hardship and suffering all over the world. To prevent a repeat, we need to rethink…

… what we know about economic theory …. We need to rethink, following this, the policies … coming from the analytical work. And then we will need also to rethink multilateralism.

IMF Managing Director Dominique Strauss-Kahn (April 16, 2011)

A wholesale reexamination of macroeconomic principles in the wake of the crisis was the goal of a conference at the IMF in early March.

But, for Olivier Blanchard and others, the conference was merely “the beginning of a conversation, the beginning of an exploration.”

Here is our list of recommended reads to help you be part of the conversation.

We encourage you to join the debate by adding your comments here.

7 Responses

  1. [...] respuestas de política económica, entre ellas los controles de capital. Tal como sucedió cuando nos replanteamos muchos principios económicos a raíz de la crisis mundial, este trabajo es solo el comienzo del diálogo. En la conferencia de Río se resaltó la [...]

  2. So long as “everyone” believes the federal deficit is too large, there will be no solutions found.

    So long as “everyone” believes the federal debt is the total of federal deficits, there will be no solutions found.

    If you truly are interested in “rethinking economic principles,” go to SUMMARY OF A DIFFERENT APPROACH.

    Rodger Malcolm Mitchell

  3. [...] an exploration.” Here is our list of recommended reads to help you be part of the conversation. iMFdirect – The IMF Blog Filed Under: [...]

  4. Dear IMF-bloggers,
    Assuming your even close to being serious…..
    We need to fix the SYSTEM.
    The global monetary system.
    It’s the SYSTEM that’s broken, not the players, not the policies, not the bankers.

    The structure of the system, with what Minsky describes its inherent instability, must be re-based away from that of debt-money.

    When all money is created as a debt, and when we only have money when bankers make loans, we have a system that collapses in its contraction phase, leading to Fisher’s debt-deflation spiral.
    You all know that is exactly what remains to happen to the global economy, soft-landing being wishful thinking.

    So, my suggestion is to get everyone in the back room and tell them that we need to re-design the global monetary system so that we can have money without debt. It’s actually pretty simple.

    I don’t mean there will be no debts as there will always be capital allocations to feed productive capacity needs.
    But that will be the lending of real money – money that came into existence without debt , was deposited for lending purposes and received time deposit gains to its holders.
    See the Kucinich Bill HR 6550.

    See the work of Dr. Kaoru Yamaguchi of Doshisha University in Japan, here:

    http://monetary.org/yamaguchipaper.pdf

    On the liquidation of government debt under a debt-free money system.

    I have my doubts that the IMF really is interested in the next generation monetary system.
    But, if you are, then it’s getting past time to begin again.
    Thanks.

    Joe Bongiovanni
    The Kettle Pond Institute

  5. People think of liquidity as always being a good thing: just as fresh water makes life grow, so liquidity makes economies grow. But what if the fresh water makes weeds grow too?

    Well, what would be “weeds” in an economy? Wouldn’t they be activities that crowd out other activities necessary to enjoyable and sustainable living?

    My thesis is that, currently, too much liquidity is being channelled by habitually logical but nevertheless irrational activity into novel financial “aquifers” that have been dreamed up by people who are unaware of the importance to the global financial system as a whole of the distinction between speculation and investment. In fact, in my encounters with financial professionals, about 95% seem certain, when asked, that “you can’t tell the difference between speculation and investment”.

    But 5% can, and I agree with the 5%. Armed with my distinction between speculation and investment I feel concern that the liquidity generated by the Quantitative Easing practised by the Federal Reserve and the Bank of England (among other central banks) would better be channelled into venture capital dedicated to investing in organizations that invent and introduce into the economy goods and services that produce more well-being, i.e. justice, prosperity, and peace. I have not made up my mind what portion of the ownership of such new venture capital organizations will be required to be governmental and how much private, but I do think such an initiative can in any case be largely funded by a transaction charge on certain kinds of derivative trading — perhaps one that is volunteered by the big financial institutions that taxpayers recently had to bail out.

    Such a charge would curb issuance of those types of derivative transactions that made, and are still making, the economic system more unstable than it otherwise must be; and the proceeds from the charge ought then, in my opinion, to be used deliberately to fund the more ecologically dynamic activities that we all know are needed for justice, peace, and prosperity. We all too often assume, after an all too brief inward sigh, that we “simply can’t afford to get started” on what we all know would improve our progress toward justice, peace, and prosperity.

    A paper to generate more debate on this new thinking is available at the following URL:

    http://www.authentixcoaches.com/ACdsFCF-1.html

  6. Before submerging yourselves in rethinking macroeconomic principles why do you IMF not lend me a hand in order to extract from the Basel Committee (and the Financial Stability Board) their answers to some very basic questions that, one way or another, I have been making for over a decade.

    If our global bank regulators, after such a faux-pas as Basel II, cannot be questioned or held accountable, and can now with their Basel III proceed to dig us deeper into a black-hole of regulatory complexity even they don’t understand, then we are indeed in serious trouble.

    The Questions:

    Can you think of any major bank crisis that was caused by excessive lending or investments to what was perceived as risky? Is it not so that these crises have always resulted from either unlawful behavior by bankers, or excessive lending or investment to what was wrongfully perceived as not risky?

    No, and yes? If so can you explain why bank regulators have set the capital requirements for banks based on perceived risk? Ludicrous as it sounds, would then capital requirements that were totally the opposite of the current make more sense, like higher capital requirements for what is perceived as not risky and lower for what is perceived as risky?

    Since we know that the banks already consider the credit ratings when deciding whether to lend or not to a client, what amounts and at what interest rate, is it logical that the regulators also use exactly the same credit ratings when deciding the capital requirements for banks? Is that not sort of double counting? If you consider good information excessively, does this not distort the value of that information?

    We know that one of the prime objectives for our banks is to attend the credit needs of those small businesses and entrepreneurs that are so vital important for the creation of jobs, but who have no access to capital markets and who cannot even afford to get their creditworthiness rated by the agencies. If so does it make any sense to discriminate against the small businesses and entrepreneurs by means of forcing the banks to carry relatively much higher capital when lending to these than when lending to something with for instance a triple-A rating?

    Don’t you need to define the purpose of our banks before regulating them? It is of course important that a road is well built… but it should also matter, I think, from where it comes and to where it goes.

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