Friday, October 14, 2016

IMF Annual Meeting Seminars – Observations

Last week I attended seminars and other events sponsored by the IMF in conjunction with its annual meeting in Washington, DC. Here are some observations.

The IMF had fewer “open” events than in the past, and fewer big-name economists were present on panels, though they may have spoken at the conferences and events sponsored by banks and other private organizations that are put on in conjunction with the World Bank/IMF annual meetings. Nevertheless, it appears that the IMF organizers, probably including IMF managing director Christine Lagarde, had issues they wanted to highlight. Three main themes were preponderant: globalization, technology, and income inequality.

The IMF and its sister organizations, the World Bank and the World Trade Organization, are staunchly in favor of free trade. There is hand-wringing concerning that the case for free trade – that the benefits for countries outweigh the costs – is difficult to make on the public square in an economic environment of slow economic growth, growing economic inequality, visible job losses due to trade, and fear of change. While the great majority of economists across the political spectrum believe in free trade, the institutions implicitly recognized that this is not enough to convince the public. I do not remember hearing, though, any solutions except to be more forceful in presenting the economic arguments.

Regarding trade agreements, there was some, but not enough, discussion that some of the opposition to certain free trade agreements center on factors such as dispute resolution procedures, labor practices, and environmental concerns, rather than lowering of tariffs. Interestingly, one speaker (this may have been at a J.P. Morgan event) did say that the chances of U.S. ratification of the Transatlantic Trade and Investment Partnership (“TTIP”) are greater than ratification of the Trans-Pacific Partnership (“TTP”). The countries of the TTIP are more similar with respect to labor practices and environmental issues than the countries of the TPP, and U.S. workers are less fearful of job losses to many of the countries of the EU than they are to losses to Asian countries.

As to technology, the message was that the pace of change has been remarkable with profound effect on jobs. Technology facilitates globalization, making it easier to outsource jobs to other countries. It also eliminates existing jobs. This causes unease among certain sectors of developed nations’ populations about their economic prospects.

I am suspicious of arguments that technology make the goal of full employment unattainable. I remember that, when I was in grade school in the late 50s and early 60s, there was much concern about how automation would have these economic deleterious effects. It did not happen. I do recognize, though, that the changing nature of available work will create winners and losers, and that, if not handled right, can create political movements that are at core undemocratic.

I think the IMF is right to highlight this issue, though I was disappointed by many of the speakers on this subject. There was a tendency to make bold assertions, such as that more than half of the largest U.S. companies are going to disappear in the coming decade or that the U.S. educational system needs fixing. Absent was any analysis to convince one of the inevitable failure of companies or any analysis of what is wrong with U.S. education and how it should be fixed. That does not mean the speakers are wrong, but bold assertions without analysis is not that useful.

As for growing economic inequality, which to some extent may be exacerbated by technological change, and slow economic growth, this is indeed a problem that needs to be highlighted and is a major factor of populist movements in developed countries. Besides making some changes to tax codes and to government spending, I do not recall hearing any proposals on how to address this problem nor any analysis of why it is occurring. To be fair, though, it is a difficult issue to analyze and there does not appear to be any consensus about the cuases of economic inequality. The IMF’s highlighting of this issue is appropriate and it will hopefully spur more thinking and research on this topic by economists and others.

In short, while not conveying to attendees fear of a coming economic cataclysm, the overall message was decidedly not one of optimism. To be more positive, the IMF was warning that there are currently developments that could lead to creeping disasters if problems are not addressed. There is the hope that they will be.   

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