Finally a word about the IMF

Finally, a word in the news about the IMF (even if it does arrive in a political context). Paul Krugman describes the International Monetary Fund as that scolding parent that’s necessary but never popular, with his reasoning being the sanctions placed on countries in order to recover. In an Opinion article by Washington Post journalist Fareed Zakaria, the IMF finally gets a little credit. Zakaria’s article is the most optimistic about the current state of the US economy I think I’ve seen since the beginning of the financial crisis, and probably much before that (although I was 16 so I didn’t really know a thing). As Zakaria reports, the IMF projects that the US will respond well to the actions of the government in the economic sector and that whoever the next president is, he will preside over a period of relative economic growth.

There are a couple of points here that I want to discuss, but first of all, Zakaria alludes to the issue of lag time that will give credit to our next president for his economic policy, even though it will in fact reflect the strategies put into place during the last four years. I was reminded of Krugman’s discussion of Alan Greenspan, and how he took credit for his predecessor’s hardline economic policies before leaving his successor in future financial ruin. Because of the issue of lag time, it’s not always obvious what policies have been effective in helping restore growth to the economy. Perhaps to economists this distinction isn’t difficult, but economists aren’t the only ones heading to the voting polls in November (this is where the political element of economics becomes frustrating).

Secondly, I disagreed with Zakaria in one respect. He makes the point initially to say that the IMF predicts that international growth is on a downward trend in Europe and China, whereas the United States will see an increase in growth. While Zakaria appears to use this domestic success as evidence of the US’s continued superiority, the interdependency of the globalized world suggests otherwise. China provides a prime example. The Chinese hold an inordinate amount of US debt, and the futures of the Asian country is therefore intertwined with the US. If it were to experience a Thailand-style financial crisis, the US could become its Malaysia, and all of the sudden the 3 percent in growth that Zakaria acknowledges becomes a short term caveat to a long-term downward spiral.

All this is to say that, as much as his optimism is encouraging, it feels as though Zakaria is overly supportive of the IMF’s predictions in the US. The “fiscal cliff” in Europe, not to mention the changing face of China in the wake of its aging population suggests that, yes, the US might retain its dominance, but only until the effects of globalization dampen its level of expected domestic growth.

Zakaria’s article: http://www.washingtonpost.com/opinions/fareed-zakaria-the-us-economy-is-recovering-well/2012/10/24/9c34df9e-1df0-11e2-ba31-3083ca97c314_story.html?hpid=z2