Saturday, September 20, 2014

Stiglitz, Vernengo and Rogoff on the IMF.

"Then said Jesus unto him, Put up again thy sword into his place: for all they that take the sword shall perish with the sword." (Matthew 26:52. KJV)

Researching on the subject of public debt, I stumbled upon an open letter Kenneth Rogoff wrote to Joseph Stiglitz on July, 2002.

Among other things, Rogoff (at the time Economic Counsellor and Director of Research, IMF) reminisces about Princeton, in the late 1980s:
"One of my favorite stories from that era is a lunch with you [i.e. Stiglitz] and our former colleague, Carl Shapiro, at which the two of you started discussing whether Paul Volcker merited your vote for a tenured appointment at Princeton. At one point, you turned to me and said, 'Ken, you used to work for Volcker at the Fed. Tell me, is he really smart?' I responded something to the effect of 'Well, he was arguably the greatest Federal Reserve Chairman of the twentieth century'. To which you replied, 'But is he smart like us?' I wasn't sure how to take it, since you were looking across at Carl, not me, when you said it." (Emphasis in the original)
This got me thinking: how should one take Stiglitz's words? Was he, perhaps, asking whether Volcker was capable of operating an Excel spreadsheet properly?

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Incidentally, Rogoff speaks highly of the IMF and its openness to criticism and willingness to change:
"You [i.e. Stiglitz] say that the IMF is tone deaf and never listens to its critics. I know that is not true, because in my academic years, I was one of dozens of critics that the IMF bent over backwards to listen to."
By one of those things in life, just a few days ago (about 12 years after that letter was written, now with Olivier Blanchard as the IMF Economic Counsellor) Matías Vernengo wrote:
"So the whole change is a slightly higher inflation target, and a bit more expansionary fiscal policy, when the rate of interest is close to zero. You can read the rest, but if you have doubts about policy check what are the ones promoted by the IMF in the European periphery. As we argue: 'If there is any change in the IMF policy advice it is difficult to find in its policies'."
Twelve years and nothing changed: there's reason behind that "dismal science" view.

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