The International Monetary Fund and the World Bank, which represent 187 countries, compressed their annual meetings into a couple of days this year rather than spreading them out over the better part of a week. This allowed Finance Minister Jim Flaherty to get home for Thanksgiving dinner on Sunday. It also created a Lollapalooza of economics, with big-name economists and economic policy makers competing for attention at any number of venues. It was enough to fill a notebook. Here's a bit of what's in that notebook.
Austere? Who, us?
The International Monetary Fund went out of its way to clarify its position on the austerity versus stimulus debate. Recently, the fund's message has been interpreted as favouring budget cuts and debt reduction over further spending. Both Dominque Struass-Kahn, the managing director, and Olivier Blanchard, the chief economist, used press conferences to say the IMF actually is advocating austerity measures for those countries who are beyond the brink, such as Greece and Ireland, while those countries who retain "fiscal room" for more spending should consider doing so given the fragile state of the recovery, so long as they at the same time implement credible medium-term fiscal plans to bolster investor confidence. Several countries have the fiscal room to spend more, according to the IMF, including Canada and Germany. But few, if any, have credible medium-term fiscal plans.
So what does a credible fiscal consolidation plan look like? Mr. Blanchard and the IMF pushed hard for legislated fiscal targets. This seemed an odd proposal, given laws that force most American states to run balanced budgets were a significant barrier to pumping stimulus into the economy. Much of the federal stimulus money in the U.S. went to states to keep them from firing hundreds of thousands of teachers, police officers, fire fighters and other public workers. This neutered President Barack Obama's stimulus plan, making it as much a buoyancy program as a jolt to economic growth. Still, Mr. Blanchard said at a press conference that legislated fiscal targets work well when they are well designed. He said a legislated promise to reduce deficits and debt would give governments some room to maneuver now while maintaining the confidence of investors that cuts will be made later. "It's important in the current context," Mr. Blanchard said.
Christine Lagarde, France's popular finance minister, used several public appearances to lay out the agenda for the French presidency of the Group of 20, which begins after the summit next month in Seoul. France will push four issues: a vigorous debate on the international monetary system, including whether there's a need to diminish the dollar's role as the reserve currency; volatility in commodity markets and the risk of a proliferation of derivatives tied to food prices; international governance, recognizing that the G20 leaves out significant parts of the world; and development, picking up on South Korea's push to create a system of "safety nets" to protect emerging markets from global crisis. Ms. Lagarde offered few specifics on how those questions might be addressed. She did say that France would continue to push a financial transactions tax to raise money for environmental projects and to fight poverty. "We need to find alternative forms of financing," Ms. Lagarde said in a speech hosted by the Carnegie Endowment for International Peace.
There was little enthusiasm in the end for an accord among the biggest economies to bring peace to the international currency war. But don't think that people aren't talking about finding a better way to manage foreign exchange issues. And some doubt that the G20 is the best forum at which to do it. "I'm not sure that 20 is the right (number)," Ms. Lagarde said.
Lorenzo Bini Smaghi is a rare official who cares little for diplomatic speak. Mr. Bini Smaghi, a member of the European Central Bank board of governors, castigated a couple of conventions of North American monetary policy making, saying the use of core inflation to predict headline inflation has a lousy record and said the Federal Reserve is wasting it's time if it thinks quantitative easing will create employment. "People in this country think monetary policy can create jobs in a way that is unclear to me," Mr. Bini Smaghi said at the Peterson Institute for International Economics.
No economic story is complete these days without the take of Nouriel "Dr. Doom" Roubini, the New York University economist who earned the right to be listened to by accurately predicting the financial crisis. Mr. Roubini was everywhere in Washington on the weekend, including a 7th-floor conference room a couple of blocks from the IMF where he and two others from his research firm held a small briefing for reporters. Roubini Global Economics is worried about bubble conditions forming in emerging markets as international capital chases economic growth, as is skeptical the world's major countries possess the political will to end the currency war. "The IMF can talk about it, but the IMF doesn't have the leverage," Mr. Roubini said.