“It is inconceivable that policymakers today, aided by their theoretical understanding of the mechanisms and by the statistical information at their disposal, would begin to make the serious errors committed by the governments in 1929-32.” J. Tobin
“If you owe your bank manager a thousand pounds, you are at his mercy. If you owe him a million pounds, he is at your mercy.” An old saying, the modern incarnation of which is often attributed to Lord Keynes.
Argentina’s revised program under an Extended Fund Facility (EFF) with the IMF was approved late last month. The associated Staff Report was dropped onto the imf.org webpage with minimal fanfare. It wasn’t posted to the main landing page, as with most Fund documents, only to the Argentina country page. This gives a hint at the internal enthusiasm for the document itself.
Roughly speaking, the new program rolls over the previous Stand-By Arrangement (SBA)—pushing back the repayment period to between 2026 and 2034 while returning to Argentina interest they paid in recent years.
What can be said analytically about this revised document?
Well, at one level there is much to be said. And some of what ought to be said we will say here.
The British proverb “horses for courses!” is a reminder, we are told, that you need to choose the correct people for any particular task; there is no “best team” only the right team for the circumstances.
So too—or especially so—with macroeconomics. Unlike the physical sciences, where outcomes are invariant to the political or social greenscreen, macroeconomics is all about context. It is all about choosing right framework for the situation at hand, or “choosing the right metaphor.”
And as the contours of the post-pandemic macroeconomic landscape begin to take shape, a failure to pick the right metaphor is emerging with echoes of the post-GFC narrative—revealing the possibility of a policy mistake every bit as consequential as that committed during the recovery from GFC.
The Grecology substack last week highlighted how a stealth fight has emerged over the matter of sustainability of Greece once more. As noted there, an ESM blog pushed out by Rolf Strauch last week, making the case for sustainability, followed a short while after former IMF mission chief and European Department Director Poul Thomsen’s disparaging remarks at an online Economist conference. On that occasion, Thomsen downplayed the prospects for Greece within the euroarea still, lamented the inability of the Greeks to reform and the flaws in the European’s DSA. Indeed, Thomsen claimed the DSA being produced by the ESM is “not only wrong but also irrelevant” and that creditors only hold Greek assets because they believe they will be bailed out.
When I discovered in 2008/09 that the IMF was engaged in systematic fraud in her work with Europe (subsequently with Argentina and others) I tried very had to get senior staff to see the flaws in the work that the Fund produces. After repeated efforts, and after being deliberately blocked by the head of my Department, SPR, from having this dealt with, I was resigned to write a memo. (The head of my Department was himself breaking staff rules at this very time, of course. Such are the ethics of the institution.)
Imagine working at NASA as a senior manager and being told your spaceship will not reach orbit, at massive human cost, because the maths do not add up–and doing nothing about it.
Once again, simple Keynesian thought-experiments that hinge on saving-investment balances prove to be the best way to think through what is going on at the moment. Macroeconomics is less about supply and demand, more about saving-investment decisions.
Anyway, in thinking about this series for Exante, the following short macro accounting framework was useful.