Dean Baker: Some market discipline for economists

[marmar]

Some market discipline for economists
The IMF lashes itself for failing to foresee the crisis, but the only remedy would be the hazard of unemployment for its economists

Dean Baker
guardian.co.uk, Tuesday 12 April 2011


Last month, the International Monetary Fund's independent evaluation office issued a remarkable report. The report quite clearly blamed the IMF for failing to recognise the factors leading up to the worst economic crisis since the Great Depression and to provide warning to its members so that preventive actions could be taken:

"It (the report) finds that the IMF provided few clear warnings about the risks and vulnerabilities associated with the impending crisis before its outbreak. (…) The IMF's ability to correctly identify the mounting risks was hindered by a high degree of groupthink, intellectual capture, a general mindset that a major financial crisis in large advanced economies was unlikely, and inadequate analytical approaches."

The report noted that several prominent economists had clearly warned of the dangers facing the world economy prior to the collapse that began in 2007. One of these economists was Raghuram Rajan, who was actually the chief economist at the IMF when he gave a clear warning of growing financial fragility back in 2005. Yet these warnings were, for all practical purposes, ignored when it came to the IMF's official reports and recommendations to member countries.

The IMF deserves credit for allowing an independent evaluation of its performance in the years leading up to the crisis. It would be great if the Fed, the Treasury, the Securities and Exchange Commission and other regulatory bodies allowed for similarly independent evaluations of their own failings. .............(more)

The complete piece is at: http://www.guardian.co.uk/commentisfree/cifamerica/2011/apr/12/imf-economics