If a track record of accurate predictions is a guide to the usefulness of a writer, then Dean Baker is one of the more useful economists around. He was predicting the collapse of the housing bubble and the resulting economic problems while the CNN and CNBC cheerleaders were telling us all how wonderful the economy was.
Oh, and while the IMF wasn’t predicting this either …
Where was the IMF when the housing bubble in the United States and elsewhere was inflating to ever more dangerous levels? Was it frantically yelling at governments to rein in the bubbles before they burst with disastrous consequences? After all, what could possibly have been more important than warning of the dangers of these bubbles?
It was easy to both recognize the housing bubbles and that their collapse would have devastating consequences for the economy. Economies don’t adjust easily to a loss of wealth that in some cases exceeded 50 percent of GDP.
Real economists know this, but apparently the folks at the IMF did not, or if they did, they didn’t think it was worth saying anything. One will look in vain through IMF publications during the buildup of the housing bubble for serious warnings of the potential dangers.
And as to the question Mr. Baker poses today, I think I’d gladly prefer the advice of a drunk off the street. After all, the drunk off the street is far more likely to be aware of the problems that us non-bankers might be experiencing, while the IMF is certain to be pushing whatever the bankers want today.
The impact of most of its proposals will be to reduce the benefits received by ordinary workers. The proposed changes in labor market regulations will likely also weaken workers’ bargaining power, leading to cuts in wages. Furthermore, the reduction in demand caused by the turn to austerity will leave millions more out of work, both depriving these workers of income and further weakening the bargaining power of those who still have jobs.
Yep, the drunk on the street is definitely going to have better ideas than that.
(crossposted from my blog Commondebate)