Simon Johnson, an econ professor at MIT and former IMF economist, started blogging recently at TPMCafe. And David Kurtz interviewed him in today’s episode of TPMtv. The argument Johnson makes is one that’s been tossed about in a loose aphoristic way in the public debate but seldom gets put in such blunt and concrete terms. What Johnson argues is that in economic crises in recent decades where the IMF has worked to step in and put things right, seldom if ever do things get fixed unless the political power of the group that caused the mess is somehow disrupted — in most cases the political power of the group that ran the big financial institutions.
Not that political elites are wholly displaced or overturned. But there’s got to be some fundamental break in their power to get the necessary reforms through.
A couple things occur to me about this. One is that whatever you can say about the IMF and the World Bank, the key factor behind their role as crisis-fixing and stabilizing institutions in the post-war era is that they had the power of the US behind them (and the developed countries more generally). So whatever the wisdom of their interventions, they usually had the power to dictate solutions. And that very often meant overruling political elites who either would not face problems or had vested interests in not facing them.
Now, let me stipulate that the record was by no means perfect. I know that. But for the purposes of this discussion, my point is that there was an external power that could step in in a politico-economic situation that had become dysfunctional or stuck. For the US (or probably Europe, for that matter), though, there’s no outside force.
Back to the initial point. Everyone is always saying: how can we fix the problem as long as the people we have in charge are the people who created the problem in the first place? Very true in many ways. I’ve said it a lot myself. But this point has brought it home to me in a much more concrete way. The assumptions, the vested interests, the wealth, the political power are just too much to overcome.
Here’s the interview …