New Warwick research explores the IMF’s evolving role in the wake of the global financial crisis
After 2008 the IMF began to intervene more overtly in political debates about how best to deliver economic stability and growth
The IMF’s reputation, expertise and mandate enabled it to define the crisis and encourage policy responses which challenged conventional economic wisdom at the time.
A new book by Professor Ben Clift, Professor of Political Economy in the University of Warwick’s Department of Politics and International Studies, explores how the
International Monetary Fund (IMF) used its resources and reputation to shape economic policy in response to the biggest financial crash since the Great Depression of the 1930s.
The IMF and the Politics of Austerity in the Wake of the Global Financial Crisis (OUP, 2018) presents the first analysis of the role played by the IMF in the wake of the 2008 global financial crisis, and identifies some of the strategies used by the IMF to influence thinking about what is, and what is not, ‘sound’ economic policy.
Professor Clift said: “Economic ideas are always rooted in ideological assumptions about how the economy and policy work, and the process by which economic theory is invoked in economic policy recommendation and rationalisation is inherently political.
“In the years since 2008 we have seen the IMF evolve into an institution that is much more willing to intervene adopt critical and heterodox positions, challenging hawkish voices within politics of austerity debates about the fiscal policies which governments should adopt in response to the global financial crisis.”
In his book, Professor Clift sets out for the first time how the IMF advocated coordinated global fiscal stimulus, called on governments to use macroeconomic policy to tackle inequality, and made a series of carefully targeted interventions in the political debate surrounding austerity to advocate policies which would reduce the risks of protracted deflation and ‘secular stagnation’.
He argues that the Fund’s crisis-defining economic ideas, and crisis legacy defining ideas, were important in constructing particular interpretations of the crisis. Fund leadership articulated a Keynesian market failure understanding of the crisis, focussing on deficiencies of aggregate demand, and on the destabilising properties of financial markets.
The Fund’s re-emphasising of Keynesian insights into liquidity traps, demand deficiency, higher fiscal multipliers, and the folly of all countries consolidating at once sat outside orthodox economic policy-making ideas at the time. These were not the lessons policy-makers had typically drawn from academic economics before the crisis.
To develop his analysis, Professor Clift reviewed research, speeches and other intellectual resources created by the IMF, and carried out extensive interviews with IMF economists, management, and policy-makers in Britain and France.
He added: “During and after the financial crisis, the Fund took the view that unfettered market forces could no longer be relied on to deliver stability and full employment. Its response was to put down a series of intellectual markers, carefully constructed to prioritise particular policy responses and sought to rule out or marginalise others.
“There is a breadth of policy approaches along a surprisingly wide continuum, reconcilable to ‘mainstream economic thinking’ in the wake of the global financial crisis. This gave the IMF, scope to select, prioritise and choose within this menu of respectable economic thinking.
“In this light we can better appreciate the political role played by the Fund in seeking to shape understandings of sound economic policy conduct by selecting and foregrounding particular rationales, insights and prioritisations when making policy recommendations.”
21 March 2018
- Click here for full details of Professor Clift's book.
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