BY MARK W. HENDRICKSON
The International Monetary Fund (IMF), recently described by The Wall Street Journal as “the world’s top economic institution,” is advocating policies inimical to the interests of Americans. This is nothing new.
The IMF is one of several “multilateral” supranational bureaucracies (along with the World Bank and United Nations) hatched in the mid-1940s to help midwife a new world order. The IMF’s member governments fund its operations by taxing its citizens, to whom the IMF is virtually unaccountable. Such an undemocratic setup was intentional; Franklin Roosevelt designated Assistant Secretary of the Treasury Harry Dexter White (a closet Communist with the concomitant collectivistic world view) as the principal U.S. representative and lead architect of the IMF.
Bureaucracies are masters of mission creep. They constantly reinvent themselves, cleverly finding ways to expand in size, scope, power, and budget. The IMF has perfected this art, having evolved from its original purpose of trying to facilitate orderly currency exchange rates as countries recovered from World War II to morphing into a global busybody that makes loans—with significant strings attached—to bankrupt governments.
What has the American taxpayer received in return for billions of dollars siphoned through the IMF to deadbeat governments? Nothing but ill will from abroad. First, the IMF’s policy of lending millions, or billions, to fiscally mismanaged governments is counterproductive: Such bailouts help to prop up inept and/or corrupt governments. Second, bailouts create moral hazard, inducing private corporations and banks to lend funds to poor credit risks, confident that IMF funds will make them whole. Third, typical IMF rescue packages demand painful readjustments: 1) government spending cuts—e.g., shrinking popular programs, laying off a percentage of government employees, reducing government pensions—that understandably angers those adversely affected; 2) higher taxes in the name of balancing the budget.
There are two fundamental problems with these “austerity programs.” First, recommending higher taxes is economically obtuse. Tax increases are quack medicine. Even Lord Keynes prescribed cutting taxes, not raising them, in times of economic distress. Raising taxes on people already suffering from poor governance is not only foolish—it’s mean. Second, it doesn’t take expert economists to figure out when a government is overspending. Markets will discipline spendthrift governments by ceasing to make funds available to them until they institute needed reforms. Without a bailout fairy like the IMF, government leaders will quickly learn that if they wish the government to remain viable, they must spend within available means. By telling governments what they “have” to do when it’s obvious they need to make those reforms anyhow, the IMF gives the recipient government a convenient scapegoat. It blames the pain of austerity on meddlesome foreigners, and since the U.S. is perceived as the real power in the IMF, we get painted as the bad guys. The bottom line: IMF use of our tax dollars buys us a ton of resentment from abroad.
Besides the negative publicity, the IMF has waged war against American taxpayers and workers. Last October, the IMF released a paper suggesting both higher tax rates (mentioning a “revenue-maximizing” top marginal tax rate of around 60 percent) and possibly the confiscation of a sizable percentage of private assets to restore fiscal balance to the federal government. The IMF also has been one of the leading forces discouraging “tax competition” between countries. I have long advocated a drastic reduction in the U.S. corporate tax rate as an easy way to turn the U.S. into the world’s preferred domicile for business and thus trigger a veritable explosion of new jobs.
Most recently, as Judy Shelton observed in the March 14 Wall Street Journal, the IMF is trying to exploit the crisis in Ukraine to double its budget. It is using American tax dollars to lobby the American government to increase the flow of tax dollars from our Treasury to the IMF. We shouldn’t be surprised, then, that the IMF released a report on March 13 warning of the perils of “income inequality,” and suggesting tax increases and wealth redistribution as ways by which Uncle Sam might address the problem. (Memo to IMF: Whatever happened to economic growth as a path to prosperity?) This is a brazenly political move. The IMF is lending its prestige and PR-machine to amplify Barack Obama’s election-year campaign theme of “income inequality.” Once again, the IMF is using American tax dollars to lobby for higher taxes on Americans. How much do you want to bet that Obama will ask Congress to increase its contribution to the IMF one of these days?
If the IMF really wanted to improve the economic prospects of the world’s people, it would recommend reductions in government spending and taxation. Indeed, the overwhelming evidence is that vigorous economic growth is highly correlated with a country’s government shrinking as a share of GDP. What are the chances that the IMF will ever advocate such policies? Not very, as we realize that the IMF’s very existence depends on government taxes. It would be a conflict of interest for them to push for lower taxes. Bureaucracies generally avoid biting the hand that feeds them, and the IMF isn’t about to shoot itself in the foot.
Putting an end to the IMF’s anti-American mischief isn’t a priority of the current Congress. The IMF lurks safely in the background, its baleful influence off the radar screen of most Americans, beleaguered and distracted as we are by myriad domestic bureaucracies and Big Government schemes. In a better world, there wouldn’t be an IMF. For the present, though, the best we can hope for is for enough members of Congress to understand that the IMF’s interests are opposed to those of the American people and to refuse any requests that the IMF makes for increased funding.
Self-Educated American Contributing Editor, Mark Hendrickson, is Adjunct Professor of Economics at Grove City College, where he has taught since 2004. He is also a Fellow for Economic and Social Policy with The Center for Vision & Values, for which he writes regular commentaries. He is a contributing editor of The St. Croix Review, sits on the Council of Scholars of the Commonwealth Foundation, and writes the weekly “No Panaceas” column in the Op/Ed section of Forbes.com.
Mark’s published books include: America’s March Toward Communism (1987); The Morality of Capitalism (editor, 1992); Famous But Nameless: Inspiration and Lessons from the Bible’s Anonymous Characters (2011); and God and Man on Wall Street: The Conscience of Capitalism (with Craig Columbus, 2012).
Mark Hendrickson’s Archives at Self-Educated American.