Ron Paul Dear Colleague Letter on IMF and the lessons of East Asia
Ron Paul Dear Colleague Letter on IMF and the lessons of East Asia
June 16, 1998
(J. Bradley Jansen was the legislative staffer for Ron Paul on these issues at this time)
Ron Paul Dear Colleague on IMF THR
What does the IMF say about the lessons of East Asia?
June 16, 1998
Dear Colleague,
As we debate more funding and an expanded role for the International Monetary Fund, it behooves us to look at the lessons of IMF and other interventionist policies. The role of the IMF has changed markedly over time–from maintaining a Bretton Woods Gold Standard since its inception until the early 1970s, to one of mostly advising developing countries coupled with loans of small amounts for temporary situations until the Mexican bailout.
Supporters of a new, expanded role for the IMF need to explain the economic theories they use to justify its existence and why this new interventionist role of the IMF is not only the best use of taxpayer dollars but the best policy that we could pursue. The IMF publication Growth in East Asia: What We Can and What We Cannot Infer (Michael Sarel, Economic Issues 1) explains well some of the competing theories:
“The [Free Market] school…espouses and underlying belief in classical liberalism which requires only that the government ‘get the basics right’ and opposes any other kind of government intervention. (Getting the basics right means creating an environment in which the economy will thrive by, for example, making sure that the exchange rate reflects the economic fundamentals, that interest rates yield a positive return, that inflation is kept under control, and that taxes are not so burdensome as to discourage economic activity.)”
“The Revisionist view does not share the neoclassical belief in the efficiency of the markets. It asserts that…markets work imperfectly. DeLong and Summers (1991) sum up this view: ‘The government should jump-start the industrialization process by transforming economic structure faster than private entrepreneurs would.’ Advocates of this view see the success of East Asia as confirming their conviction.”
[Reference: DeLong, J. Bradford, and (now Deputy Secretary of the Treasury) Lawrence H. Summers, “Equipment Investment and Economic Growth,” Quarterly Journal of Economics, No. 106 (May 1991), pp. 445-502.]
“A third [Agnostic] school…claims we cannot properly identify how such policies spur economic growth…Success has a thousand fathers; failure is an orphan…The more one examines the individual East Asian economies have pursued, the more evident it becomes how different, and indeed contradictory, these policies have been. Rodrik (1994), for example, remarks that the East Asian model encompasses highly interventionist strategies (Japan and Korea)…clientelism [cronyism] (Indonesia and Thailand); [and other strategies].”
[Reference: Rodrik, Dani, “King Kong Meets Godzilla: The World Bank and the East Asian Miracle,” Chapter 1 in Miracle or Design? Lessons From the East Experience, Overseas Development Council, 1994.]
The revisionist advocates of interventionist governmental strategies cannot now deny paternity of the crises in East Asia and elsewhere and the cronyism and corruption that resulted from their misguided policies. We should return to the classical liberal idea of “getting the basics right.” We should not only reject more money for the IMF now but sunset the anachronistic Bretton Woods Act after several years and have a rational, informed debate on what role government should have and what U.S. policies should be.
Respectfully,