The International Monetary Fund, Negative-Sum Economics, and the Eighth Theorem of Government April 25, 2020 by Dan Mitchell

At the risk of understatement, I’m not a fan of the International Monetary Fund (IMF).

The international bureaucracy is the “Johnny Appleseed” of moral hazard, using bailouts to reward profligate governments and imprudent lenders.

The IMF also is infamous for encouraging higher tax burdens, which is especially outrageous since its cossetted employees are exempt from paying tax on their lavish salaries.

In recent years, the IMF has been using inequality as a justification for statist policies. Most recently, the lead bureaucrat at the IMF, Kristalina Georgieva, cited that issue as a reason for governments to impose higher taxes to fund bigger welfare states.

…inequality has become one of the most complex and vexing challenges in the global economy. Inequality of opportunity. Inequality across generations. Inequality between women and men. And, of course, inequality of income and wealth. …The good news is we have tools to address these issues… Progressive taxation is a key component of effective fiscal policy. At the top of the income distribution, our research shows that marginal tax rates can be raised without sacrificing economic growth. …Gender budgeting is another valuable fiscal tool in the fight to reduce inequality…. The ability to scale up social spending is also essential… A cornerstone of our approach to issues of economic inclusion is our social spending strategy.

What’s especially remarkable is that the IMF has claimed that the punitive policies actually will lead to more growth, in stark contrast to honest people on the left who have always acknowledged the equity-efficiency tradeoff.

The economics editor at the left-leaning Guardian, Larry Elliott, is predictably delighted with the IMF’s embrace of Greek-style fiscal policy.

Raising income tax on the wealthy will help close the growing gap between rich and poor and can be done without harming growth, the head of the International Monetary Fund has said. Kristalina Georgieva, the IMF’s managing director, said higher marginal tax rates for the better off were needed as part of a policy rethink to tackle inequality. …The IMF managing director, who succeeded Christine Lagarde last year, said higher taxes on the better off…would help fund government spending to expand opportunities for those “communities and individuals that have been falling behind.” …Georgieva said the IMF recognised that social spending policies are increasingly relevant in tackling inequality. …She added that many less well-off countries needed to scale up social spending.

Ironically, the IMF actually has admitted that this approach is bad for prosperity.

It has produced research on something called “equally distributed equivalent income” to justify lower levels of income so long as economic misery is broadly shared.

I’m not joking. You can click here to see another example of the IMF embracing poverty if it means the rich disproportionately suffer.

In other words, negative-sum economics. Though Margaret Thatcher was more eloquent in her description of this awful ideology.

At first, this column was going to be a run-of-the-mill anti-IMF diatribe.

But as I contemplated how the people fixated on inequality are willing to treat the poor like sacrificial lambs, it occurred to me that this is a perfect opportunity to unveil my Eighth Theorem of Government.

P.S. Here are my other theorems of government.

• The “First Theorem” explains how Washington really operates.
• The “Second Theorem” explains why it is so important to block the creation of new programs.
• The “Third Theorem” explains why centralized programs inevitably waste money.
• The “Fourth Theorem” explains that good policy can be good politics.
• The “Fifth Theorem” explains how good ideas on paper become bad ideas in reality.
• The “Sixth Theorem” explains an under-appreciated benefit of a flat tax.
• The “Seventh Theorem” explains how bigger governments are less competent.