Should the Fiscal Pyromaniacs at the IMF Get another $500 Billion so They Can Advocate Keynesian Spending and Class-Warfare Tax Hikes?

Perhaps the title of this post is a bit unfair since the International Monetary Fund is good on some issues, such as reducing subsidies. And some of the economists at the IMF even produce good research.

But I can’t help but get agitated that this behemoth global bureaucracy wants more money when it has a dismal track record of promoting, enabling, and subsidizing bigger government.

Here’s a brief blurb from the Wall Street Journal, which shares my skepticism.

The IMF’s Christine Lagarde delivered a speech in Berlin Monday warning that, without dramatic action, the world risked another Great Depression. …”We estimate a global potential financing need of $1 trillion,” she said. “To play its part, the IMF would aim to raise up to $500 billion in additional lending resources.” …Perhaps an IMF managing director with sound ideas about what makes an economy grow might deserve a raise. The first thing such a director would demand would be to cut the Fund’s size in half, not double it.

The WSJ’s editors are right to criticize the IMF. The folks in charge at the international bureaucracy, depending on the circumstances, have a nasty habit of supporting Keynesian spending and class-warfare tax hikes.

Let’s look at two very recent news reports to prove this point.

Our first example is from Europe, where there’s a discussion of how to address the fiscal crisis. Remarkably, the IMF has staked out a position to the left of Germany, arguing that more government spending will boost growth in Europe. Consider these excerpts from a Washington Post article.

Germany, the economic engine of Europe, is afraid it could get stuck paying much of the cost to bail out its weaker European neighbors. It is pushing instead for budget cuts, which the IMF says could weaken growth further and undermine market confidence. The IMF is already lending to the region’s bailout fund and has a lead role in monitoring the progress that nations such as Greece make in reducing their government deficits. Germany, meanwhile, is also a large contributor to the bailout fund. …If Europe doesn’t take several steps recommended by the IMF, such as reducing its emphasis on budget cuts, the 17 nations that share the euro could contract at a much faster pace, the fund said. That could possibly plunge the rest of the world into recession.

This is remarkable. One would think that the past three years have proven, once and for all, that Keynesian spending is a sedative rather than a stimulus. Yet the IMF thinks recessions are caused by smaller government.

We have another story that is equally upsetting. IMF bureaucrats get tax-free salaries, yet they frequently urge governments to impose higher taxes. And they have a very troubling habit of undermining tax reform.

Here’s a blurb from a Bloomberg report.

The International Monetary Fund may require Hungary to change its flat personal income tax as part of a bailout agreement, according to a person familiar with the Washington-based lender’s preparations for the talks. The flat tax will be an important part in any program discussion, said the person, who declined to be identified because official talks haven’t started. The IMF is in general opposed to flat-tax systems.

I’ll confess that I’m not overly sympathetic to Hungary’s plight. The government is in a mess because it keeps overspending.

But if the IMF is going to foolishly provide a bailout, wouldn’t it be better if the bureaucrats made the money contingent on implementing good policy rather than bad policy?

Unfortunately, the IMF has a bad track record on tax reform, as I’m constantly reminded when talking to officials in Eastern Europe. Indeed, one of my early posts on this blog was about the IMF’s attempt to sabotage the Latvian flat tax.

People have a right to be statist, but the question we have to decide is whether American taxpayers should subsidize that destructive mindset. Not surprisingly, I say no. Indeed, the IMF may even be worse than the OECD, another international bureaucracy that promotes a statist agenda.