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it's the real news network I'm Sharmini Peries coming to you from Baltimore earlier this month the IMF publication finance and development published an article with the title neoliberalism oversold which argues that perhaps the IMF should rethink its support for neoliberalism according to the author neoliberalism has resulted in greater inequality and lower economic growth it's a remarkable admission considering that the IMF has been and continues to be the main proponent of neoliberalism in the world but what does neoliberalism and its economic policy mean with us to discuss the macroeconomic approach to neoliberalism is Gerry Epstein Gerry's professor of economics and the founding co-director of the political economy Research Institute at the University of Massachusetts Amherst he has recently done an interview on the topic of inflation targeting in neoliberalism where he discusses the rise of inflation targeting as a central bank policy where the emphasis is on very low inflation to the exclusion of other policy objectives Jerry I thank you so much for joining us today thank you for having me so Jerry as I mentioned the IMF economist Jonathan austry published in her article this month in which he questions the wisdom of IMF emphasis on neoliberal economic policies that alone is quite interesting and I'm wondering what you thought about that article well it's pretty remarkable that the heat they actually used the name neoliberalism because for decades that's what they were implementing but to them it just was sound economic policy it was just efficient economics so to actually name it is a type of economics with the particular types of positive asians i think is is a very new thing for the IMF it's just like the economist's for decades have not been wanting to call our system capitalist and use the word capitalism well that's been changing too it makes us understand that this is one among a number of different approaches now neoliberalism the way Jonathan Austrian others have used it typically means free market economics that is let the market rule but in fact as many heterodox economists and political scientists have pointed out that's a misunderstanding as well because what neoliberalism really means is that the whole system including the government operates in the interests of the major corporations that are trying to dominate the market and we're trying to get there trying to get rid of any economic policy or economic policy that really helps working class and most people so it's a very interventionist kind of activity and not a free market activity and the IMF as you said has been one of the dominant institutions worldwide that has been intervening around the world implementing neoliberal policies so let's get to inflation targeting here explain to us what that is you are tackling in these series of interviews you have done so inflation targeting is an approach to central banking that was promoted by the IMF and many economists around the world to to say that the central bank should stop intervening so much in the economy to promote employment a more equitable distribution of income of jobs that it should have only one goal and that goal is to maintain a very low inflation rate and to use market-friendly tools mostly short-term interest rates to implement that goal the goal the idea of course is is that the free market will take care of itself it will promote economic growth and so central banks shouldn't get in the business of trying to allocate credit generate more employment just keep inflation and a very low rate now so what is a problem with that kind of inflation targeting well one problem is that what is that the market economy doesn't take care of itself it doesn't generate a full employment by itself so macroeconomic policy that's just geared towards maintaining a low inflation rate he isn't going to do much to promote a more employment and in fact it will have the opposite effect typically because by trying to keep inflation very low central banks typically have kept real interest rates interest rates relatively high and that tends to reduce investment reduce economic row reduce employment now one might ask pat why did this IMF and other institutions promote this idea where did that come from yeah who doesn't benefit right who does it benefit and historically it's the banks and the finance ears that have been enemies of inflation they typically like interest rates being high because that generates more profits they like inflation to be stable and low because they're the ones who own the most of the wealth and so when inflation goes up unexpectedly and it goes up too high it tends to reduce the the real value of their well and on the other side the poor people who tend to be debtors they tend to benefit from unexpectedly high inflation why because if you borrow a hundred dollars to buy a car and you your job pays a hundred dollars a week all of a sudden if inflation goes up and your job starts paying two hundred dollars a week then the hundred dollars you have to pay back for the loan is gone down in terms of your hourly wages by about half so debtors gained from high and unexpected inflation and creditors lose so what happened as I suggested earlier is that the major banks and particularly finance ears investment banks commercial banks I'm convinced the IMF and other central banks that their only goal should be to keep inflation low haha that happens to help out the bankers right so let's focus in on what macroeconomic policy central banks could adopt as an alternative well what's happened since the 1980s and 90s when these ideas were very promote were really promoted is that we've had a dramatic sea change in the underlying Nationals and global economies and we're seeing this sea change in all the political uproar from brexit the economic crisis in the European Union the political economic crisis here in the United States the rise of Trump and on the other side of course the the very successful campaign by Bernie Sanders and all of this is being the context for all this is the great financial crisis of 2008 which are still living with many of the consequences in this in this context of inflation targeting which before was was a dangerous kind of approach is now really an irrelevant approach that is the problems facing macroeconomic policy central bank policy fiscal policy is how to get out of this economic crisis how to start generating more jobs higher wages allocate more resources to deal with the the problems that we're facing like global warming unemployment and so forth in that context inflation targeting is simply a sideline and what you see is that central bankers who were trying to in their own funny ways deal with some of these problems Janet Yellen the head of the Federal Reserve and Draghi the head of the European Central Bank they're undertaking all kinds of experiments in economic policy and trying to justify them in terms of inflation targeting but it just doesn't it just doesn't work what they need to be doing instead is thinking about how can we directly solve the problems our economy facing I should point out that the central banks in fact could do a lot more but they're very constrained because it's the fiscal policy the government spending the government investment of other government policies which are putting central banks in a straight jacket that is they're not austerity which is you know what everybody's fighting in Europe and we're fighting here in the United States is making it impossible really for central banks to do the job on their own all right Jerry if you are interested of course in watching or reading actually the interviews where Gerald Epstein explains this further please click on the link below this is was just a promo practically in terms of the the issues that he tackles in the actual interviews so have a look thank you so much for joining us Gerry thank you very much and thank you for joining us on the real news network before this battles over you all will know that few stood against many
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