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Richmans' Trade and Taxes Blog
Time to Eliminate the IMF, the World Bank, and the WTO
On this site, October 29th, I reviewed Benn Steill’s book on the Bretton Woods conference where the World Bank and the International Monetary Fund were created. At the conference, Dr. Harry Dexter White, representing the United States, later shown to have been a Soviet agent, and John Maynard Keynes, the eminent economist, battled to achieve a post-war world of financial stability. White’s views prevailed and now we are burdened by the two international institutions mentioned above which have no justifiable excuse for continuing to exist. In fairness to White, Keynes’s proposals had they been adopted would have been equally bad. The trouble is that once created, like most bad legislation, they are incredibly difficult to get rid of. They develop constituencies which seem able to prevent their repeal.
The global sentimentality which motivated Woodrow Wilson to found the League of Nations and Franklin Roosevelt to establish the United Nations, the World Bank, and the IMF, has badly served the USA. This is true as well of many other global institutions such as the World Trade Organization and many international treaties where the U.S. is a signatory. These organizations go out of existence. They no longer serve any useful purpose if they ever did.
Take first the IMF. The IMF was created to provide financial stability, to prevent countries from manipulating their foreign exchange rates to gain a competitive advantage in international trade, a favorable balance of trade, which stimulates their economies while weakening the economies of its trading partners. A good example of that is the enormous trade surplus of China with the United states, but China is not the only country enjoying a chronic trade surplus with the USA, Japan post WWII engaged in similar practices and has enjoyed a chronic trade surplus with the USA. Germany and others have chronic trade surpluses with the U.S. The IMF has done nothing to prevent any of this from happening. Neither has the World Trade Organization.
The USA needs no assistance from the IMF or the WTO to secure a balance of trade. It is a victim of the ideology of its economists who favor “free trade” when the purpose of trade is to exchange a bundle of goods domestically produced for a better bundle of goods produced abroad, i.e., balanced trade. It is true that the trade imbalances are also caused by foolish economic policies that the U.S. has been pursuing domestically. But balanced trade is not dependent on either the good graces of the IMF or the WTO or good domestic policies. Trade can be brought into balance by using a single country variable tariff (the so-called “scaled tariff’) a tariff which can be imposed under WTO rules when a country faces a chronic trade deficit with one of its trading partners. The variable tariff can be imposed on all the goods imported from a country with whom we are experiencing a significant chronic trade deficit. The tariff rises as the trade balance worsens and falls as the trade balance improves. It is a powerful trade balancing device and in the process yields quite a bit of revenue. It temporarily raises the costs of imported goods from the trading partner but it is a powerful economic stimulus. The trade deficits the U.S. has been experiencing has been depressing the U.S. economy and causing unemployment. During the period of our huge trade deficits, the IMF did nothing to force realistic exchange rates on our trading partners who were also employing mercantilist practices to gr-gain a trade surplus about which the WTO did nothing. The principal functions, aside from bailing out improvident nations like Greece is propagandizing for the value-added tax which strengthens central governments and weakens the states and provinces, are to collect trade and economic statistics and to give governments advice about the need to control their expenditures and raise taxes.
While it has little to do with our trade imbalance, the remuneration of the Director of the IMF, Frenchwoman Christine Lagarde is a mere $554,700 net of taxes. The remuneration of the World Bank President J. Y. Kim, former Dartmouth University head is higher, $800,000 or more, net of taxes. What WTO Director-General Robert Azevado receives seems to be a deep dark secret but is probably in the neighborhood of $500,000, net of taxes. Nice jobs if you qualify politically! What do they do? Attend social functions principally and propagandize for their organizations.
The World Bank was originally created to make loans for European reconstruction after World War II and then it added loans for infrastructure to developing nations. When demand for infrastructure loans ran out, it started making loans for anything developing countries wanted including loans to build a fuel alcohol plant in Brazil which already was the largest producer of fuel alcohol in the world, loans for social purposes such as education, and what not. It is big on projects to reduce carbon emissions. It is also into projects to create gender equality, urban development, and it states that its current objective is to eliminate world poverty. It is big on projects to reduce carbon emissions and produce alternative energy. What this tells you is that it has its finger in the air to determine what current trends in political correctness are blowing. Through its subsidiary the International Finance Corporation it makes industrial loans to private firms, loans which private banks could do better and less expensively.
As for the World Trade Organization, its real function is to propagandize for free trade, holding endless useless conferences on tariffs and trade. We believe every country has the ability to defend itself from predators and a self interest in selling its products. Countries need to defend themselves from chronic trade deficits. The WTO has proved itself incapable of preventing countries from engaging in mercantilist practices and currency manipulation. Each country is best able to defend itself. We provided the tool, the single-country-variable tariff (our “Scaled Tariff”) described above. Nothing that the WTO does can justify its bureaucracy.
It is time to end the mistakes our leaders have made with their sentimental but very costly creation of useless international agencies.
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