19 February 2012

Why I Came to Appreciate Christine Lagarde

When Christine Lagarde was appointed IMF Managing Director I was not overly impressed. I assumed that she would do a decent job and I liked the idea of a woman managing the Fund. But I didn't think she would continue her predecessor's push to bring a less conservative perspective to the Fund.

Well, color me impressed.

In the last six months, despite the obvious foolishness of removing money form the economy in the middle of a major recession, the predominant discourse was centered around spending cuts. This was the case in Washington, as illustrated by the debt ceiling debate and the tea party intransigence over any stimulus efforts. And it was the case in Europe as Cameron gleefully shrunk the UK economy, like a medieval physician curing anemia through bloodletting. Not to mention the GIIPS debate and more deflationary policies to destroy these countries.

When this debate was going on, with Krugman the lone dissenting voice and the only Keynesian in the public forum, influential publications like the Economist was lecturing everyone about the need for fiscal discipline and yes, austerity.

Lagarde did something interesting showing her superior political instincts. She praised fiscal discipline and even indicated support for specific austerity programs like the UK's. But on the side, she had the Fund's Director of Fiscal Affairs Cottarelli prepare a report that said that while austerity was a good idea, if too much emphasis was placed in it in the middle of a recession, all future prospects of growth would be jeopardized.

Being a serious report based on econometric data (and coming from a conservative and hardly Keynesian source like the IMF) the report had a major impact on the debate. Everyone could ignore Krugman, Nobel laureate or not. But it was hard to ignore Lagarde as she delivered this message to the world leaders at Davos.

Before that, everyone kept citing Harvard economist Alesina, the only economist in the world to claim his data backed the conclusion that austerity leads to growth, even though his study was criticized, refuted and discredited many times over.

But IMF publishing an authoritative study claiming that while fiscal discipline is a good idea it is best left to better times shut everybody up. Including, to my delight, the Economist.

Maybe it is her more inclusive and less confrontational style that should be credited for this success:
“I don’t know if it’s male versus female, but I am told my management style is more inclusive,” says Lagarde. It has to do with forming a team’s view, having a consensual approach, “‘wasting time’ on occasion” to build consensus so that “you will not need to waste it in convincing people to implement.”

“Even if it means not appearing as decisive—you know, ‘This is my way or the highway’—I don’t work that way,” says Lagarde
In any case, I am quite happy that she managed to modify the terms of the debate on austerity even if only slightly.

And she did it without alienating our Galtian Overloards that perpetuated this dangerous and baseless narrative.

We need more women in high places.

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