In an article published this week in its flagship magazine, three of the IMF’s top economists cautiously suggest that the “neoliberal agenda” may have been less successful than intended and led to increased inequality. This study comes in fact from IMF’s own research division.
 
Reports on media argue that even the use of the term “Neoliberalism” is revolutionary. The word is used by critics, usually coming from the left. Economists and policymakers have been dismissing the term as an insult.
 
The article examines two specific elements of the neoliberal agenda: capital account liberalization, or removing barriers to the flows of capital; and fiscal consolidation, or what is now more commonly known as austerity policies.
 
Jonathan Ostry, Prakash Loungani and Davide Furceri argue the benefits of some important parts of the neoliberal agenda appear to have been overplayed, while the risks from short-term flows of hot money in and out of countries loomed large.
 
“In the case of fiscal consolidation, the short-run costs in terms of lower output and welfare and higher unemployment have been underplayed, and the desirability for countries with ample fiscal space of simply living with high debt and allowing debt ratios to decline organically through growth is underappreciated.”
 
The three top IMF researchers and economists concluded that the increase in inequality threatened to be self-defeating. “The increase in inequality engendered by financial openness and austerity might itself undercut growth, the very thing that the neoliberal agenda is intent on boosting. There is now strong evidence that inequality can significantly lower both the level and the durability of growth”.