Unit 9 Lecture Notes

The IMF, World Bank, and IMF, as explained in the above excerpt of The Bitcoin Standard, were the brainchild of a devout communist lunatic, Harry Dexter Brown. This fact obviously does not feature heavily in these organizations' enormous and slick marketing material which they refer to as "scholarship", but it nonetheless makes a lot of sense when one examines what these institutions actually do.

The function of central banking itself is the essence of communist and socialist thought. Back in 1844 when the lunatics Karl Marx and Friedrich Engels penned their Communist Manifesto, a central bank was one of the ten main pillars of a communist program they sought to implement. The IMF was nothing but the communist attempt at creating a global central bank, which was a necessary attempt at controlling the world economy, which was, after all, the real goal of the megalomaniacal progressives and communists in the US who were pushing for international organizations and global control.

The IMF's main role was to act as a global lender of last resort. Since individual governments could suffer from foreign reserve payment problems, and since the currency on which this monetary system runs is an easy one, it was almost inevitable that expansionary monetary policy would be used to keep this system functioning. With a line of financing from the US Federal Reserve, the IMF is able to issue large amounts of credit for central banks around the world, and has performed this function continuously over the past seven decades. It is critical to realize that the existence of the IMF in this system is absolutely necessary for the US dollar to maintain its role as the global reserve currency. Without a global lender of last resort, every third world country would have run out of its dollar reserves, and its central bank would have gone bankrupt, and its banks and individuals could start trading globally using other currencies or gold. The IMF being there to constantly bail-out these banks and give them more dollars whenever they run out is essential for the dollar continuing its global monetary role, not essential for the people of that country, who could perform global trade using gold or other currencies. It is no coincidence that the IMF strictly forbids its members from tying their currencies to gold, after all, even though a global gold standard would spontaneously achieve all the goals the IMF pretends to be working for. Because it does not involve allowing the US dollar to continue as the global reserve currency, however, the IMF is very hostile to it.

The problem with the lender of last resort role for the IMF is the same problem that exists with a monopoly central bank. Its ability to bail out individual banks is a huge moral hazard that incentives banks to take on more risk, since they know there is a lender of last resort that can bail them out. As the IMF looks to maintain the role of the dollar as the global reserve currency, it encourages all governments to use it, and lends to them when they run out of it. Under the gold standard, countries that ran out of gold and went bankrupt were effectively taken over by their creditors. Kings would abdicate if bankrupted, ultimately, and entire lands would be taken over by other countries. There were very serious consequences to government defaults and bankruptcies. But with the IMF able to bail out countries, there is a larger margin for error and governments can be far less responsible in their actions without worrying about bankruptcy.

The US also created the International Bank for Reconstruction and Development, later to be renamed the World Bank, whose initial purpose was to finance the reconstruction of Europe and the development of the world's poor countries. Inspired by the terrible Keynesian and socialist ideas infesting British and American universities, the Americans decided that what was needed for the world's poor countries to develop was funding for massive government development efforts. From the perspective of the average US or UK bureaucrat and academic at the time, the Soviet Union was the exemplar of economic success, and its brand of central planning would provide substantial economic growth and development for poor countries. Also, in order for the US to prevent countries from going Soviet, it must be the one to lead global development efforts by centrally planning economic development. (See page 55 of The Bitcoin Standard for Samuelson's quote for a good representation of the economic thinking dominant at the time, and how it led to the establishment of the World Bank).

The World Bank was also financed with a line of credit from the US Federal Reserve, and it was the main driver of development planning around the third world from the 1950's. Its main business model is to issue development loans to poor countries and help them plan their development around these loans. When the planning inevitable fails and the debts cannot repaid, the IMF comes in to shake down the deadbeat countries, pillage their resources, and take control of their political institution. It is a symbiotic relationship between the two parasite organizations that generates a lot of work, income, and travel for the misery industry workers, at the expense of the poor countries that have to pay for it all in loans.

The Global Agreement on Trade and Tariffs, later to evolve into the World Trade Organization, has been the forum in which governments seek to reach agreements on trade. After the value of currencies became arbitrary and unconnected to a neutral free market commodity, and as capital controls limited the free movement of capital, trade became a significant pressure release valve for monetary distortions; the GATT/WTO was built on the insane premise that a central global authority could somehow regulate the flow of trade to prevent imbalances, as if the trade flows were the cause of the imbalances, rather than just a symptom of monetary manipulation. The GATT/WTO severely undermined the free movement of goods and services in the twentieth century, even though technological advancements allowed for faster and cheaper movement of goods than ever before. One of the most important functions of the WTO today is to stifle the free spread of technological innovations worldwide by forcing countries into accepting US patent and copyright law. By forcing countries to apply US intellectual property laws domestically, it becomes much harder for developing country industries to build on new technologies.

These measure are a huge impediment to the spread of ideas, but they do benefit the large corporations that are capable of influencing the IFI's.

In addition to these three main institutions, commonly referred to as the International Financial Institutions, there has been a large growth in international and national development organizations worldwide. These organizations are involved with all aspects of life in the average third world country and have grown into monopoly central planners of many sectors of developing countries.

The misery industry is so far removed from the free market that it operates in a complete vacuum of accountability and responsibility. As explained by William Easterly, these organizations have a fundamental and intractable principal-agent problem: the supposed beneficiaries of their services are not the ones paying for them, so the providers will never be accountable to them. They are instead accountable to their donors and funders in the rich countries, and as such, their actions are always driven to satisfy the demands and interests of their employees first, and their donors second, but never the beneficiaries. The misery industry is full of legendary stories of projects that sound great to the donors, but are terrible for the recipients.

Since the donors are not the ones benefiting from the project, they will never have more than a passing interest in its outcomes (as opposed to the beneficiaries whose lives are dependent on it, despite not having the power to control the project). This asymmetry creates highly skewed incentives for the project's providers, and ensures they do not face real accountability for their actions. The World Bank has for decades been the butt of many jokes because it alone is responsible for assessing the success of its own projects. Whereas in a free market the consumer is the beneficiary who decides which companies to ‘finance', and in a government there at least is the pretence of political accountability to democratic institutions, in the misery industry self-accountability is the closest thing you get to accountability.

The World Bank itself decides on which project to undertake, how much to fund it, and then conducts its own internal reviews and issues assessments. As you would expect from any bureaucracy, it is not really possible for any real critical self-assessment to emerge, because it does not have to. The funding to the World Bank is essentially limitless. So long as the Federal Reserve's magic money printer is accessible, there is no market pressure to deliver goods and services or go out of business; without real consequences, there can never be real accountability.

The misery industry is also notorious for retaining and rewarding the most incompetent of its staff members, an ideal and lucrative gig for anyone seeking to avoid accountability and responsibility. In free markets, any job entails significant responsibilities and accountability, but working in development organizations comes with even less accountability than working in the public sector. At least in the public sector the beneficiaries, or citizens, are also the one funding (albeit involuntarily) the projects , and the government at least pretends to want to serve them. To manage a hospital in a developed economy, you will need extensive background in the job and face real accountability and consequences. In the misery industry, a bachelor's degree in human rights, conflict resolution, gender studies, or other vacuous nonsense from a liberal arts college is enough to land you in charge of large projects while staying in cushy five star hotels, ordering local subordinates and servants around like a colonial administrator, and never facing any real accountability.

The final component of the misery industry is the academic wing, composed of thousands of point-less academics studying development, and planning, executing, and assessing development projects and strategies worldwide. 'Development economics' makes no sense whatsoever as an independent discipline of economics, since the realities of economics are equally true in developing and developed countries, and nothing is gained from isolating developing countries' economies and studying them as if they were different. There is no intellectual reason for this separation, nor is there market demand for this ridiculous field of study. The demand is purely manufactured by the misery industry via unfettered access to endless supplies of printed money. There is no good market reason for the talents and abilities of paper-pushers to be dedicated to this industry; it is just another example of unproductive and parasitic activity supported by government money.

Readers who are unfamiliar with the development economics literature should consider themselves lucky. In seven decades, thousands of scholars have produced endless heaps of reports, papers, studies, and books on development economics, all of which concludes essentially nothing, but provides very rich case studies in how central planning fails. A brief history of development economics as a field is discussed in a little more detail in the next section, but the essence is that it is a story of continuous self-reinvention with ever-more ridiculous feel good buzzwords and corporate boilerplate that never questions one universally important tenet: development requires debt and financing, which require growing bureaucracy, and more funding. No matter what the latest global menace is, operationally, the solution is to convert a Federal Reserve line of easy money into third world debt to produce more jobs for misery industry bureaucrats and their foot soldiers.