Don’t say IMF, it’s IMF Squared!

In the boom decade of the 2000s, corporate rebranding and renaming was all the rage.  Some were successful.  Others are best forgotten, like PWC’s proposal to bestow the name of Monday on its consulting arm.  But as the world’s economic recovery gathers momentum, perhaps it is time to revive the practice.

A prime candidate is our old favourite, the International Monetary Fund.  The brand has global reach, so why not intensify it to IMFSquared, or IMFF to make it clear.  But a change of initial by itself doesn’t get us very far in the rebranding stakes. So IMFF could stand for Intellectually Massive Flip-Flops.

The Fund is once again up to its old tricks of changing its mind completely.  Having backed austerity enthusiastically, its economists are altering tack.  The latest IMF World Economic Outlook claims that the impact of changes to fiscal policy has been very substantially underestimated.  In short, keeping a tight grip on the public sector deficit does not work, according to the latest from the Fund.  More, not less, spending is what is needed to boost the economy.

The IMF economists have serious form on this matter.  In August 2008, their chief economist, Oliver Blanchard, published an MIT working paper on the state of academic macroeconomics.  This is what he had to say: ‘For a long while after the explosion of macroeconomics in the 1970s, the field looked like a battlefield. Over time however, largely because facts do not go away, a largely shared vision both of fluctuations and of methodology has emerged…… The state of macro is good.’

The shared vision Blanchard referred to are the superbly named, but wholly useless, dynamic stochastic general equilibrium models.  Mainstream economics in academia and central banks had reverted during the 1990s and 2000s to the old idea that economies have an in-built tendency to move towards equilibrium.  On this basis, the Fund’s Chief Economist believed that ‘the state of macro is good’.  In August 2008!  Just a few weeks later, the collapse of Lehman Brothers shattered both these illusions.

To be fair to Blanchard, the terrifying events of the autumn of 2008 made him change his mind.  By January 2009, he was writing that the crisis was caused by ‘Financial institutions financing their portfolios with less and less capital, thus increasing the rate of return on that capital. What were the reasons behind it? Surely, optimism, and the underestimation of risk, was again part of it’.

So instead of a theoretical world in which rational decision makers moved effortlessly towards equilibrium, we had the reality in 2007 and 2008 of expectations about the future which were grossly optimistic, and of risks which were completely mispriced.

This sounds a pretty plausible story.  But only a few months’ previously, the IMF economists believed that re-embracing the vision of equilibrium had led to ‘macroeconomics going through a period of great progress.’  Until just now, they thought fiscal tightening did not have much impact.  But now they think it is wrong.  IMFF rules OK!

By Paul Ormerod

As published in City AM on Wednesday 17th October





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Alex O’Byrne, Associate at Volterra, is an experienced economic consultant specialising in economic, health and social impact, economic strategy, project appraisal and socio-economic planning matters.

Alex has led the socio-economic and health assessments of some of the most high profile developments across the UK, including Battersea Power Station, Olympia London, London Resort, MSG Sphere and Westfield. He has significant experience inputting to EIAs and s106 discussions as well as drafting economic statements, employment and skills strategies and affordable workspace strategies.

Alex is also experienced at economic appraisal for infrastructure. He was project manager of the economic appraisal for the City Centre to Mangere Light Rail in Auckland. He also led the economic and financial appraisals of the third tranche of the Transport Access Program for Transport for New South Wales, in which Alex developed and employed innovative methodological approaches to better capture benefits for individuals with reduced mobility.

He is interested in the limitations of current appraisal methodologies and ways of improving economic and health analysis to ensure it is accessible to as many people as possible. To this end, Alex recognises the importance of transparent and simple to understand analysis and ensuring all work is supported by a robust narrative.

Alex holds a BSc (Hons) in Economics from the University of Manchester and he was a member of the first cohort of the Mayor’s Infrastructure Young Professionals Panel.


Senior Partner

t: +44 020 8878 6333

Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.