IMF chief wants U.S. to raise the minimum wage
IMF Managing Director Christine Lagarde leaves after a press conference at the International Monetary Fund's headquarters June 16, 2014 in Washington, DC. Lagarde and others spoke about the IMF's annual check-up of the US economy.
Count the International Monetary Fund as another voice in favor of raising the minimum wage in the U.S.
Christine Lagarde, managing director of the IMF, urged American lawmakers to increase the federal minimum wage, to expand the Earned Income Tax Credit (EITC), to invest more in U.S. infrastructure and for better communication from the Federal Reserve.
In an interview with Marketplace, Lagarde said implementation of such policies would lead to "medium-term fiscal growth" in the U.S. and globally.
"By identifying a good medium-term fiscal consolidation path, that will improve the level of confidence that needs to take root in the U.S. for the private sector to invest," Lagarde said. "You know, commitments. Commitments that would last beyond one election or one mid-term election."
Lagarde spoke just after the IMF released its annual health assessment of the U.S. economy, lowering estimated growth to 2 percent from its previous estimate of 2.7. Six years after the financial crisis, the organization says it has lingering concerns about "financial stability," and warns that under-regulating the financial sector could threaten the larger global economy.
"We’re saying this: there is uncertainty on the one hand... when you look at employment numbers, when you look at the participation rate in the job market, when you look at the unemployment numbers and how fast they’ve gone down, you have lots and lots of questions that are not answered," Lagarde said. "At the other end, when you look at the markets, and you talk to market people, they seem to be overly confident and certain of when tapering will happen and how fast, when tightening will take place and how interest rates are going to move up."
So if you're Madame Lagarde, how exactly do you go about suggesting these policies to the Fed Chair? Can you just call up Janet Yellen and ask her to talk over a cup of coffee?
"It was actually over salad that we shared, not a cup of coffee," Lagarde says.
KAI RYSSDAL, MARKETPLACE HOST: Christine Lagarde, good to have you with us.
CHRISTINE LAGARDE, IMF CHIEF: Lovely to be with you.
RYSSDAL: This report, while certainly interesting in what it says, doesn’t necessarily say anything surprising. You guys want better productivity growth out of the state, you want us to get our labor market fixed, you want our public debt to go down. There’s nothing especially astonishing here in what you say we need to do.
LAGARADE: I would disagree with that, actually.
RYSSDAL: Alright, go ahead
LAGARDE: Let’s start with the fiscal. We say two things. We say number one: The medium term fiscal pause has to be identified and anchored which will allow for some short term fiscal benefits to be available in order to support financing in infrastructure and education, among other things. On the monetary front, we suggest that excellent communication be continued and developed further in order to try to match the uncertainty of employment/unemployment numbers on the one hand, and the level of certainty that seems to be enjoyed by markets, and where we see a bit of a discrepancy. And on the jobs and growth front, we are also saying things that you probably haven’t heard or read us saying, which includes the increase in the EITC.
RYSSDAL: Earned Income Tax Credit.
LAGARDE: Earned Income Tax Credit…coupled with an increase in the minimum wage. So those are fairly important things.
RYSSDAL: Alright, well let’s take those apart. First of all, on fiscal policy: In essence, you say you are heartened that the Congress of the United States has gotten its act together a little bit, but you are not at all sure it can make its policy stick. Is that how I read it?
LAGARDE: Well, yes and no. I would say, ‘Great that at least there was a deal on last year’s budget. That is good. Please continue doing this job. Try to agree amongst yourselves what are the key budget items going forwards. And it may very well include this medium term fiscal consolidation path that should be had.
RYSSDAL: In other words, you want more revenues to improve growth. You want us to fix our tax structure. All those are things that, again, have been said before.
LAGARDE: They may have been said before, but we are going to continue to say it until they happen. It’s not going to make them happen, but hopefully if the voices are strong enough, we keep at it, they will hopefully be a path for, as I said, this medium term fiscal consolidation, short term focus on investment in the U.S. That’s what we’re saying essentially: Invest in the U.S. The productivity is low, and therefore it’s a question of investing in the right places: innovation, education, infrastructure.
RYSSDAL: The problem is, of course, that when you say “investment,” there are those in the U.S., mostly on the Republican side of the aisle, who hear “government spending” and that gets you nowhere in a very big hurry.
LAGARDE: It doesn’t necessarily have to mean exclusively government spending. There can be enough encouragement to private sector funding. When you look at innovation, for instance, there were some interesting tax breaks that were available for innovation. Certainly this one could be reinstated and that would encourage the private sector to invest in the right place. We’re also saying that by identifying a good medium-term fiscal consolidation path, that will improve the level of confidence that needs to take roots in the US for the private sector to invest. And not only invest in buying their own shares, but invest in capital expenditure for instance. That will actually support the growth going forward.
RYSSDAL : When you say medium-term, what do you mean?
LAGARDE: Beyond one year. And things that would actually stick. You know, commitments. That would last beyond one election or one midterm election. And by the way, on the minimum wage, which we are recommending be increased, it’s really based on the observation of numbers. When we look at numbers and we see there are 50 million Americans that are below the poverty line, many of whom are actually working poor, we’re saying two things: increase the EITC, which puts a bit more on the table, a bit more income for people who typically spend income, [who] do not save it, and that’s good for the economy. And, we’re saying, couple that with an increase in the minimum wage, which in the case of the United States, is one of the lowest of all the OECD countries. So it’s not as if we’re proposing something that is revolutionary, but we’re suggesting that more money be put in the hands of those who actually work so they can spend.
RYSSDAL: You know, last time we spoke, which was I guess a couple years ago, I asked you whether you had confidence that the Congress and the American people would figure out the right thing to do. And you said, in essence, ‘I always have confidence in the Americans. The world has confidence in the Americans.’ Do you still believe that?
LAGARDE: Yes, I do. And it’s firmly rooted in Alexis de Tocqueville and many of the writers about the U.S. - Oscar Wilde, amongst others, as well.
Kai: Not an American.
Lagarde: Not an American. No, he was a typical Brit actually. But he said among other things: “Youth is a tradition for the United States of the America.” In the same vein, I would hope that confidence and confidence building is also typical of the U.S. It might take time. But clearly the budget deal that was cut a few months ago is an indication that even when people are at each others’ throats, they can eventually cut a deal and find something they agree upon. Which is good.
Kai: About the Federal Reserve: You want Janet Yellen, the Chair of the Federal Reserve, to have press conferences once a month. You want them to publish quarterly monetary policy reports to make sure that we all know more of what the Fed is thinking. I’m gonna guess that you’ve spoken with Janet Yellen about this over a cup of coffee some place, or are you just publishing this in the report for the first time?
LAGARDE: It was actually over salad that we shared, not a cup of coffee. Clearly what we are prescribing is the best case scenario, and a direction to take. We’re not suggesting she gives press conferences every month from tomorrow onwards. But we’re saying this: There is uncertainty on the one hand. Because when you look at employment numbers, when you look at the participation rate in the job market, when you look at the unemployment numbers and how fast they’ve gone down, you have lots and lots of questions that are not answered. At the other end, when you look at the markets, and you talk to market people, they seem to be overly confident and certain of when tapering will happen and how fast, when tightening will take place and how interest rates are going to move up. We believe that there has to be a reconciliation between uncertainty on the one hand, certainty on the other one. And who best than the Fed Chair can do that? That’s what we’re saying. Continue communicate as well as is done at the moment, but increase the intensity and the level, and the frequency.
RYSSDAL: You still have, the IMF, still has, and this is a quote: “financial stability concerns.” Here we are now six years after the financial crisis, and we’re still having this conversation about stability in the banking sector. It’s kind of amazing.
LAGARDE: No it’s not. The financial sector is a very special one, if only because it is dealing with public good, which is credit, which is the value of the currency. And in the case of the U.S., it’s an international public good given the size of the dollar transactions and the dollar as a currency of reserve. We are acknowledging huge progress that has been made: strengthening of the banks, stronger capitalizations of these institutions, improvement in the supervisions. But we’re also seeing, at the same time, a lot of shadow banks, a lot of intermediaries, that are lightly supervised and lightly regulated. We’re not advocating regulation for the sake of regulations, but we’re saying that in the name of this public good that is available, there has to be a degree of scrutiny and a degree of supervision at that is applying across the system and not just to the banks as defined.
RYSSDAL: Do you worry at all about the IMF being perceived as an organization that is constantly telling others what to do. Being the scold. Saying, “We have to do this so we can get here.” It does seem that you guys spend a lot of time doing that.
LAGARDE: Well, we do. It’s part of the mission of the IMF. We were tasked to do that by the founders back in the mid ‘40s. As we are celebrating the landing in Normandy, and the end of the second world war, we are also celebrating the 70th anniversary of the IMF. We have to do three things. One is do the surveillance that we were entrusted to do -- provide policy recommendations based on empirical research; even-handed analytical work. We have to lend to member countries when they’re in trouble. And we have to provide technical assistance to those to ask. Those are the three missions that we have, and we have to continue doing it. It’s not always pleasant. We are often criticized, we are often regarded as the tellers of the hard truth, but so be it, that’s what we were asked to do.
RYSSDAL : A word very quickly about the changing nature of the global economy. You said in a speech in Montreal earlier this month that you could see conceivably if global growth patterns continue the way they’re going, the IMF being headquartered in Beijing, because of course the IMF statute says the headquarters have to be in the home of the largest shareholder, the largest contributor. And if Beijing grows the way we think it’s going to grow… Could you see the IMF offices in Beijing, perhaps?
LAGARDE: Not under my term, but it could happen. If we apply the articles and growth continues as it does, it could well happen.
RYSSDAL : What is it that keeps you up at night?
LAGARDE: First of all: jobs, jobs, jobs, and the people who are looking for jobs who would like to get a job, who would like to enter the market, and who can’t. That’s first and foremost. Second, the various nests of geopolitical crisis that could hamper the recovery that could really derail what is in train at the moment.