Talking Point: No silver bullet for excessive inequality, says IMF chief

IMF Chief Christine Lagarde, speaking at the WEF, said, “There is a crisis in the middle-class in the advanced economies.” According to her, the middle class is both growing and shrinking — growing on a global basis, but shrinking in countries like the US.

If there is excessive inequalities, it becomes difficult to achieve sustainable growth, she added. Further, Lagarde said there was a large backlash from several economists including from her own institution when she first talked about inequality in 2013 at Davos in a plenary session. 

“If the policymakers do not listen now, I don’t understand what can be done... There is no silver bullet response to excessive inequality,” she said, adding that turning back on globalisation will be a wrong approach. She also emphasised that policymakers must listen to the voters. 

On concerns whether globalisation will take a hit due to the policies of incoming US President Donald Trump, she said, “We have very little by way of detailed information as to what the plan is if there is such thing as a plan.” 

At the same session, eminent economist and Harvard Professor Larry Summers said wealthy feel they need to look after themselves while the poor feel that they are not being heard. He said globalisation itself has changed considerably today, while adding that one needs to be very cautious with adhoc policy making. 

The panel also discussed whether poor employment prospects and low-income growth in many developed economies have laid the groundwork for the rise of populism. It also focused on whether policymakers ignored these trends or did too little to address them. 

Besides, the panelists talked about what can be done to restore growth in the middle class and confidence in the future. Speaking on the issue of middle class crisis, Ray Dalio, Bridgewater Associates, said populism is the number one issue in politics today. 

Lagarde said there is also a need to address the middle class anxiety on new technology disruptions as well as other new things and policy makers would need to think about that. Panellists also said one needs to understand that all people voting for populist measures are not necessarily bad guys and probably they are concerned about their children’s future. At the same panel, Brazil’s Finance Minister Henrique Meirelles said globalisation is getting a lot of people out of poverty, so net effect is very positive.