Glamour over substance

Ideas@TheCentre – The CIS newsletter (Sydney), 17 June 2011

Just days after the resignation of Dominique Strauss-Kahn from the International Monetary Fund, French finance minister Christine Lagarde emerged as the frontrunner to succeed him. As nominations closed this week, her only remaining opponent, Mexican central banker Agustín Carstens, has all but conceded defeat. The IMF may soon get its first female managing director.

Madame Lagarde doesn’t fail to impress. Having worked at a top US law firm, her English is flawless. She even speaks it at conferences and in interviews where French government officials would usually swallow their tongues. And she oozes style, elegance and charm. As if that mattered at the IMF.

Having said that, Lagarde is the wrong person for the job, mainly because of her lack of economic credentials.

Of course there is no shortage of foolish economists. A Ph.D. in economics is no guarantee of sound economic judgment. However, for the head of a peak global financial body, it would be desirable if she did not require briefings on opportunity costs, comparative advantage, or marginal analysis.

Lagarde has obviously not picked up basic economic concepts on the job, as her utterances on the European debt crisis demonstrate. Last year, she blamed Greece’s fiscal crisis on trade imbalances and even recommended curbing German exports to help the French. This must be how lawyers imagine the economy works. In any case, it was neither good nor bad economics but just French.

Her English may be perfect but Lagarde holds some very French views on economic policy. She is sympathetic to a planned economy, sees an active role for the state in ordering economic relations, and shows no commitment to liberal economic principles.

As a French citizen, Lagarde may also be biased in some of the tasks that lie ahead for the IMF. It is widely known that French financial institutions, with whose problems she has had intimate acquaintance as her country’s finance minister, are heavily exposed to European periphery debt. But it is the IMF that is now playing a key role in dealing with the Euro debt crisis, especially through the policies initiated by Lagarde’s equally French predecessor.

Her chanceless opponent Agustín Carstens is a better alternative. With a Ph.D. in economics from the University of Chicago and experience as both a central banker and a minister of finance in his country, Carstens is committed to sound economic principles such as free trade, independent central banks, and flexible labour markets.

Unfortunately, Señor Carstens does not play in the same glamour league as Madame Lagarde. And as a non-European, he doesn’t ‘qualify.’ The non-US, non-European rest of the world, who also pay for the IMF, should be asking why.

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