The economic policy gabfest in Washington—aka the annual meetings of the International Monetary Fund and World Bank—usually ends with anodyne statements. However, the failure of the international policy establishment to get the global economy back on track seems to have opened the door to ideas that would have been sacrilegious a few years ago.
So now there is talk about how fiscal policy should be flexible as long as there is a credible plan over the long term to bring public finances back on track. There is a subtle admission that different countries need different policy responses rather than a standard package. The Washington institutions have already made their peace with temporary capital controls. Now Japan has been told that it should mandate wage increases to boost consumption—the sort of incomes policy that was abandoned decades ago.
The search for new policy options has much to do with the fact that an economic crisis has now enveloped the developed countries rather than the usual suspects from Asia, Africa and Latin America.