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Dictionary beginning with I
I

ILO

Short for International Labour Organisation, founded in 1919 as part of the Treaty of Versailles, which created the League of Nations. In 1946, it became the first specialised agency of the UN. Based in Geneva, it formulates international LABOUR standards, setting out desired minimum rights for workers: freedom of association; the right to organise and engage in collective bargaining; equality of opportunity and treatment; and the abolition of forced labour. It also compiles international labour statistics. One reason for its formation was the hope that international labour standards would stop countries using lower standards to gain a COMPETITIVE ADVANTAGE. From the 1980s onwards, the ILO approach came under attack as attention turned to the costs of high labour standards, notably slower economic GROWTH. Universal minimum labour standards might also work against FREE TRADE. Imposing rich-country labour standards on poorer countries might help keep the rich rich and the poor poor.

IMF

Short for International Monetary Fund, referee and, when the need arises, rescuer of the world's FINANCIAL SYSTEM. The IMF was set up in 1944 at BRETTON WOODS, along with the WORLD BANK, to supervise the newly established fixed EXCHANGE RATE system. After this fell apart in 1971-73, the IMF became more involved with its member countries' economic policies, doling out advice on FISCAL POLICY and MONETARY POLICY as well as microeconomic changes such as PRIVATISATION, of which it became a forceful advocate. In the 1980s, it played a leading part in sorting out the problems of DEVELOPING COUNTRIES' mounting DEBT. More recently, it has several times co-ordinated and helped to finance assistance to countries with a currency crisis.

The Fund has been criticised for the CONDITIONALITY of its support, which is usually given only if the recipient country promises to implement IMF-approved economic reforms. Unfortunately, the IMF has often approved 'one size fits all' policies that, not much later, turned out to be inappropriate. It has also been accused of creating MORAL HAZARD, in effect encouraging governments (and FIRMS, BANKS and other investors) to behave recklessly by giving them reason to expect that if things go badly the IMF will organise a bail-out. Indeed, some financiers have described an INVESTMENT in a financially shaky country as a 'moral-hazard play' because they were so confident that the IMF would ensure the safety of their MONEY, one way or another. Following the economic crisis in Asia during the late 1990s, and again after the crisis in Argentina early in this decade, some policymakers argued (to no avail) for the IMF to be abolished, as the absence of its safety net would encourage more prudent behaviour all round. More sympathetic folk argued that the IMF should evolve into a global LENDER OF LAST RESORT.

Income

The flow of MONEY to the FACTORS OF PRODUCTION: WAGES to LABOUR; PROFIT to ENTERPRISE and CAPITAL; INTEREST also to capital; RENT to LAND. Wages left for spending after paying taxes is known as disposable INCOME. For countries, see NATIONAL INCOME.

Income effect

A change in the DEMAND for a good or service caused by a change in the INCOME of consumers rather than, say, a change in consumer tastes. Contrast with SUBSTITUTION EFFECT.

Income tax

A much-loathed method of TAXATION based on earnings. It was first collected in 1797 by the Dutch Batavian Republic. In the UK it was introduced in 1799 as a “temporary” measure to finance a war against Napoleon, abolished in 1816 and reintroduced, forever, in 1842. In most countries, people do not pay it until their INCOME exceeds a minimum threshold, and richer people pay a higher rate of income tax than poorer people. Since the 1980s, the unpopularity with voters of high rates of income tax and concern that high rates discourage valuable economic activity have led many governments to reduce income-tax rates. However, this has not necessarily reduced the amount of total revenue collected in income tax (see LAFFER CURVE). Nor do governments that have reduced income tax rates always cut other sorts of taxes; on the contrary, they have often increased them sharply to make up for any revenue lost as a result of lower rates of income tax.

Index numbers

Economists love to compile indices aggregating lots of individual data, so they can analyse broad trends in the behaviour of an economy. INFLATION is measured by an index of consumer (retail) PRICES. There are indices of all sorts of things that are bought and sold of which perhaps the best known are share price indices like the Dow Jones Industrial Average or FTSE-100. The main challenges in compiling an index are what, exactly, to include in it and what weight to give the different things that are included. A particularly tricky question is how to change an index over time. Measures of inflation are based on the price of a basket of things bought by a typical consumer. As the quality and choice of products in the basket change over time, the inflation index ought to take this into account. How, exactly, is much debated.