Michael L. Mussa, IMF economist, dies at 67

January 17, 2012

Michael L. Mussa, an influential economic forecaster with a bitingly irreverent style who, as the International Monetary Fund’s chief economist in the 1990s, helped shape the organization’s responses to financial crises, died of cardiac arrest Jan. 15 at George Washington University Hospital. He was 67.

The death was confirmed by Steven R. Weisman, a spokesman for the Peter G. Peterson Institute for International Economics. Dr. Mussa had been a senior fellow at the Peterson Institute, a Washington-based public policy organization, since leaving the IMF in 2001.

In a career spanning four decades, Dr. Mussa published widely on international economics and held prominent roles in academia, financial advisory panels and nongovernmental organizations. He was admired for using levity to explain economic principles and sometimes to castigate colleagues.

“We’ve been forecasting a slowdown in the U.S. economy for a while now,” he once quipped, “and we’ll continue to forecast a slowdown until it happens.”

Dr. Mussa spent much of his early career as a professor of international business at the University of Chicago, a premier center for economic research that hewed strongly to the free-market monetarist tradition of Milton Friedman.

Dr. Mussa described himself as a “wobbly monetarist,” someone who sympathized with but wasn’t doctrinaire about Friedman’s emphasis on managing the economy through adjustments to the money supply rather than adjusting taxes and government spending.

Dr. Mussa won a coveted spot on President Ronald Reagan’s three-member U.S. Council of Economic Advisers, serving from 1986 to 1988. Three years later, he joined the IMF as economic counselor and research division director.

Those titles essentially made him chief economist of the organization, which lends money to countries in financial straits and monitors international economic systems. He oversaw publication of the IMF’s twice-annual projections of the state of the world economy.

Dr. Mussa was at the heart of IMF decision making as the institution responded, often in controversial ways, to economic tumult on nearly every continent. He played a role in rescuing Mexico’s economy after that country nearly defaulted on its debt in 1994. He later defended decisions by the IMF to offer assistance throughout Southeast Asia during the financial crisis that ricocheted from country to country. He later advised on financial aid to Russia, Turkey and Argentina when those economies plunged.

In 1998, Dr. Mussa engaged in a highly unusual public spat with Joseph E. Stiglitz, then chief economist at the World Bank, for what Stiglitz called the IMF’s failure to fully anticipate the East Asian economic disaster. Stiglitz also criticized the IMF for worsening the situation with austerity measures, such as hiking interest rates and tightening budgets so they are balanced.

“Virtually every American economist rejects the balanced budget principle during a recession,” Stiglitz told the Wall Street Journal at the time, saying the IMF reaction would spur further poverty in Asia. “Why should we ignore this when giving advice to other countries?”

Dr. Mussa, who defended the IMF’s role in Asia, shot back, “Those who argue that monetary policy should have been eased rather than tightened are smoking something that is not entirely legal.”

“This is a controversy that goes on,” said Alan S. Blinder, a Princeton University economist who had been the Federal Reserve System’s vice chairman during the Bill Clinton administration.

“One of the points Mike Mussa was making, a correct point by the way, is that once a government has gotten to the point it can’t borrow any longer, it must balance its budget. Balancing a budget in a recession may be a bad fiscal policy idea, as Stiglitz and many people have said. But if you literally can’t borrow any longer because you’ve lost credit worthiness in a crisis, there isn’t any choice unless someone comes and bails you out, including the IMF.”

Dr. Mussa was not allergic to self-criticism, as he showed in his 2002 book, “Argentina and the Fund: From Triumph to Tragedy.” In the book, he argued that the IMF had lent too generously to Argentina at a time when the country had staggering budget deficits. Thousands of people were thrown into poverty after the country defaulted on its debts in the early 2000s.

Risks such as lending to troubled countries always carried the potential for “moral hazards,” Dr. Mussa said. That is, the practice exposed the IMF to criticism that throwing money at failing economies would only encourage bad behavior.

Responding to IMF detractors, he liked to invoke the sinking of the Titanic.

“There are some,” he said facetiously, “who believe the real disaster in the North Atlantic on that cold April morning was not that the Titanic sank with the loss of 1,500 lives. It was instead that 800 were saved. Think of it. If we had had a policy of no rescues, we would have sent a clear message that ocean safety has to be of paramount concern to passengers, crews and ocean shipping lines.”

Michael Louis Mussa was born in Los Angeles on April 15, 1944. He received a bachelor’s degree in economics and mathematics from the University of California at Los Angeles in 1966. His economics doctorate was from the University of Chicago in 1974.

He was on the economics faculty at the University of Rochester from 1971 to 1976, followed by a research fellowship at the London School of Economics. In 1981, he received the University of Geneva’s prestigious Prix Mondial Nessim Habif for research in international economics.

Dr. Mussa never married. Survivors include a brother.

“My favorite economic policy tool is prayer,” Dr. Mussa once said. “It is not demonstrably less effective than the others, and it carries none of the bad side effects.”