Our economics book for today is Globalization and Its DIscontents, by Joseph Stiglitz. In it he excoriates the “Washington Consensus” of a certain time period—the nearly universal prescription of austerity as the remedy for any and all economic ills, following Friedmanite Market Fundamentalism.
- Inflation, especially hyper-inflation? Austerity.
- Recession, even depression? Austerity.
- Mass unemployment? Austerity.
- Unemployment too low, so wages are going up? Austerity.
- Banking crisis? Austerity.
- Sovereign debt crisis? Austerity.
- Burst asset bubble? Austerity.
- Price shocks? Austerity.
- War? Austerity.
This was not the original Washington Consensus.
The Washington Consensus is a set of ten economic policy prescriptions considered to constitute the "standard" reform package promoted for crisis-wracked developing countries by Washington, D.C.-based institutions such as the International Monetary Fund (IMF), World Bank and United States Department of the Treasury. The term was first used in 1989 by English economist John Williamson. The prescriptions encompassed free-market promoting policies such as trade liberalization, privatization and finance liberalization. They also entailed fiscal and monetary policies intended to minimize fiscal deficits and minimize inflation.
Subsequent to Williamson's use of the terminology, and despite his emphatic opposition, the phrase Washington Consensus has come to be used fairly widely in a second, broader sense, to refer to a more general orientation towards a strongly market-based approach (sometimes described as market fundamentalism or neoliberalism). In emphasizing the magnitude of the difference between the two alternative definitions, Williamson has argued[a] that his ten original, narrowly defined prescriptions have largely acquired the status of "motherhood and apple pie" (i.e., are broadly taken for granted), whereas the subsequent broader definition, representing a form of neoliberal manifesto, "never enjoyed a consensus [in Washington] or anywhere much else" and can reasonably be said to be dead.
It also turned out that more was needed than these ten prescriptions, such as more attention to poverty and lack of resources, including information. Stiglitz won the economics Nobel Prize in 2001 for work on information asymmetry, when one side in a transaction knows more than the other.
I must admit that others have summarized this book better than I could, so I am contenting myself with quoting some of them today.
Later on, Williamson wrote:
I of course never intended my term to imply policies like capital account liberalization (...I quite consciously excluded that), monetarism, supply-side economics, or a minimal state (getting the state out of welfare provision and income redistribution), which I think of as the quintessentially neoliberal ideas. If that is how the term is interpreted, then we can all enjoy its wake, although let us at least have the decency to recognize that these ideas have rarely dominated thought in Washington and certainly never commanded a consensus there or anywhere much else...
— Moisés Naím
, Fads and Fashion in Economic Reforms: Washington Consensus or Washington Confusion?
I have not read the updated version: Globalization and Its Discontents Revisited: Anti-Globalization in the Age of Trump.
Here is the Amazon blurb:
When it was first published, this national bestseller quickly became a touchstone in the globalization debate. Renowned economist and Nobel Prize winner Joseph E. Stiglitz had a ringside seat for most of the major economic events of the last decade, including stints as chairman of the Council of Economic Advisers and chief economist at the World Bank. Particularly concerned with the plight of the developing nations, he became increasingly disillusioned as he saw the International Monetary Fund and other major institutions put the interests of Wall Street and the financial community ahead of the poorer nations. Those seeking to understand why globalization has engendered the hostility of protesters in Seattle and Genoa will find the reasons here. While this book includes no simple formula on how to make globalization work, Stiglitz provides a reform agenda that will provoke debate for years to come. Rarely do we get such an insider's analysis of the major institutions of globalization as in this penetrating book. With a new foreword for this paperback edition.
That debate has largely been resolved in Bidenomics, which has been only partially implemented against vicious Fundamentalist opposition, both economic and religious. You know the drill.
- Get informed.
- Organize on all of the issues.
- Discredit disinformation.
- Vote out more of the paskudnyaks next November.
- Get down to brass tacks in January 2025.
- Gerrymanders and voter suppression
- Women’s rights
- Worker rights
- Ending systemic racism
- Health care for all
- Ending Global Warming
and so on.
Williamson’s ten original points, with my comments:
- Fiscal policy discipline, with avoidance of large fiscal deficits relative to GDP [Throw Keynes out the window] 🤦 [facepalm]
- Redirection of public spending from subsidies ("especially indiscriminate subsidies" [like on fossil fuels]) toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment 🖖[Live long and prosper]
- Tax reform, broadening the tax base and adopting moderate marginal tax rates [tax the poor] 🤦
- Interest rates that are market determined and positive (but moderate) in real terms 🖖
- Competitive exchange rates 🖖
- Trade liberalization: liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs 🖖
- Liberalization of inward foreign direct investment 🖖
- Privatization of state enterprises [Like water] 🤦
- Deregulation: abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudential oversight of financial institutions 🖖
- Legal security for property rights [including patents on vital medicines] 🤦
Each has been turned into a Dog Whistle for granting favors to corporations and the rich, and punishing workers, the poor, and the otherwise oppressed in the Starve the Beast program.
In Globalization and Its Discontents, Stiglitz argues that what are often called "developing economies" are, in fact, not developing at all, and puts much of the blame on the IMF.
Stiglitz bases his argument on the themes that his decades of theoretical work have emphasized: namely, what happens when people lack the key information that bears on the decisions they have to make, or when markets for important kinds of transactions are inadequate or don't exist, or when other institutions that standard economic thinking takes for granted are absent or flawed. Stiglitz stresses the point: "Recent advances in economic theory" (in part referring to his own work) "have shown that whenever information is imperfect and markets incomplete, which is to say always, and especially in developing countries, then the invisible hand works most imperfectly."
As a result, Stiglitz continues, governments can improve the outcome by well-chosen interventions. Stiglitz argues that when families and firms seek to buy too little compared to what the economy can produce, governments can fight recessions and depressions by using expansionary monetary and fiscal policies to spur the demand for goods and services. At the microeconomic level, governments can regulate banks and other financial institutions to keep them sound. They can also use tax policy to steer investment into more productive industries and trade policies to allow new industries to mature to the point at which they can survive foreign competition. And governments can use a variety of devices, ranging from job creation to manpower training to welfare assistance, to put unemployed labor back to work and cushion human hardship.
There you go. Bidenomics in a nutshell.
Stiglitz argues that the IMF has done great damage through the economic policies it has prescribed that countries must follow in order to qualify for IMF loans, or for loans from banks and other private-sector lenders that look to the IMF to indicate whether a borrower is creditworthy. The organization and its officials, he argues, have ignored the implications of incomplete information, inadequate markets, and unworkable institutions – all of which are especially characteristic of newly developing countries. As a result, Stiglitz argues, the IMF has often called for policies that conform to textbook economics but do not make sense for the countries to which the IMF is recommending them. Stiglitz seeks to show that these policies have been disastrous for the countries that have followed them.
It turned out that several countries that rejected the IMF’s prescriptions got much better results than those that simply accepted them.
I corresponded with Joe briefly about information shortages for the poor, decades ago, and later took up the practical work of offering full education and Internet access to all of the children of the world with Free Software in a hundred languages, through One Laptop Per Child.
- The price of inequality
- Measuring what counts : the global movement for well-being
- People, power, and profits : progressive capitalism for an age of discontent
- Williamson, John (2008), Serra, Narcís; Stiglitz, Joseph E. (eds.), "A Short History of the Washington Consensus" (PDF), The Washington Consensus Reconsidered (1 ed.), Oxford: Oxford University Press
- The economic role of the state
- Whither socialism?
- Economics of the public sector
- Frontiers of development economics: the future in perspective
- Joseph Stiglitz and the World Bank: the rebel within, by Ha-Joon Chang
- Making globalization work
- The three trillion dollar war: the true cost of the Iraq conflict
- Time for a visible hand: lessons from the 2008 world financial crisis
- The Stiglitz report: reforming the international monetary and financial systems in the wake of the global crisis
- Stiglitz, Joseph E.; Sen, Amartya; Fitoussi, Jean-Paul (2010). Mismeasuring our lives: why GDP doesn't add up: the report
- Freefall: America, free markets, and the sinking of the world economy
- Stiglitz, Joseph; Greenwald, Bruce C. (2014). Creating a learning society: a new approach to growth, development, and social progress
- People, Power and Profits: Progressive Capitalism for an Age of Discontent
- Stiglitz, Joseph; Fitoussi, Jean-Paul; Durand, Martine (19 November 2019). Measuring What Counts; The Global Movement for Well-Being
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