Economists have not exactly screwed things up

The lack of growth response to “Washington Consensus” policy reforms in the 1980s and 1990s led to widespread doubts about the value of such reforms. This paper updates these stylized facts by analyzing moderate to extreme levels of inflation, black market premiums, currency overvaluation, negative real interest rates and abnormally low trade shares to GDP. It finds three new stylized facts: (1) policy outcomes worldwide have improved a lot since the 1990s, (2) improvements in policy outcomes and improvements in growth across countries are correlated with each other (3) growth has been good after reform in Africa and Latin America, in contrast to the “lost decades” of the 80s and 90s. This paper makes no claims about causality. However, if the old stylized facts on disappointing growth accompanying reforms led to doubts about economic reforms, new stylized facts should lead to some positive updating of such beliefs.

That is the abstract of the new Bill Easterly paper.

Comments

It has already been a consensus for a while that the people who frame arguments as "Criticism of the Washington concensus" are idiots.

Respond

Add Comment

Another view: Benyamin Appelbaum on the world's wrongest (as opposed to oldest) profession, economics: The Economists' Hour (False Prophets, Free Markets, and the Fracture of Society). I would point out that of the three most responsible for saving us from economic apocalypse, two were not economists: Hank Paulson and Tim Geithner, proudly not economists, and Ben Bernanke, the economist who is blamed for what went wrong. I would also point out that what was responsible for the economic miracle realized over the past 30 years, trade, is now being blamed for the political nightmare that ensued.

This entire argument is all over the place. There are so many issues at play here that it we never bring this to an end.

1. Economics is not a licensed profession. I have seen MBA described as economists.
2. There is no minister of economy in the US, and it would not be unusual for the closest thing to this in many parts of the world to be an engineer.
3. George W. Bush who saw surpluses as far as the eye can see was not an economist ... ok, he had and MBA.
4. This is like saying that the 000's of undergraduate sociologists we graduate every year are responsible for dysfunction we observe every among families.
4. Bernanke was responsible? That's news to me.

This is all one of those silly arguments for freshmen ...

Respond

Add Comment

Economists generally supported Paulson and Geithner in the the bank bailouts (although not all were happy with how little stockholders and management were held accountable for bad decisions) and Bernanke is not faulted so much for having failed to prevent the crisis, but for dragging out the recovery with too little monetary stimulus.

Respond

Add Comment

Respond

Add Comment

This is quite the contrast with the review of Appelbaum's book in the New Republic today: "The Tyranny of Economists." Its humorous given the title of Easterly's past book "The Tyranny of Experts."

Respond

Add Comment

Yep, one only needs to look at a chart to see that global growth has accelerated since the early 90s, with the greatest gains in poor countries (since rebranded “emerging markets and developing economies”). If it wasn’t for the 2008 financial crisis triggered by poor US housing and monetary policies, this effect would be even stronger. The post-1990s period is the first period since probably the discovery of the New World where the global income gap started closing. You’d think folks on the left would be happier about this...

https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/ADVEC/WEOWORLD

Cowen used to be happy about it, pointing out in an interview in the NYT that inequality between developed and developing nations has been falling, and falling by a lot. Cowen rarely makes that point today. Why is that?

Respond

Add Comment

I see the Chinese can buy new weapons to threaten America. Meanwhile, American workers are worse off then they were in the 70s. It is so wonderful!!!

This we will not allow to happen in Brasil. I will tear off our trade agreement with yellow foreign devil's. We will make our own arms in Brasil to protect our beaches, volleyball, and fil dental.

Ordem e Progresso!!!

Respond

Add Comment

Respond

Add Comment

My vague impression is that macroeconomic management in most countries is better today than in the 1970s.

Respond

Add Comment

Respond

Add Comment

If I recall correctly, the Washington Consensus was silent about labor markets. I suppose the Washingtonians all thought there were unfettered labor markets everywhere.

If by Washington Consensus you are referring to the general Anglo-American attitude towards economic policy in the 80's both Regan and Thatcher correctly recognized that unions had too much power and influence.

Based on Milton Friedman arguing that high tax rates on profits made corporate managers cave to unions because increased labor costs were 50% paid for by the IRS and the higher union worker incomes was almost 100% spent on consumption of goods, services, bigger houses to hold more consumer goods, which increased business revenue, requiring the building of more factories and more utility assets, driving up demand for labor, driving up wages, which in turn drove up consumer demand, forcing new factories and utilities to be built..

GDP growth was too high, and profits were too low because there was too much production eliminating the scarcity that allow high scarcity profits.

Only by weaken labor can consumer demand be regulated by bankers lending money provided by government to fund consumer spending far beyond their labor income.

All forms of debt rose much more rapidly after Friedman argued that consumer incomes from wages must not rise to produce higher GDP growth and higher profits. Remember, profits are the money not paid to workers to work. Friedman argued workers need to have less incentive to work, but profits will motivate businesses to increase consumer spending. GM transformed into a lender that offered cars as incentives to borrow from the Bank of GM aka GMAC.

You lost me this time, Mulp.

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Respond

Add Comment

Economists screwed things up in the 50's and 60's overestimating how much good a big push into self sustained growth could do as well as the infamous Samuelson-Solow paper arguing we could gin up the economy with a little extra inflation at no cost. The bill came due worldwide in the 70's when the U.K and USA entered stagflation. The USSR entered its era of stagnation and the East Asian miracle was yet unheard of. Had they enacted Chinese style reforms they might still be here today, but that would have meant conceding communism was in large part wrong.

I will not unilaterally condemn every government policy, program or regulation as bad. Not every state enterprise of initiative was a failure. But, on net, industrial policy and even softer variants of socialism like in India hindered a lot of post WW2 growth. The neoliberals saved the world from inflation and too much government as far as I'm concerned. Manmohan Singh in India, Deng Xiaoping in China, Mikhail Gorbachev in the USSR, Ronald Reagan in the USA, Margaret Thatcher in Britain and others did what needed to be done. They did it imperfectly, and not everything they did I agreed with, but it was clear from Sweden to Japan that most governments were too large and bureaucratic.

What saddens me most is they weren't more successful and that the public is largely unaware of how much worse things could be had we not taken on inflation.

You old dinosaur. You need to get with the times and embrace Modern Monetary Theory so we can realize a democratic socialist future just like Venezuela and Zimbabwe!

Respond

Add Comment

Respond

Add Comment

The new consensus is to dislike GDP growth and getting richer. Cuz it's bad for the earth, according to that kid.

Respond

Add Comment

... where does on find a factual statement of this "Washington Consensus" ?

Here you go:
https://en.wikipedia.org/wiki/Washington_Consensus

Respond

Add Comment

Respond

Add Comment

Here you are: https://en.wikipedia.org/wiki/Washington_Consensus

Respond

Add Comment

Interesting to see Tyler “subtweeting” the Applebaum book multiple times now without deigning to mention it. Strange for such a voracious reader. The general defense of economists against the book has been #notalleconomists but in fact that is besides the point. The Milton Friedmans of the world did wreak havoc through their oversized influence on policy and just because not all economists aren’t Milton Friedman doesn’t lessen the damage.

Respond

Add Comment

Better headline: "Economists are irrelevant."

Look, I'm thrilled for you if Joseph Stalin cited you as an example for how great his reign of terror was, and you got some speaking invitations out of it. Doesn't mean it was your fault. You're just a useful idiot, a la Greta Thunberg.

Respond

Add Comment

Lowered our body count since the 50s, 60s and 70s.

Respond

Add Comment

'This paper makes no claims about causality. '

Economists apparently aren't even yet in a position to be judged for screwing up.

Respond

Add Comment

On the topic of whether economists can screw things up, I'm still wondering if Professor Cowen is ever going to provide more detailed information on his analysis of who won and who lost after the issuance of the AG Barr gloss on the Mueller Report. This Cowen is a smart guy who runs a smart "blog", so it's a near certainty that at one point or another he's going to explain one of his infrequent direct political takes. For example that time when he explained who won and who lost, after Barr announced his interpretation of the report. Cowen has got to do that, doesn't he? Wouldn't it sort of suck if he didn't?

Respond

Add Comment

I'd have to read it over to see if there is need of clarification, but here it is:

https://marginalrevolution.com/?s=mueller+

Respond

Add Comment

Not to hammer the poor potentially-wrong economists too hard, here is our economist's culminating statement:

"The biggest winner [of the initial Barr gloss on the Mueller Report, taken as a stand-in for Mueller] of course is the United States of America. It seems, after all, that we did not have a president, or even presidential staff, who colluded with the Russians. Maybe you wanted Trump to go down on this one, but that is most of all big reason to celebrate."

Respond

Add Comment

Socialism kills, free markets feed.

Soon to morph into social credit scores kill...

Respond

Add Comment

Respond

Add Comment