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-wrackeddeveloping countries by Washington, D.C.-based institutions such as the International Monetary Fund (IMF), World Bank and United States Department of the Treasury.[1] The term was first used in 1989 by English economist John Williamson.[2] The prescriptions encompassed free-market promoting policies such as trade liberalization, privatization and finance liberalization.[3][4] They also entailed fiscal and monetary policies intended to minimize fiscal deficits and minimize inflation.[4]
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.