Easterly on neoliberalism

If you don’t like my lousy political posts, I have a new monetary one at Econlog.

In 2010, I wrote a paper entitled “The Unacknowledged Success of Neoliberalism.” This was in the midst of the Great Recession, when most people viewed neoliberalism as a dirty word. Even Chicago School economists like Richard Posner were jumping ship.

But I like to take the long view. Here’s the intro to my paper:

The neoliberal policy revolution that began in the late 1970s might be the most important recent event in world history. But it remains a curiously elusive and underreported phenomenon. Many on the left question the motives behind the reforms, as well as their efficacy, while some on the right talk as if the neoliberal revolution never happened.

Yet, the neoliberal revolution has been widespread and highly successful. And the motives of neoliberal reforms are much purer than one would imagine after reading left-wing criticisms of free-market reforms.

Tyler Cowen linked to a new paper by Bill Easterly, perhaps the world’s best development economist.  Here’s his abstract:

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.

Sorry Bernie; nothing has changed over the past 40 years.  It’s still true that Denmark, Switzerland and Singapore provide a roadmap for the moral, political and economic improvement of society.

PS.  Alex Tabarrok directed me to a study showing that trade doesn’t just produce prosperity, it also produces peace:

We investigate the effect of trade integration on interstate military conflict. Our empirical analysis, based on a large panel data set of 243,225 country-pair observations from 1950 to 2000, confirms that an increase in bilateral trade interdependence significantly promotes peace. It also suggests that the peace-promotion effect of bilateral trade integration is significantly higher for contiguous countries that are likely to experience more conflict. More importantly, we find that not only bilateral trade but global trade openness also significantly promotes peace. It shows, however, that an increase in global trade openness reduces the probability of interstate conflict more for countries far apart from each other than it does for countries sharing borders. The main finding of the peace-promotion effect of bilateral and global trade integration holds robust when controlling for the simultaneous determination of trade and peace.

Some right wing nationalists are big fans of trade sanctions as a way of forcing countries to behave better.  If I point out that Iran has behaved worse since Trump added trade sanctions they’ll say, “give it time.”  If I point to Venezuelan sanctions they’ll say, “give it time”.  If I point out that nearly 60 years of sanctions have failed to end communism in Cuba, they’ll say, “give it time.”

These people are very, very patient . . .

. . . except when it comes to China.

They insist that the US policy of engagement with China has failed, even though China is 10 times freer than in 1972 when the policy began.  After all, China is still an authoritarian state. If I say “give it time”, they roll their eyes at my naiveté.

I guess “give it time” only applies to sanctions, not engagement.


Read More