Joseph Stiglitz, the Nobel Prize-winning economist and former adviser to US President Bill Clinton, says the consensus surrounding neoliberal economic thought has come to an end.
Speaking with Business Insider after the launch of his latest book, “The Euro: How A Common Currency Threatens the Future of Europe” — which argues that the fundamental flaws with the euro and the broader European economy are causing huge problems for the continent and risk leading to its downfall — Stiglitz argued that neoliberalism, the dominant school of economic thinking in the West for the past 30 years or so, is on its last legs.
Since the late 1980s and the so-called Washington Consensus, neoliberalism has dominated the thinking of the world’s biggest economies and international organizations like the IMF and the World Bank. Since the 2008 financial crisis, however, there has been a groundswell of opinion in both economic and political circles to suggest that the neoliberal consensus may not be the right way forward for the world. In the past few years, with growth low and inequality rampant, that groundswell has gained traction.
Asked by Business Insider whether he thought the economic consensus surrounding neoliberalism was coming to an end, Stiglitz argued: “I can talk about this from the point of view of academia or even in policy circles. In academia, I think it has pretty well become rejected. “In policymaking circles I think it’s the same thing. Of course, there are people, say on the right in the US who don’t recognize this. But even many of the people on the right would say markets don’t work very well, but their problem is governments are unable to correct it.”
Stiglitz went on to argue that one of the central tenets of the neoliberal ideology — the idea that markets function best when left alone and that an unregulated market is the best way to increase economic growth — has now been pretty much disproved.
“We’ve gone from a neoliberal euphoria that ‘markets work well almost all the time’ and all we need to do is keep governments on course, to ‘markets don’t work’ and the debate is now about how we get governments to function in ways that can alleviate this,” he said.
In other words, Stiglitz says: “Neoliberalism is dead in both developing and developed countries.”
Stiglitz is not alone in his belief that neoliberalism has its problems, though his argument that the consensus is “dead” is somewhat more forthright than those of many others. In a blog post in May, three economists from the IMF — long one of the greatest champions of the neoliberal consensus — questioned the efficacy of some aspects of it, particularly when it comes to the creation of inequality. “The increase in inequality engendered by financial openness and austerity might itself undercut growth, the very thing that the neoliberal agenda is intent on boosting,” Jonathan Ostry, Prakash Loungani, and Davide Furceri argued. “There is now strong evidence that inequality can significantly lower both the level and the durability of growth.”
The decline of neoliberalism is also evident in the UK, where austerity has reigned since the accession of the Conservative Party to government in 2010. Prime Minister David Cameron and Chancellor of the Exchequer George Osborne presided over a period of record fiscal-deficit reduction created through a six-year program of austerity. But since Cameron resigned following the UK’s vote to leave the EU, fiscal stimulus in the UK has started to gain traction once again as a viable means of stimulating growth.
Neoliberalism may not be completely dead, as Stiglitz argues, but it is certainly being challenged from many angles.
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TRANSCEND Media Service
Speaking with Business Insider after the launch of his latest book, “The Euro: How A Common Currency Threatens the Future of Europe” — which argues that the fundamental flaws with the euro and the broader European economy are causing huge problems for the continent and risk leading to its downfall — Stiglitz argued that neoliberalism, the dominant school of economic thinking in the West for the past 30 years or so, is on its last legs.
Since the late 1980s and the so-called Washington Consensus, neoliberalism has dominated the thinking of the world’s biggest economies and international organizations like the IMF and the World Bank. Since the 2008 financial crisis, however, there has been a groundswell of opinion in both economic and political circles to suggest that the neoliberal consensus may not be the right way forward for the world. In the past few years, with growth low and inequality rampant, that groundswell has gained traction.
Asked by Business Insider whether he thought the economic consensus surrounding neoliberalism was coming to an end, Stiglitz argued: “I can talk about this from the point of view of academia or even in policy circles. In academia, I think it has pretty well become rejected. “In policymaking circles I think it’s the same thing. Of course, there are people, say on the right in the US who don’t recognize this. But even many of the people on the right would say markets don’t work very well, but their problem is governments are unable to correct it.”
Stiglitz went on to argue that one of the central tenets of the neoliberal ideology — the idea that markets function best when left alone and that an unregulated market is the best way to increase economic growth — has now been pretty much disproved.
“We’ve gone from a neoliberal euphoria that ‘markets work well almost all the time’ and all we need to do is keep governments on course, to ‘markets don’t work’ and the debate is now about how we get governments to function in ways that can alleviate this,” he said.
In other words, Stiglitz says: “Neoliberalism is dead in both developing and developed countries.”
Stiglitz is not alone in his belief that neoliberalism has its problems, though his argument that the consensus is “dead” is somewhat more forthright than those of many others. In a blog post in May, three economists from the IMF — long one of the greatest champions of the neoliberal consensus — questioned the efficacy of some aspects of it, particularly when it comes to the creation of inequality. “The increase in inequality engendered by financial openness and austerity might itself undercut growth, the very thing that the neoliberal agenda is intent on boosting,” Jonathan Ostry, Prakash Loungani, and Davide Furceri argued. “There is now strong evidence that inequality can significantly lower both the level and the durability of growth.”
The decline of neoliberalism is also evident in the UK, where austerity has reigned since the accession of the Conservative Party to government in 2010. Prime Minister David Cameron and Chancellor of the Exchequer George Osborne presided over a period of record fiscal-deficit reduction created through a six-year program of austerity. But since Cameron resigned following the UK’s vote to leave the EU, fiscal stimulus in the UK has started to gain traction once again as a viable means of stimulating growth.
Neoliberalism may not be completely dead, as Stiglitz argues, but it is certainly being challenged from many angles.
—
TRANSCEND Media Service
