Politics Isn’t About Friedman or Keynes Anymore

Gone are the days when the political right and left could be distinguished by competing theories: free market, monetarist, or Keynesian. 

Today, economic policy is mostly a grab bag from which policy interventions are found to address specific economic grievances. No overarching economic theory guides either party’s approach to policymaking.

By the end of the 1990s all the talk was of the “Washington consensus,” an approach that argued prosperity and stability could be achieved via orthodox monetary and fiscal policies, alongside vigorous engagement in international trade.

The Washington consensus, however, was never quite as widely fancied within the economics profession as it was amongst politicians. 

It is not that economists disagreed with the merits of independent central banks tasked with keeping inflation low, deregulation, or increased globalization. 

Rather, the economics profession noted that those pillars, while necessary for growth, shared prosperity, and stability, were not sufficient to achieve those outcomes.

The 2008-2009 global financial crisis and the 2010-2013 euro zone crisis shattered the Washington consensus in the U.S. and abroad. 

Faith in free markets, in the singular focus on inflation-fighting monetary policy, in globalization, and in the overall rules of the game were ripped apart by the crisis, as well by the policy response to it. 

The economics profession has similarly failed to come up with a compelling narrative that could provide a framework for addressing today’s challenges.

The discipline of economics is tasked not only with the analysis of what makes economies work, but also with the development of narratives that convey solutions to those who make policy.

Larry Hatheway MarketWatch 19 August 2024

https://www.marketwatch.com/articles/politics-economics-trump-harris-ideology-3a4a1368

Larry Hatheway is a co-founder of Jackson Hole Economics, which originally published a version of this commentary, and the former chief economist of UBS.

https://jheconomics.com/

What is the “Washington Consensus? Did it fail?

https://englundmacro.blogspot.com/2021/09/what-is-washington-consensus-did-it-fail.html