On the Washington Consensus

Ritchie decides to critique the Washington Consensus.

It\’s the usual amusement from him, anything which reduces the power of the State is bad m\’kay?

But what\’s really fun is that he uses as his source document this. Which is a very good source document indeed, showing that a goodly portion of the things Ritchie complains about aren\’t in fact part of the consensus he\’s complaining about.

It also contains this lovely point:

The third interpretation of the term “Washington Consensus” uses it as a synonym
for neoliberalism or market fundamentalism. This I regard as a thoroughly objectionable
perversion of the original meaning. Whatever else the term “Washington Consensus”
may mean, it should surely refer to a set of policies that command or commanded a
consensus in some significant part of Washington, either the US government or the IFIs
or both, or perhaps both plus some other group. Even in the early years of the Reagan
administration, or during Bush 43, it would be difficult to contend that any of the
distinctively neoliberal policies, such as supply-side economics, monetarism, or minimal
government, commanded much of a consensus, certainly not in the IFIs. And it would be
preposterous to associate any of those policies with the Clinton administration. Yet most
of the political diatribes against the Washington Consensus have been directed against
this third concept, with those using the term this way apparently unconcerned with the
need to establish that there actually was a consensus in favor of the policies they love to
hate.5

Which is just what Ritchie has done.

Which leads to the question: does he actually read his own source documents?

Apparently the idea of homo economicus should be buried as well. Ritchie himself links to that page BTW:

Homo economicus is seen as \”rational\” in the sense that well-being as defined by the utility function is optimized given perceived opportunities. That is, the individual seeks to attain very specific and predetermined goals to the greatest extent with the least possible cost. Note that this kind of \”rationality\” does not say that the individual\’s actual goals are \”rational\” in some larger ethical, social, or human sense, only that he tries to attain them at minimal cost.

I find it very hard indeed to understand why we\’d want to junk that description of human beings. Can someone explain it to me please?

3 thoughts on “On the Washington Consensus”

  1. Actually, one of my facourite ideas is that of revealed preference — that one cannot possibly speculate on what someone else values and wants. One cannot even ask them about it (for they may prefer to be considered to prefer A over B whilst secretly selecting B over A). The only way you’ll ever find out is by observing their choice between A and B.

    It’s one of those delightful ideas that restores my hope that someone may one day complete the work the Austrians started and develop a full praxeology of human action.

  2. yes, and also that many components of the Washington Consensus, that we are constantly told has “failed” etc. are in fact still part of a consensus that includes left-leaning economists like Stiglitz and Rodrik. Williamson on that point, here.

    One thing that puzzles me about the “homo-economicus” arguments, is that people like Richard appear to take it as some killer point that utterly undermines the whole mainstream economic project. Now I think it’s true that people do things that are not captured by the basic economic notions of rationality*, but while taking this into account may modify the conclusions in some bits of economics, I don’t see it as terribly far reaching. The big names in this field (say, Sam Bowles) still sign up to a lot of very standard economics. More of a worry, I think, are models that rely on a very strong notion of rationality to drive their results, but as with all modeling you have to understand where you results are coming from and assess assumptions on that basis. It might be perfectly valid to criticize theoretical results on those grounds, but again, most of economics would survive weaker assumptions about rationality.

    * for example, we can explain many things (e.g. “altruistic punishment”) by appeal to some story about enlightened self-interest in a “repeated game” setting, that allow us to reach some superior payoff (think, prisoner’s dilemma games, where a social norm of “co-operate” achieves a better outcome) but there’s evidence people tend to adhere to social norms, etc. more strongly that can really be rationalised by economics style rationality

  3. What is, I hope, very obvious is just how badly flawed the recommendations were and just how badly things have turned out.

    TR-UK may be on to something here.

    If we unpack this just a bit more we find that it is not the ideas themselves which are the problem with the Washington Consensus, it is the wrong-headed implementation of the ideas (per R. Murphy).

    The wrong-headed implementation of the ideas being carried out by the only known force for good ever (per R. Murphy), government.

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