Monday, July 11, 2022

The average treatment effect associated with these reforms is positive, sizeable, and significant over 5- and 10- year windows.

I missed this at the time.  From The Washington consensus works: Causal effects of reform, 1970-2015 by Kevin B. Grier and Robin M.Grier.  From the Abstract:

Traditional policy reforms of the type embodied in the Washington Consensus have been out of academic fashion for decades. However, we are not aware of a paper that convincingly rejects the efficacy of these reforms. In this paper, we define generalized reform as a discrete, sustained jump in an index of economic freedom, whose components map well onto the points of the old consensus. We identify 49 cases of generalized reform in our dataset that spans 141 countries from 1970 to 2015. The average treatment effect associated with these reforms is positive, sizeable, and significant over 5- and 10- year windows. The result is robust to different thresholds for defining reform and different estimation methods. We argue that the policy reform baby was prematurely thrown out with the neoliberal bathwater.

The Washington Consensus was originally proposed in 1989 and consisted of ten points of economic reform.
  • Fiscal policy discipline, with avoidance of large fiscal deficits relative to GDP;
  • Redirection of public spending from subsidies ("especially indiscriminate subsidies") toward broad-based provision of key pro-growth, pro-poor services like primary education, primary health care and infrastructure investment;
  • Tax reform, broadening the tax base and adopting moderate marginal tax rates;
  • Interest rates that are market determined and positive (but moderate) in real terms;
  • Competitive exchange rates;
  • Trade liberalization: liberalization of imports, with particular emphasis on elimination of quantitative restrictions (licensing, etc.); any trade protection to be provided by low and relatively uniform tariffs;
  • Liberalization of inward foreign direct investment;
  • Privatization of state enterprises;
  • Deregulation: abolition of regulations that impede market entry or restrict competition, except for those justified on safety, environmental and consumer protection grounds, and prudential oversight of financial institutions;
  • Legal security for property rights.
There has long been an issue about the exact elements and definitions of the policies, but this captures the gist of it:  Fiscal discipline, effective public spending, tax reform, pro-market, pro-trade, deregulation, property rights, and government out of commerce.  

We know it works and works for the benefit of everyone.  But the vested interests prefer managed commerce, managed trade, government subsidies, regulation to reduce competition, deficit spending, etc.  Policies which benefit the already established interests and harm everyone else.  

Academia, dependent on government funding and regulation, knows which side its bread is buttered and has always reacted like a slug to salt when confronting the Washington Consensus.  They insist that there is no evidence for the Washington Consensus.  They are actually insisting on the status quo which benefits them over all citizens.

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