Washington dissensus

The second is a return to more fundamental questions about drivers of growth. There is, once again, a growing body of literature which is beginning to wonder whether the continuous post-war growth of Western economies was an aberration rather than the rule. Was it a combination of factors — demography, geo-strategic rents, education and an unusual phase in innovation — that have largely run their course? What is interesting about this is, so much of this debate over growth moves it away from the purely economic factors that had so marked the Washington consensus just a couple of decades ago: getting prices right, openness, fiscal rectitude etc. In many ways, the drivers of growth now seem to be deeper hidden forces, whose importance was occluded by the selection bias in the range of hypotheses we were willing to consider. But Summers, as he does typically, let the cat loose amongst the pigeons by arguing that perhaps it takes bubbles to sustain growth. According to this view, most of the recent the growth spurts in the US have required bubbles of one kind or the other, whether in real estate, technology or finance.

Third, there is a return to the question of inequality. In an odd way, while coming from different disciplines and methods, the positions of Larry Summers and the great Marxist historian who foresaw the turbulence in the global economy, Robert Brenner, now seem to converge on one major thing. Brenner had basically argued that there was a long-term underlying stagnation in the American economy that was disguised by credit bubbles. But the difference between Summers and Brenner seems to turn on one crucial point. The Left is more inclined to attribute depressed demand, as evidenced by lack of inflation, to inequality, stagnant wages and the shrinking middle class. Cheap credit and financialisation, as Raghuram Rajan has also argued, comprised a kind of political compensation for this stagnation. How inevitable is this inequality in an age of labour-saving technological change and mobile capital? Can more education or a different education address this problem? When Summers speaks of bubbles, he is not speaking of a fundamental psychological irrationality where prices depart from what their real levels should be. He is speaking of deliberately induced over-consumption and debt. This bubble argument is politically fraught because it easily dovetails with condoning almost any irrationality, particularly that of bankers. It is a perversely self-serving argument for the continued financialisation of the economy. Even mad, greedy bankers producing credit bubbles will do more for the economy at this point than almost anything else, the argument goes. It is a measure of how confusing our times are that the very thing that was blamed for the crisis of 2009, financialisation, is now being seen as possibly the very thing that might have produced full employment.

... contd.

Please read our terms of use before posting comments
TERMS OF USE: The views, opinions and comments posted are your, and are not endorsed by this website. You shall be solely responsible for the comment posted here. The website reserves the right to delete, reject, or otherwise remove any views, opinions and comments posted or part thereof. You shall ensure that the comment is not inflammatory, abusive, derogatory, defamatory &/or obscene, or contain pornographic matter and/or does not constitute hate mail, or violate privacy of any person (s) or breach confidentiality or otherwise is illegal, immoral or contrary to public policy. Nor should it contain anything infringing copyright &/or intellectual property rights of any person(s).
comments powered by Disqus