Steven Kamin and Benedict Clements explore a successful approach toward government economic policy.
Earlier this month, the United States hosted a meeting of G20 Finance Ministers and Central Bank Governors in Asheville, North Carolina. … In the event, the Trump Administration used the occasion to push an agenda of economic deregulation, greater private-sector investment, reduced external imbalances, and myriad other policies. Cynics may sniff that the Administration, which has promoted unprecedented intrusions into private enterprise and trade-strangling tariff hikes, should practice what it preaches. And the best guide to what the Administration should be practicing may be the so-called Washington Consensus, advocated in Washington in the 1990s to guide developing countries toward faster development and growth.
Some 37 years ago, John Williamson coined the phrase “the Washington Consensus” to refer to a set of reforms needed to get Latin America back on track for sustainable growth after the debt crises of the 1980s. The reforms covered 10 areas, among them fiscal discipline to keep budget deficits low, reallocation of public spending towards activities that improve growth and reduce inequality, market-determined interest rates, a competitive exchange rate, trade liberalization, liberalization of inward foreign investment, and secure property rights. While originally developed with Latin America in mind, the main elements of the consensus were seen by many (but not all) economists as relevant and applicable to many Emerging Market and Developing Countries (EMDEs). …
… While the EMDEs struggle to meet the recommendations of the Washington Consensus, the Trump Administration is working equally hard to distance itself from those principles. Instead of liberalizing trade, it has hiked tariffs and other trade barriers. Instead of reducing the government’s involvement in the private economy, it has taken equity stakes in major companies. Instead of allowing the free market to guide energy investments, it has undercut wind and solar power projects while promoting fossil fuel projects that even the energy companies reject. And instead of reducing budget deficits, it has cut taxes and put the federal debt on a path that will rise from about 100 percent of GDP at present to 175 percent by the middle of the century.
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