The early 1990s were halcyon days for us neoliberals. The Reagan and Thatcher revolutions were being consolidated. Soviet communism was collapsing. And an informal “Washington consensus,” according to which the way for poor countries to grow was to get right with their balance sheets, control their money supplies, open their markets to trade and capital flows, privatize, de-regulate and so on, took over the IMF and World Bank.
But a new study by William Easterly of New York University suggests maybe the problem was simply that things take a while. Extending the story through 2015, the negative 1990s verdict on neoliberal reforms may have to be reconsidered. Not to destroy the suspense but it turns out that all these pathologies are now much rarer than they used to be. That’s good news worth celebrating all on its own. But it’s also true that countries where the pathologies are down have seen increases in the growth rate of per capita real income of a per cent and a half on average.
Note that tolerance for inflation was not always high. In the 1960s and early 1970s the proportion of extreme-inflation countries was roughly the same low number that it has been since 2000. Inflation being good for your economy was a very fashionable 1970s idea that now, after four painful decades, the world has gotten over. The same story could and should be told about Canada’s problems with public debt.
IvisonJ fpcomment Highly informative.
fpcomment Surely the oil price shock caused the inlation 70-90's? As use of oil reduced and price came down the drop in inflation was inevitable. Although delayed by the high interest rates of central banks.