Tuesday, September 16, 2008

Gunnar Tomasson letter to Guardian - Requiem for Washington Consensus Neo Liberalism

As a former senior IMF staff member (1966-1989) and long-time critic of both mainstream economics and its offshoot in The Washington Consensus, I have been of the view that post-Bretton Woods world financial arrangements have been undergoing 'structural disintegration' from the outset.

The root cause of the problem lies at the very heart of mainstream economic orthodoxy and its policy offshoot/The Washington Consensus - namely, in the foundational "hypothesis that [a real-world market] system is in "stable" equilibrium or motion". (Paul A. Samuelson, Foundations of Economic Analysis, p. 5)

The sole purpose of this hypothesis was to rationalize the use of high-school algebra and calculus as modus operandi of mainstream economics.

However, when applied to real-world monetary policy-making Samuelson's hypothesis implies that monetary stability is best served by governments and regulatory institutions getting out of the way of self-correcting market forces.

My heterodox monetary views and associated critique of the methodological presuppositions of mainstream economics were not well received either at the IMF or the Harvard Department of Economics which did not approve my proposal to do a Ph. D. thesis on "the methodology of science in general and of economics in particular" on the grounds that no faculty member was qualified to supervise a doctoral dissertation on the subject matter.

It is really not rocket science to figure out that an ever-increasing ratio of world paper 'wealth' to world output of goods and services is unsustainable. But, both inside and outside the IMF, people in positions of authority chose to ignore this near self-evident fact.

And, when it could no longer be denied, those in authority would feign surprise and claim that collapse of post-Bretton Woods world monetary arrangements was something that could not have been foreseen.

In December 1996, therefore, I advised US Fed Governor Laurence Meyer as follows:

It is fair surmise that macro-economic forecasting models predicated on mainstream monetary thought, which have detected no signs of a global crisis during the rapid rise in the ratio of paper wealth to real output during the past quarter century, are once again setting policy-makers up for a nasty surprise.

This was for the record.

As was my advice to Patrick Minford, economic adviser to Margaret Thatcher, in January 1997 concerning post-Bretton Woods world monetary arrangements:

[This] house of cards is certain to come crashing down.

As founding member of a trans-Atlantic group of economists known as Gang8, including UK members Geoffrey Gardiner and Christopher Meakin, I have addressed at length the analytical aspects of mainstream orthodoxy in a number of think-pieces.

See for example Principles of Economic Analysis (Summary -Revision), dated October 1, 1999 at the Archive section under www.creditary- economics. org.

Gunnar Tomasson, www.creditary- economics. org

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