On August 26, 2016, the Liberty Discussion was held on the article ‘Neoliberalism: Oversold?’ by three Economists of International Monetary Fund; Jonathan D. Ostry, Prakash Loungani and David Furceri.
The authors first state the lenses that they perceive neo-liberalism through – namely, increased competition through deregulation and opening up domestic markets, and limited government through privatization and putting a limit on the governments capacity to run fiscal deficits and accumulate debts. They then go on to acknowledge some of the benefits so far accrued to the world economy as a result of neo-liberalism – expansion of global trade, upward movement of people from the status of abject poverty, FDI and technology transfers, more efficiency through private sector-led economy, etc. However, the writers also throw in some words of caution along the lines that one would have to be wearing heavily rose-tinted glasses if one were to neglect some of the complications that have also ensued with neo-liberalism. The article criticized Neoliberalism on the grounds of its ignorance towards inequality, problems brought about by free flow of capital, and fiscal consolidation. The members of the group then floated their concerns over the authors’ analyses of the issues.
On the aspect of inequality, some members defended the concept of “neo-liberalism” questioning if it was a political or economic problem that a lot of people were earning more now than they were a decade ago, despite at different rates. Others questioned whether it was also a problem of our social construct. A few also expressed that collusion and cartel (elite capture) in the market also leads to inequality in many cases; but the important question here is if this is a result of neo-liberalism or that of anti-competitive practices. Additionally, a few others argued whether ‘a measure of equality’ in itself was the right notion to be asked about.
With regards to free capital flows, some participants believed that short-term free flow of capital can cause crisis. They argued that short term capital flows are basically directed towards speculation in financial market. These speculative activities in the financial market can bring down the financial situation of the country. When financial sector gets affected, it creates a ripple effect eventually hampering the overall economy.
However, long term capital flows help in growth and development as long-term capital is directed towards real investments, increasing the productive capacity of the economy. Some members believed that if the market is to decide the exchange rate freely, it can help to prevent a crisis arising from short term capital flows.
On discussing government expenditure, some argued that at times of economic boom, government spending should be minimized but during an economic crisis, the government should increase its productive spending. Others expressed that the role of the government should always be well-defined and limited. There was also some discussion on what could be a right time to pay back debts that the governments accumulated over time. Some members suggested that a period of economic boom is a manifestation of the fact that the economy is doing well and that this is the time where people would require the government’s assistance the least – hence the right time to cut government expenses and even clear debts. However, others saw some problems with reducing government expenditure at any time.
As time was limited, members could not discuss more on these issues even though they desired to. But as always, members can always continue their discussion on the Facebook group. To follow the discussions on this issue and more, click here to send a request to join the group.
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