THE WALL STREET CONSENSUS

Biography of Daniela Gabor

Daniela Gabor is a heterodox economist and professor at the School of Oriental and African Studies in London. Following in the footsteps of Hyman Minsky, she has contributed to the development of critical macro-finance theory. Her work focuses on central banks, repo markets, and, more broadly, on the relationship between finance and the state, which she characterizes as the “Wall Street consensus.” Daniela Gabor has worked as an expert for the European Parliament, the G20, the United Nations Financing for Development program, the United Nations Economic Commission for Latin America, and for central banks.

She is writing a book on the Wall Street consensus, to be published by Norton. She co-published Rewriting the Rules of the European Economy with Joseph Stiglitz and Isabel Ortiz for the European Foundation for Progressive Studies in 2019, the Routledge Companion to Banking Regulation and Reform with Ismail Ertürk in 2017, and Central Banking at a Crossroads with Charles Goodhart, Jakob Vestergaard, and Ismail Ertürk in 2014.

She received her PhD in Banking and Finance from the University of Stirling in 2009.

Prolog

One day in October 2011, Barack Obama made Angela Merkel cry. The incident happened during a G20 meeting and was caused by the US president’s insistence that the European Central Bank purchase Greek Treasury bonds. To understand why the prospect of quantitative easing could bring a famously impassive politician to tears, we need the tools of what Daniela Gabor calls critical macro-finance.

Rooted in the analytic framework devised by the post-Keynesian economist Hyman Minsky, macro-finance studies the changing relations between capital and the State by focusing on the nexus formed by Departments of the Treasury, Central Banks, international organizations such as the IMF and the World Bank, and private financial institutions. What makes Daniela Gabor’s approach to macro-finance “critical” is that she historicizes the roles assumed by the various actors under examination and shows how the transformation of their interactions results from political struggles involving asset holders and public agencies, but also labor unions and social movements. The ensuing periodization amounts to a succession of macro-financial regimes, each of which predicated on a certain consensus about what governments, central bankers and private investors can and cannot do.

Throughout the three decades following the 1944 Bretton Woods Conference, the consensus among Western countries was that fiscal and monetary policies ought to be aligned for the sake of helping the State guarantee full employment and invest directly in its citizens’ welfare. By the late 1970s, however, inflationary pressure due to social demands in the Global North and challenges to the system of unequal exchange stemming from the Global South prompted a transition toward what became known as the Washington Consensus.

According to Milton Friedman, whose pronouncements constituted the new common sense, monetary policy needed to be divorced from fiscal policy, even at the cost of subjecting economies to recessive shocks. To manifest their newfound independence, Central bankers were to make price stability their sole preoccupation and ensure that elected officials echoed Margaret Thatcher’s pledge to renounce reckless money creation. Good statecraft now consisted of privatizing public goods and liberalizing labor markets. Enabling private investors to allocate resources as they saw fit was how governments were expected to improve the lives of its constituents.

By the turn of the 21st century, however, and increasingly in the wake of the 2008 crash, neoliberal market solutions ceased to be consensual. At the same time, financial institutions remained too big not only to fail but also to permit the return of the Bretton Woods regime of big government and capital control. Hence the advent of what Daniela Gabor calls the Wall Street Consensus. Under this new regime, States were once again empowered to set ambitious goals regarding infrastructural development and energy transition, even at the risk of upsetting a German chancellor’s sense of virtue. Yet, what they could not afford was to take the measures that would allow them to finance such projects from their own purse.

Instead, public officials involved in the new consensus negotiated “investability pacts”, whereby private investors would be incentivized to pay for the fulfilment of their ambitions. The mission of the emerging de-risking State, Daniela Gabor explains, was no longer to let financial capital do its thing, as the Washington Consensus prescribed, but to coax it into doing the right thing. Rather than provide across-the-board tax cuts, governments would now offer tax credits and looser regulations, but only to investors professing to care about making the world a greener and more evenly prosperous place.

The current age of the de-risking State raises at least two sets of questions. The first one, which is at the center of Daniela Gabor’s work, pertains to the difference between the Washington and the Wall Street Consensuses. Does the newer regime deviate, at least in part, from the neoliberal premises of the older one? Or must we understand that initiatives such as the World Bank’s 2030 Sustainable Development Agenda, the Biden Administration’s Inflation Reduction Act and the European Green Deal amount to little more than greenwashing and stealth privatization of public assets.

For the left, taking a position on this issue is highly consequential. To engage with de-risking, however critically, implies that private finance could be mobilized for the public good, if only States and international organizations decided to add sticks to carrots, for instance by penalizing brown investments as much as they incentivize green ones. To denounce the very logic of the Wall Street Consensus, on the other hand, conveys that nothing short of a Big Green State can save us from the neoliberal strictures of the last two macro-financial regimes. The first path assumes that capital can be disciplined, the second that central planning can be democratic; two big ifs.

Finally, the second set of questions regards the sustainability of the Wall Street Consensus under Trump 2.0. Can we still speak of a de-risking State when tax credits give way to an odd mix of tax cuts and tariffs? And what will be left of the neoliberal rationale if the orange man in the White House succeeds in bending the Federal Reserve to his will? While Daniela Gabor believes that the de-risking regime is undergoing a mutation rather than meeting its demise, she also notes that Macro-financial Consensuses are usually about to crumble when the leaders of dominant powers start to complain about ungrateful allies. This was the case of Richard Nixon when he decided to close the gold window, but also of the Soviet leadership just before the Perestroika. Could the return of the whining hegemon signal the impending collapse of the Wall Street Consensus?

Our interview took place in Paris, on April 11, 2025.