With the economy back on a growth trajectory and unemployment beginning to fall across the euro zone, politicians and economists rejoice that their harsh austerity measures have worked. Political economist Mark Blyth begs to differ. Coffeehouse Diaspora. The Ironies of History. You may also like:.
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Winter Music November 28, Home is Where the Housing Is November 24, Load more. Nor could monetary policy—lowering interest rates or increasing the money supply—always be relied upon to jolt businesses back into action and increase employment. Instead, government must frequently step in to make up shortfalls in demand through government spending.
But austerity ideas never went away because, as outlined above, they are rooted in an entire philosophy about the state and public debt that is not subject to disproof, especially among the conservative forces and big economic interests who embrace it. As a result, when Keynesian economics appeared to falter in the s, austerity-based economics came roaring back and dominated economic thinking for decades.
Now, after a brief resurgence of Keynesian economics in , it is back again.
See this paper by Henry Farrell and John Quiggin for a blow-by-blow description of how this happened. It is not just in conservative circles that the austerity idea remains strong. The idea also has significant purchase in progressive circles. For example, in Germany, while the social democrats offer some criticisms of austerity, their standard-bearer in the coming election, Peer Steinbruck, played a key role in undermining the brief period of Keynesian ascendancy and re-establishing the hegemony of austerity economics.
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Steinbruck is a particularly appalling example, but the ranks of European social democrats are full of politicians who subscribe to some variant of austerity economics or at least find it expedient not to oppose it. Here in the U. Indeed, the most prominent Democrat of them all, President Obama, now seems more pre-occupied with striking a grand bargain to cut the national debt further than with solving the far more important—and pressing—problem of growth and jobs. Turning to the question of whether the austerity doctrine actually makes any sense, Blyth does a real service by meticulously reviewing the empirical record from the early twentieth century to the present day.
He covers both the economic history of countries where austerity was applied and the academic literature that purports to show its effectiveness. The review turns up dozens of examples of the abject failure of austerity economics from the s and s—the examples that led Keynes to formulate his famous theories—to the recent attempts to apply austerity in Europe, whose dire anti-growth effects we are currently observing.
Counter-examples are few and far between. As for the academic literature, it is and has been long on theory and short on solid empirical evidence, as Blyth convincingly demonstrates. Circumstances for the well-to-do, I should hastily add, are sometimes more complicated. After all, when you run out of money and nobody wants to lend you more, you stop spending. Public debt is another matter.
Austerity: The History of a Dangerous Idea; The Body Economic: Why Austerity Kills
According to David Hume, one of the more important but rather badly neglected classical liberal theorists, it was always bad practice for the state to borrow money. Public debt permits a politician to spend lavishly on projects that win public approval without imposing onerous taxes. One of the obvious problems with this classical analysis is that it makes no sense in the real world. In the private sector, it is acknowledged that you have to have money to make money. Lacking investment funds, aspirant entrepreneurs and potential stock purchasers have no opportunities other than to work for wages in order to survive.
Even or especially capital investors need massive public investment. Merchants, for example, require transportation systems to ship goods to and fro; but, no private investor is apt to be able to build a comprehensive highway system and, even if the roads were privately financed and owned, we know from experience that the pressure of costs added to a product that required long-distance shipment would likely inhibit trade—just ask London consumers and vendors about the price of coal from Newcastle!
Roads and seaports, schools, social agencies, research facilities, building and food inspection services, fire departments and police forces are only marginally attractive prospects for private investors, yet they are crucial to a thriving economy. And, of course, there must be a well-equipped criminal justice system complete with holding cells, forensic laboratories, court rooms, jail cells, heat-sensing helicopters and armoured vehicles to accommodate the needs of people who wanted something more than a smile, but lacked to means to acquire expensive commodities by socially approved means.
In Austerity: The History of a Dangerous Idea , Mark Blyth offers us more than a merely readable journey through intellectual and social history.
Its seven sensible chapters contain a total of only seven graphs. Each one is clearly presented and is clearly important to the narrative; however, Blyth eschews technical language and asks only that the reader pay attention, which is easy enough for it presents both an economically credible story and a persuasive interpretation of why that idea of austerity has been so widely believed as an important element in our overall economic strategy—particularly today when it is being tested more than any time in at least eighty years and is either barely passing or actually failing the test at almost every turn.
ISBN 13: 9780199828302
Blyth writes about Adam Smith. He pretty much ignores Karl Marx which is a pity, but he does have to appeal to a larger market. He considers John Maynard Keynes at some length. He explains why Keynes matters and why it was important that government and business abandoned his methods, thus precipitating the Great Recession. He talks about Germany and Greece.
In the end, he will or should make you angry. With such endorsements you may presume that you are in good hands.
Austerity: The History of a Dangerous Idea, by Mark Blyth
When you have finished, you will have learned four important lessons. We repeated.
And we might be foolish enough to do so again. You may end up with a somewhat reduced view of Bill Clinton.