Austerity: The History of a Dangerous Idea
by Mark Blyth
Oxford University Press
Albert Einstein famously said that doing the same thing over and over in the expectation of different results is the definition of madness. That observation applies to the practice of economic austerity, according to political economist Mark Blyth.
Austerity is fundamentally flawed, Blyth says. If, as in Europe, every country adopt the same spending cuts, the practice becomes self-defeating - as two ruined countries, Greece and Spain, prove. "We cannot all cut our way to growth," he writes. "Austerity is a zombie economic idea because it has been disproven time and again, but it just keeps coming."
The refuted, faith-based doctrine is allowed to stagger on for two reasons. First, the common-sense hunch that more debt cannot cure debt remains seductively simple. Second, austerity is a neat excuse for conservatives to cut public services and run their bugbear, the welfare state, out of town.
Reliant on public services, the poor lose out, effectively funding the banks that caused the 2008 global financial crisis and then begged for a bailout, Blyth says. In his view - shared by many economists - the banks are nearly entirely to blame for the woes afflicting the US and Europe. The monetarist claim that everyday citizens have lived beyond their means and should tighten their belts is rubbish, he reckons.
Blyth repeatedly states that austerity just shrinks the economy and worse. The low point of the dogma he hates apparently came when it aggravated the Great Depression of the 1930s, and paved the way for power grabs by the forces responsible for the second world war: the Nazis and the Japanese military establishment.
Later, it seems, austerity hampered countries thought to have gained from it, such as Ireland and Latvia. "Latvia started growing again when austerity stopped in 2010."
Recession-hit countries should spend aggressively, says Blyth, an economics professor at Rhode Island's Brown University.
Blyth's demolition job on austerity is broadly convincing and timely. Whether Keynesian spending is the cure-all seems doubtful, however. Think back to June 2010 when pro-spending advocate Paul Krugman branded Germany's deficit hawk-driven budget cuts a "huge mistake" that would dent revenue. In fact, its booming economy is the envy of Europe. Another beef is Blyth's lack of stylistic snap - some passages have a "dismal science" feel.
Still, it is hard to argue with his claim that the global fiscal system is twisted. In the US, the richest 400 Americans own more assets than the bottom 150 million.
Cue the Occupy movement and mounting anger. "In such an unequal and austere world those who start at the bottom of the income distribution will stay at the bottom, and without the possibility of progression, the 'betterment of one's condition' as Adam Smith put it, the only possible movement is a violent one," Blyth warns.