Governments today in both Europe and the United States have succeeded in
casting government spending as reckless wastefulness that has made the
economy worse. In contrast, they have advanced a policy of draconian
budget cuts--austerity--to solve the financial crisis. We are told that
we have all lived beyond our means and now need to tighten our belts.
This view conveniently forgets where all that debt came from. Not from
an orgy of government spending, but as the direct result of bailing out,
recapitalizing, and adding liquidity to the broken banking system.
Through these actions private debt was rechristened as government debt
while those responsible for generating it walked away scot free, placing
the blame on the state, and the burden on the taxpayer. That burden now
takes the form of a global turn to austerity, the policy of reducing
domestic wages and prices to restore competitiveness and balance the
budget.
The problem, according to political economist Mark Blyth, is that
austerity is a very dangerous idea. First of all, it doesn't work. As
the past four years and countless historical examples from the last 100
years show, while it makes sense for any one state to try and cut its
way to growth, it simply cannot work when all states try it
simultaneously: all we do is shrink the economy. In the worst case,
austerity policies worsened the Great Depression and created the
conditions for seizures of power by the forces responsible for the
Second World War: the Nazis and the Japanese military establishment. As
Blyth amply demonstrates, the arguments for austerity are tenuous and
the evidence thin. Rather than expanding growth and opportunity, the
repeated revival of this dead economic idea has almost always led to low
growth along with increases in wealth and income inequality. Austerity
demolishes the conventional wisdom, marshaling an army of facts to
demand that we recognize austerity for what it is, and what it costs us.
