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 austerity for what it is, and what it costs us.
AUSTERITY - Mark Blythe
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