Here’s a book that does what it says on the cover: Austerity: The History of A Dangerous Idea by Mark Blyth.
Austerity: The History of a Dangerous Idea
Actually, the first few chapters start with the ‘dangerous idea’ part, with the author’s arguments about why austerity (ie. cutting the government’s budget deficits to reduce the level of its debt) is a bad thing in general, and a particularly bad thing when everyone tries to do so at the same time. This part will be somewhat familiar to readers of Paul Krugman’s blog, or Jonathan Portes on this side of the Atlantic. It overlooks some points I think are important – for example, glossing over the way tax increases and spending cuts will have different distributional implications; or ignoring the effects of inflation on real wages for low earners to focus on the redistribution from savers to borrowers. I also don’t agree with his argument about the specific causes of the financial crisis, which he pins on the securitised mortgages and the US repo market, but that’s not the heart of the book. Besides, Blyth is surely right to say morality tales about lazy Greeks and virtuous Germans, and other similar tropes of public debate about the crisis, do not amount to an economic analysis.
The main section is far more interesting, an account of the history of the idea that austerity is a good policy, that reducing the debt burden only requires reduced borrowing and less government. He traces the idea back to the late 17th century and ranges over the continent as well as the US and UK. Although there’s no mistaking this author’s political perspective, there is plenty of interesting material in this section. The book ends by asking whether or not current austerity policies will work. When the IMF has now said not, and a great majority of economists advocate bringing forward necessary infrastructure investment, Blyth’s answer will come as no surprise, albeit expressed more colourfully: “The deployment of austerity as an economic policy has been as effective in bringing us peace, prosperity and crucially a sustained reduction of debt as the Mongol Horde has been in furthering the development of dressage.”
The book will give opponents of the austerity strategy more ammunition, if they want it. I’m not sure it will change the mind of any proponents of the policy, however, given how obvious the conclusion is from page one. But then, as Blyth argues, this is not a rational economic debate. Austerity has a different kind of hold on its advocates.