The Political Theory of Austerity: History of a Dangerous Idea (Mark Blyth)
IN THE WAKE OF THE FINANCIAL CRISIS, elites in the United States have succeeded in casting government spending as useless profligacy that has made the economy worse, centering the policy debate budget on cuts – austerity – as the only way to restore prosperity. Unfortunately, while attractive, austerity is a very dangerous idea that rests upon a tenuous and thin body of empirical evidence. To understand why it nonetheless remains so powerful as a doctrine requires engaging not only with its relatively short history, but its prehistory in the thinking of Hume, Smith, Ricardo, Mill, Schumpeter, Hayek and the neoclassical critics of Keynes.
The U.S. sovereign debt comes from a broken federal fiscal system that taxes at 18 percent of GDP and spends at 25 percent – and that has bailed out its financial system. In the process of making up for lost tax revenue, recapitalizing banks, and paying out transfers, it has transformed the private debts of the banking sector into the public debts of the nation. In Europe the same story is augmented by a banking system filled full of rapidly devaluing assets tied to a financial doomsday device called the Euro. In both cases, while there may a be crisis in sovereign debt markets, the idea that this was caused by sovereigns’ “out of control spending” simply does not stand up to empirical scrutiny. The crisis is, and remains, a banking crisis.
Keynes once argued that “the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.” Nowhere is this truer than in the current “consensus” over austerity policies.
Mark Blyth is Professor of International Political Economy in Brown University's Political Science Department, director of the University’s undergraduate programs in development studies and international relations, and a faculty fellow at Brown’s Watson Institute for International Studies. Blyth is a member of the Warwick Commission on International Financial Reform and on the editorial board of the Review of International Political Economy. His articles have appeared in journals such as the American Political Science Review, Perspectives on Politics, Comparative Politics, and World Politics. He is the author of Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century (2002); editor of The Routledge Handbook of International Political Economy: IPE as a Global Conversation (2009), which surveys different schools of IPE around the globe; and co-editor of a volume on constructivist theory and political economy titled Constructing the International Economy (2010). His forthcoming book, Austerity: The History of a Dangerous Idea will be published by Oxford University Press in 2013.