New Republic: Austerity - The History of a Pernicious Idea [View all]

[grahamhgreen]

There is no greater obstacle to progressive change than the idea of austerity. It has dominated economic policy in Europe, resulting in continued slow growth (or outright contraction) and high unemployment. These conditions have produced demoralized electorates that lack faith in all politicians—a cynicism that has only deepened when leftist parties have attained power and failed to revive growth. In such an environment, progressive change is not possible, and the left is reduced to purely defensive actions.

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How did we get into such a pickle? Does the current mania for austerity make any sense whatsoever? And could the recent discrediting of Carmen Reinhart’s and Kenneth Rogoff’s influential pro-austerity paper provide any hope for the defusing of this mania? Mark Blyth’s timely new book, Austerity: The History of a Dangerous Idea, provides answers to these questions, and they are not necessarily comforting ones.

Keynes’s anti-austerity ideas had their day of course—and a very successful day it was, lasting from the mid-’30s to the mid-’70s. But austerity ideas never went away because, as outlined above, they are rooted in an entire philosophy about the state and public debt that is not subject to disproof, especially among the conservative forces and big economic interests who embrace it. As a result, when Keynesian economics appeared to falter in the 1970s, austerity-based economics came roaring back and dominated economic thinking for decades.

Now, after a brief resurgence of Keynesian economics in 2008-2010, it is back again. (See this paper by Henry Farrell and John Quiggin for a blow-by-blow description of how this happened.) Austerity dominates today’s economic discussions, this time with the chimera of “expansionary fiscal austerity”—the idea that the way out of an economic slump is to cut spending which will lead to rising business confidence, more investment and strong growth.

http://www.newrepublic.com/article/113073/austerity-and-body-economic-reviewed-ruy-texeira?utm_source=The+New+Republic&utm_campaign=ca6bead3f0-TNR_Daily_050113&utm_medium=email&utm_term=0_1a39af5ae8-ca6bead3f0-119077293#