The (Brief) History Of A Dangerous Idea

by Nick Glossop on June 27, 20133 comments

BlythFind yourself a comfy chair and strap in tight. The g-force may be a little unpleasant as you reach escape velocity, but it’s worth the initial struggle to get up to speed with a man who speaks with the force and spittle of a Glasgow gale. Mark Blyth has been doing the rounds on the interview circuit promoting his book Austerity: the history of a dangerous idea. He recently gave an excellent interview with Sam Seder. But here he speaks freely for a full hour and seven (including intro and question period) enough time to give his short, damning history of the policy of austerity and his short, dense history of the bad idea that is the European common currency.

This lecture is brilliant. I include a few choice quotes below to entice you into listening to the whole of it. He is an engaging speaker with an impressive mastery of political economy, economic theory, and political history proper. Give it a listen, it is most thought-provoking.

Why did I write this book? I wrote this book for the following reason; I got really really pissed off with people with lots and lots of money telling people without any money they need to pay shit back.

Greece has lost 30% of GDP in four years, the German army didn’t manage that between 41 an 45, that’s how much damage has been done by this.

The markets aren’t craving an extra 30,000 civil servants being thrown out of work in Greece, they are worried about the Euro breaking up…

Any single country that has undergone an austerity program now has more debt than when it started. Any country that hasn’t cut, like the United States, now has proportionally less. The evidence is in. And the tragedy is it was all avoidable, and we knew this already.

Democracy is asset insurance for the rich. Don’t skimp on the payments – that’s what’s happening today.

Austerity is anorexia for the economy. That was learned by 1940. Oh, how we forget.

…And we’re gonna shut down every goddamn tax haven on the planet, because you know how much is sitting there? 27 trillion dollars in untaxed wealth – estimate. It’s sitting in five tax havens. How many divisions does the Cayman Islands have? None. Let’s go get it, so much easier than slashing the fire brigade.

..the greatest bait-n-switch in history because what’s actually happening is basically all that private debt that was created by the banking system through over-lending is now on the public balance sheet, and to go full circle, all the way back, that means that people like me who grew up on the welfare state have to pay for the mistakes of historically irresponsible bankers because you can’t tax them themselves because they are too politically powerful. That’s why this is fundamentally a problem of politics and not a problem of economics.

Lecture after the break

The Brits are in for a decade of recession, Ireland has a lost generation because they bailed their bankers AND they did austerity. Periphery Europe is stuck with 25% permanent unemployment. This doesn’t work, it is a human disaster. But most of all, it’s politics, cause it’s always about one thing: somebody got all the benefits, then they cost all the costs, now they want somebody to pay for the costs while they keep all the benefits. That’s what this is really all about.

Austerity lecture by Mark Blyth

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.

About the Author:
Mark Blyth is a faculty fellow at the Watson Institute, professor of international political economy in Brown’s Political Science Department, and director of the University’s undergraduate programs in development studies and international relations.

3 comments

Nick Glossop on June 27, 2013 at 11:53 pm. #

I neglected to include one more great quote:

“Reinhart-Rogoff? 90 % of GDP? My arse!”

Love this guy.

Matthew Payne on June 28, 2013 at 6:46 am. #

Yes, but he is shrill!

Nick Glossop on June 28, 2013 at 10:11 am. #

Yeah, why do they do that, social and political critics, get so shrill n’stuff?