First he examines the disasters of the interwar period, with austerity in the US, Britain, Sweden, Germany, Japan and France, all of which resulted in economic destruction and political implosion, subsequently discrediting the austerity approach for half a century. Of these, Blyth dismisses Denmark and Sweden on the grounds that they were not success stories at all. When Ireland cut its public spending in the mid s the international economy was expanding rapidly and Ireland still had its own currency, which it could devalue to take advantage of such a condition.
Finally, Blyth demolishes what he wittily names the Rebll alliance, a group of paraperipheral countries in Europe that are flagged as the current success cases of austerity: Romania , Estonia , Bulgaria , Latvia and Lithuania. The prevailing myth is that these plucky little countries are diligently implementing austerity policies that their soft southern European neighbours try to weasel out of and that, as a result, the Reblls are recovering quickly.
Blyth shows that these countries have coped with the austerity programme only by increasing their national debts hugely, seeing birth rates plummet and experiencing huge emigration. He also argues that the US government should probably have let its banks go bankrupt — as the Icelandic government did — rather than bail them out.
It goes too far in that it is arguing for bankruptcy for failing banks. This cannot be adopted as a rule. However large they were in relation to their national economy, the Icelandic banks were small players in the world economy. Given that the financial system runs on confidence — or shall we say confidence tricks? After all, the US government had tried the bankruptcy option with Lehman Brothers , only to trigger a panic. The problem with the current bailout scheme is that it saved not only failed banks but also failed bankers, with no substantial punishment and conditions for subsequent behaviour.
Most of the top bank managers have kept their jobs, and their bonus practices have continued in the same manner despite the fact that they are now making profits only because of explicit and implicit supports from government, including payment guarantees and quantitative easing. With no punishment for failures, it is no wonder that bankers are behaving as if nothing has happened. And, unlike the tougher and tougher conditions that they are imposing on welfare payments to the poor, the subsidies given to those banks have come with no conditions.
That Blyth largely overlooks this issue is a shortcoming in this otherwise marvellous book. All in all, Austerity: The History of a Dangerous Idea is a masterful combination of economic history and intellectual history that puts the current policy debate into a balanced and sophisticated perspective. Anyone who wants to understand what is going on in the world at the moment should read it. Right away. Ha-Joon Chang teaches economics at the University of Cambridge.
Finally, comparing Ireland's bank bailout with Iceland's default, Blyth questions whether the financial sector is worth saving and suggests financial repression and more progressive taxation as alternatives to austerity with regard to reducing governments' public debt. Overall, Austerity received mixed to positive reviews.
Writing in the New York Review of Books , Paul Krugman praises Austerity for its account of the academic genesis of the theory of expansionary fiscal contraction. From Wikipedia, the free encyclopedia. Why Austerity Is a Dangerous Idea.
Retrieved March 23rd, Books of the Year. Austerity: The History of a Dangerous Idea. How the Case for Austerity Has Crumbled. The New York Review of Books.
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