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  • Debt, Democracy, and the Power of Ideas:On Blyth’s Austerity: The History of a Dangerous Idea
  • Alexander Livingston (bio)
Mark Blyth, Austerity: The History of a Dangerous Idea. Oxford: Oxford University Press, 2013. $24.95 Pages: xiii-288. ISBN: 9780199828302.

In the aftermath of the catastrophic implosion of global financial markets in 2008, economists and policy makers on both sides of the pond found themselves returning to Keynesianism to both explain the crash and imagine a route forward. Against the neoliberal orthodoxy that had reigned triumphant inside the beltway and the economic departments of American universities for the previous two decades, bank bailouts and stimulus policies suggested that the intellectual tide had turned against the logic of self-correcting markets and towards a more robust conception of the role of the state in steering the economy towards recovery. Reading Paul Krugman’s obituaries for Austrian economic thinking in the pages of The New York Times, it may have seemed for a moment as if Milton Friedman’s quip had finally become true: “We are all Keynesians now.” But according to Mark Blyth’s important new book, Austerity: The History of a Dangerous Idea, this Keynesian moment was just that – a moment. It was dead within a year. By 2010, the neoliberal orthodoxy had arisen from the ashes of the crash and was being championed by the G20 as the source of a solution to the very same problem it has caused. The name for this solution is austerity.

Austerity is a compelling study of the power of ideas to shape economic policy and political reality. At once a work of comparative political economy and intellectual history, Austerity makes the case that the “deep crisis” at the heart of the financial meltdown was a “crisis of ideas” (2). Against popular accounts of the global downturn as the result of either crooked bankers or profligate state welfare spending, Blyth argues that we need to look towards the world of ideas to explain why investors and states were blind to the systemic risk inherent to a highly leveraged financial sector sitting on top of a subprime bubble. Austerity explores both the intellectual sources of this risk-blindness as well as the ways these same ideas explain the prevalence of austerity measures as a privileged policy response in Europe and elsewhere of cutting national economies back to growth. What Blyth’s genealogy of austerity’s ideational deep structure reveals is nearly a century of disastrous political and economic consequences wrought by a surprisingly resilient “ideology immune to facts and basic empirical refutation” (226).

By austerity, Blyth means a policy of voluntary deflation by means of reducing prices, wages, and spending so as to boost investor confidence and attract liquidity to the market. The idea that an economy can cut its way to growth turns on the claim that liquidity is the opposite of debt, and that the only way liquidity can be sustained is by contracting sources of expenditure and suppressing inflation. This might make good sense for balancing your personal monthly budget – more money needs to be coming in than going out – but it isn’t so tidy a conclusion at the macroeconomic level of interdependent national economies. One person’s debt is another person’s income, and where multiple economies pursue austerity measures at the same time the desired liquidity never materializes. Rather, it falls on states and international agencies to inject liquidity into a stagnating market where everyone cuts at once. If this sounds like a familiar dynamic, that’s because it describes the case of the European Union and the reason why, despite multiple bailouts and loans to member states like Greece, Spain, Italy, Ireland, and Portugal, economies continue contracting and unemployment rates keep rising. With a Eurozone “too big to bail” and a single currency leaving member states unable to either voluntarily devalue or inflate their way out of the downturn, the European Union provides a primary example of the dangerous political consequences of austerity as an idea and a policy. Austerity, however, is not an invention of the Eurozone and its consequences are not unique to the singlecurrency union. Blyth’s book moves back and forth between...

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