The Logic and Impossibility of Austerity

This paper reviews the intellectual basis of austerity macroeconomics. We show that mainstream macroeconomics, because of its insistence on viewing the macroeconomy through the lens of general equilibrium methods, entails an analytical precommitment to austerity policy. This leaves economists who work within this framework without a robust basis for developing models and arguments that contest austerity policies. And since this approach has been the dominant framework in macroeconomic theory for the past three decades, professional opinion has not moved. New approaches, which model the macroeconomy as exhibiting disequilibrium dynamics and being prone to instability, are needed.