Welcome Mark Blyth (Brown University, Watson Institute) (Foreign Affairs) (Audio Interview) and Host Robert Kuttner (The American Prospect, co-founder) (author, Debtor’s Prison: The Politics of Austerity Versus Possibility)
By now, it’s been thoroughly proven by events that austerity policies backfire. Cut public spending in a deep downturn, and you only worsen the slump. Europe is the more extreme version of the proof, but even the United States, which is technically out of recession, faces a needlessly slow recovery. We’ve reduced deficits by slashing spending, raising taxes, and making sequester deals, but the supposed reward in the form of restored business confidence never arrives. Austerity, as Mark Blyth writes, neither restores growth not reduces the debt ratio, because slow growth (and in some cases negative growth) makes the debt loom that much larger.
Mark Blyth’s fine book, Austerity: The History of a Dangerous Idea, adds detail, analysis and nuance to this story. He reminds us of what should be obvious: there may be some moments when some belt-tightening is needed, but “we can’t all tighten our belts at the same time” without driving the economy deeper into depression.
More importantly, Mark addresses the “Why?” question. Why is it that so many people still hold fast to the austerity cure, and why has it become so thoroughly lodged in both elite demands and popular conventional wisdom. In today’s forum, with Mark as protagonist, we’ll get deeper into these questions and answers.
Here are some, from Mark’s book:
One answer, which has been widely ignored or underplayed in other writing, is the need to recapitalize the big banks. As Mark observes, the financial collapse of 2007-08 not only crashed the system but revealed just how vulnerable and thinly capitalized the banks were. Austerity is partly a story of the self interest of the banks versus everyone else, and their continuing political influence despite their supposed disgrace. As Mark writes, “This is a banking crisis first and a sovereign debt crisis second.” His book explains an amazing sleight of hand. What was really a crisis of the banking sector was turned into a morality play about public spending, whose levels or sustainability had nothing to do with the crash or its aftermath. Mark also provides a very lucid explanation of how the shadow banking system actually works and why its extreme reliance on borrowing – debt! – led to the collapse and revealed a much deeper fragility in our financial system.
In perhaps the most original part of his book, Mark then turns to the history of austerity, both as an economic idea and as an intermittent and invariably perverse public policy. (I should say that when I first heard of Mark’s book, I got very nervous because I published a book around the same time critical of austerity titled Debtors Prison. But when I read his book, I was delighted that while we are anti-austerity soul-mates, we emphasized different things. I gave more play to the double standards in the treatment of private debt, via such measures as bankruptcy law. So you must read both books!)
His case studies of austerity as practiced by more than a dozen nations during several periods of the last century are instructive and original. The great exception of course was the United States during the New Deal and World War II.
Turning to the present crisis, Mark takes us on a very instructive tour of how the politics and perceived national self interest – perceived by elites, that is – led all of the major nations (except for a very brief Keynesian interlude in 2009) to conclude that austerity was in their self interest.
So I want to begin with a few questions for Mark and for our Salon.
As austerity has been proven to be a practical failure, have financial and policy elites learned any lessons. Or is the self-interest of the one percent so different from the rest of us that it makes sense for them to persist with a policy of bailouts for themselves, belt-tightening for everyone else, and bigger profits than ever?
Structurally, what are the differences between policy gridlock in the US and in Europe? Fiscal and monetary austerity, as you write, seems to work well enough for Germany, but the deflationary consequences are exported to Germany’s partners. We now have a German election coming up in which the Social-Democrats, if anything, are to Chancellor Merkel’s right when it comes to helping the rest of Europe or even changing Germany’s own course. Is there any way out of that box?
What happened to the democratic left? In Europe, center-left parties have been almost as complicit in austerity policies and in the deregulation of finance as center-right parties. Is this a case of Capital taking over all mainstream parties? Is it hegemonic ideology? Campaign finance (which is less important in Europe than in the US)?
Hearing myself talk, I wonder if the world has become more Marxian lately?
There is, as always, some heartening dissent in the academy, but you can hardly find it in mainstream electoral politics – Democrats are almost as austerian as Republicans. There’s a Socialist government in Paris that talks a good game, but the rules of the EU and the pressure of global financial markets on French sovereign debt (and the real weakness of the French banking system) prevent Francois Hollande from going his own way. Mitterrand, in the 1980s, had something of the same dilemma and against his own initial wishes became an austerian, but as finance has become more deregulated and more global, the problem is even worse today.
Has Maggie Thatcher been vindicated? Is there No Alternative?
What’s the Opposition program and where outside academia do we find its champions?
Mark, would you like to begin?
[As a courtesy to our guests, please keep comments to the book and be respectful of dissenting opinions. Please take other conversations to a previous thread. - bev]