The Austerity Delusion:
Why a Bad Idea Won Over the West
Mark Blyth
[Reprinted from
Foreign Affairs, May-June 2013 Issue]
MARK BLYTH is Professor of International Political
Economy at Brown University. His most recent book is
Austerity-The-History-Dangerous-Idea Oxford University Press, 2013),
from which this essay is adapted.
Unable to take constructive action toward any common end, the U.S.
Congress has recently been reduced to playing an ongoing game of
chicken with the American economy. The debt-ceiling debacle gave way
to the âfiscal cliff,â which
morphed into the across-the-board cuts in military and discretionary
spending known as âsequestration.â
Whatever happens next on the tax front, further cuts in spending seem
likely. And so a modified form of the austerity that has characterized
policymaking in Europe since 2010 is coming to the United States as
well; the only questions are how big the hit will end up being and who
will bear the brunt. What makes all this so absurd is that the
European experience has shown yet again why joining the austerity club
is exactly the wrong thing for a struggling economy to do.
The eurozone countries, the United Kingdom, and the Baltic states
have volunteered as subjects in a grand experiment that aims to find
out if it is possible for an economically stagnant country to cut its
way to prosperity. Austerity -- the deliberate deflation of domestic
wages and prices through cuts to public spending -- is designed to
reduce a stateâs debts and deficits, increase its
economic competitiveness, and restore what is vaguely referred to as âbusiness
confidence.â The last point is key: advocates of
austerity believe that slashing spending spurs private investment,
since it signals that the government will neither be crowding out the
market for investment with its own stimulus efforts nor be adding to
its debt burden. Consumers and producers, the argument goes, will feel
confident about the future and will spend more, allowing the economy
to grow again.
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