Ep315 - Mark Blyth | Austerity: The History of a Dangerous Idea

Jan 27, 2023

Mark Blyth, a political economist, challenges the notion of austerity as a solution, highlighting its negative impact on economic growth. He discusses the origins of the financial crisis, European banks' risky behavior, historical perspectives on debt, and alternative economic strategies in countries like Ireland and Iceland.

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INSIGHT

Austerity Fails When Everyone Cuts Together

Austerity is ineffective when applied simultaneously across nations because all cutting reduces aggregate demand and shrinks the economy.
Blyth argues historical examples show simultaneous austerity deepened downturns, sometimes enabling extreme politics in the 1930s.

INSIGHT

Private Bank Losses Became Public Debt

The 2007–08 debt surge came mainly from converting private bank liabilities into public debt when governments bailed out banks.
Blyth cites T-bill shortages, repo market runs, and bailouts that pushed OECD tax revenues down ~30%, raising debt-to-GDP from ~61% to ~100%.

ANECDOTE

How Welfare Enabled Blyth's Social Mobility

Blyth recounts his upbringing as an orphan raised by his grandmother to show the welfare state enabled his social mobility.
He uses this personal story to reject the claim that welfare caused his rise and to motivate his critique of austerity.

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Author and political economist Mark Blyth visits Google to discuss his book "Austerity: The History of a Dangerous Idea." Politicians in both Europe and the United States have succeeded in casting government spending as reckless wastefulness that makes the economy worse. As a remedy, they have advanced a policy of draconian budget cuts--austerity--to solve the many financial crises of the early 21st century. Pro-austerity voices tell us that we have all lived beyond our means and now need to tighten our belts. But according to author Mark Blyth, this view conveniently forgets where all of that debt came from. Not from government spending, but as the direct result of bailing out, recapitalizing, and adding liquidity to the collapsing banking system. Through these actions private debt was remade into government debt, while those responsible for causing the crisis walked away scot free, placing the blame on the state, and the burden on the taxpayer. That burden now takes the form of a global turn to austerity, the policy of reducing government spending to restore competitiveness and balance the budget. The problem, according to Blyth, is that austerity is a very dangerous idea that he claims does not work. As the past four years and countless historical examples from the last 100 years show, while it makes sense for any one state to try and cut its way to growth, it simply cannot work when all states try it simultaneously: all we do is shrink the economy. In the worst case, austerity policies worsened the Great Depression and created the conditions for seizures of power by the forces responsible for the Second World War. Blyth argues that the arguments for austerity are tenuous and the evidence thin. Rather than expanding growth and opportunity, austerity has almost always led to low growth along with increases in income inequality. With his book, Blyth challenges conventional wisdom by marshaling an army of facts to demand that we recognize austerity for what it is, and what it costs us. Originally published in June of 2013.

Visit YouTube.com/TalksatGoogle to watch the video.