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TOP 500 REVIEWERon 29 April 2014
If this book is representative of his other work, Mark Blyth possesses that rare quality in an economist of being able to distill the concepts of his field into an easy to read and comprehend format. In the current book he focuses on austerity, the poster child economic ideaof our post 2008 time and takes the reader on a journey of its intellectual / theoretical background, covers the factual support for its success from prior real life applications and finally offers both some conclusions on the likelihood of it succeeding, as well as on possible alternative futures.

As is apprent from the title, there is not a neoliberal bone in the author's body. While some may call him an unashamed Keynesian, he has the (to some) annoying characteristic of working both the economic literature and the real life factual examples down to the bottom line, which often leaves the austerity arguments severely wanting. He also clearly points out the redistribution aspects of the austerity message - and not in a Marxist manner - and how those affect the popularity of the policy.

The book is built up around several main facets. The first one being that the current predicament came about as a result of a banking crisis and not of public spending running amok (with the exception of Greece). This then led to the 'too big to fail' meme in the US and the consequent state bailout. In Europe some countries drew the same conclusion, however the banking sector is different - being accoridng to the author very much in the 'too big to bail' category. The moral hazard that played out is covered next - but make no mistake - the author by no means attacks the integrity or morality of bankers, just points out how the structure of the system encouraged certain behaviour, which turned out to be very counterproductive for society as a whole in the long run.

Following that the intellectual history of the austeriy idea is covered from Hume, Hobbes, Smith and Ricardo to the present day, with the Austrian school, the German ordoliberal thinking and the Bocconi support all getting appropriate air time. The author is openly critical of most of their approaches from both a theoretical and empirical point of view but makes a good case for a reasonable debate (as in not being uniformly and rabidly against on ideological grounds).

All the real life poster children for austerity working are examined next, including a short rerun of the austerity approaches in the post WW1 world (US, UK, Sweden, France, Germany and Japan being amongst the cases), the 1980s, where the standard cases of Ireland, Sweden, Denmark and Australia are examined and the currently popular Irish case and the REBLL alliance. As a counterpoint from today's world he brings the case of Iceland, a rare example of banks being allowed to fail and which alone amongst the examples has a truly positive development to show post crisis.

Where I find the book earns the last star is in the author doing an excellent job in distinguishing the cases, where austerity may work from those, where we only have rhetoric at play. Another reason for the high score in my opinion is that the author manages to pull off something of a Heilbroner (famous for his The Worldly Philosophers: The Lives, Times, and Ideas of the Great Economic Thinkers (Penguin Business Library)) here - namely ensuring that complex concepts are broken down to be both understandable to the regular reader, while at the same time not sounding inane to someone familiar with the topic.

The only slight fly in the ointment is the relative paucity of advice how alternative solutions could look like. Sure enough, the author presents some plausible next steps but these are nowhere as comprehensively covered as the subjects in the rest of the book.

Irrespective, this is a very important book and one would do well to read it and understand the consequences of where current policies are likely to lead the countries implementing the austerity mantra. Not perhaps for the hardcore neoliberal but thoughtful enough to let the other readers seriously reconsider the current path the world is following.
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on 30 May 2013
Mark Blyth delivers a masterful, blistering, devastating, and totally convincing critique of austerity. It's impossible to read this book and still believe that austerity is the right policy. Blyth writes engaging, powerful economic history of economies applying austerity, including the US, UK, Sweden, Germany, Japan and France in the 1920s and 1930s, Denmark and Ireland in the 1980s, and the Baltic states in 2008, demonstrating in each case that austerity does not work. It does not generate growth or reduce debt. He shows that the current hot spot crises in Greece, Spain, Ireland, Portugal and Italy are not due to profligate government expenditure, but to more differentiated specific factors. He makes the point that other economies cannot follow the German example of high savings and high exports, as the UK and EU seem to expect, since the whole world cannot be a net exporter.

He sets out the intellectual claim for austerity argued by the Bocconi University of Milan economists Alberto Alesina and Francesco Ardanga. Their core argument is that `when spending cuts are perceived as permanent, consumers anticipate a reduction in the tax burden and a permanent increase in their lifetime disposable income' (p172). Alesina delivered this diagnostic to the ECOFIN meeting in Madrid in 2010, labelled by Bloomberg as `Alesina's Hour'. The claim is very weak theoretically, and Blyth shows that the country economy data Alesina and Ardanga quote rejects rather than confirms their austerity hypothesis. So far, so good, in fact very good, and therefore 5 stars.

Blyth's weakness is that his diagnostic does not go far enough. He is content to prove that austerity doesn't work and then rather lamely propose forced government bonds and high tax as the alternative remedy. He places partial blame for the crisis on the Euro, which makes little sense, since the US and UK economies with sovereign currencies experienced exactly the same crisis. Beyond this he blames the banks, and claims that the taxpayer is paying for their errors. This is the well rehearsed standard view and is where Blyth needs to go further and dig deeper.

The missing diagnostic which he hints at, but doesn't develop, is that the crisis was caused by demand deficiency. In the UK economy between 2001 and 2007, real GDP grew by 19.5% but real disposable consumer income by only 11.5%. This is the gap that led to unsustainable consumer credit and government deficit. We need to ask why this gap arose, and what better remedy can apply. Rising productivity is bound to reduce the income element of output, reducing demand for the output supply. The only effective solution is a citizen income. Allied to this, a new understanding of money is needed. Blyth follows financial orthodoxy in insisting that money issued by government either has to be supported by gold, or if not, has to be matched by a debt incurred as a government bond sold to the market. Neither is true. Money is entirely virtual. To secure its value, it has to match output GDP, and that alone. The crisis has been funded by such virtual money and has not at all been charged to the taxpayer - the amounts involved render this impossible. Until we face the intellectual challenge of a virtual theory of money which delinks money from the issue of government bonds, we will be faced by the unsolvable crisis of insufficient demand which we regard as unfundable. As Blyth writes `postwar economics never put all that much thought into money' (p145). It's time to correct that oversight, because herein lies our mistake, and it's one which Blyth ultimately perpetuates.

Geoff Crocker
Author `A Managerial Philosophy of Technology' (Palgrave Macmillan 2012)
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on 4 April 2014
Blyth’s ‘Austerity: The History of a Dangerous Idea’ is a tremendously well-researched and well-written critique of austerity and the assortment of political and economic policies that it inevitably gives rise to. Blyth’s central thesis is that austerity is a dangerous idea since it is riddled with all sorts of internal contradictions and is easily prone to misapplication in practice. Moreover, he argues persuasively that, in its real-world application, austerity imposes a disproportionate burden on poorer households. The book itself is structured into three parts. In its first section, the book examines the current economic crises and fleshes out their causes and consequences. In so doing, Blyth provides us with a perspicuous account of recent economic history, which in turn enables us to better understand our current economic climate. Without going into the economics of the section, Blyth exposes the deeply mischievous manner in which ‘austerians’ have marketed what was essentially a private banking crisis into a sovereign crisis, insinuating ingeniously thereby that profligate national governments are to blame for our economic problems and not the financial elite who are as a result exonerated from the more serious wrong doing. In the second section of the book, Blyth reviews the intellectual history of the Austerity idea, from the Enlightenment to the present, and examines various historical attempts at its employment, concluding in the end that austerity economics have invariably failed to deliver by way of increased economic growth and increased competitiveness. In the final section of the book, Blyth, by way of conjecture, considers what would have happened if governments had not embraced the austerity agenda and concludes the book by offering his own proposals on how the economy and the financial sector in particular could be better managed. All in all, this is a fantastic book, lucid in style, trenchant in its analysis and persuasive in its critique.
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Right off the top, I liked Austerity, because it directed me to a Youtube video of the author giving a five minute summary of the book in his lovely Scottish accent, immersed in complementary animation that he seemed to direct with his hands. A great start, that made me read with his delivery in mind. Fortunately, his writing is as clear, direct and succinct as his speaking, so it made reading Austerity a pleasure. It added immeasurably to the total experience. Something more authors might consider to get into the heads of their readers.

Austerity (the book) seems to be a bunch of Keystone Kops in dark suits, madly running around accomplishing very little. They rationalize, they contradict themselves and their policies, they make the same dumb moves over and over, they make up incredible formulas that cannot work even in theory, they take down the economies of the world - and they blame their governments for the mess they leave. The result is bankers continuing to pay themselves obscenely, while governments are saddled with assumed banking debt and the ugly prospect of austerity, as Blyth puts it, that "constitutes the greatest bait and switch in human history."

Blyth proves repeatedly that austerity is "zombie economics" - no matter how many times it is disproved, it just keeps coming back for more. No amount of mere fact disconfirms a good ideology, he tells us.
He hammers the point that in essentially every national case except maybe Greece, government spending was not behind the current financial collapse. Government was not overspending, not creating inflation, not distorting the economy. It was the bankers doing that, with theories of efficient markets and off the books vehicles. When it blew up, government had to step in, and the private mess became public debt, with bankers walking away whole - again.

Blyth gives vibrant life to the chaos. Unfortunately, what he doesn't say is that austerity becomes self fulfilling, as people claim the state of the economy is a reflection of the crippling effect of national debt. Faced with this new burden of public-ized bank debt, everyone fears saddling their children with it, and only austerity can reduce the debt. This is doubly unfortunate, because as Blyth proves decisively, austerity actually increases debt, every time and everywhere it is applied.

I disagree with Blyth's acidic view of the euro. He says it is an "unmitigated disaster for everyone but the Germans," and spends a lot of space slamming it. But countries are lined up for years forward to get into the euro, because they see how well their neighbors are doing by it. Even now, countries jostle to get on the waiting list. Countries like Estonia and Slovakia have benefited mightily in just a few years; they could not possibly have done as well with their own insignificant currencies. The original euro members have only themselves to blame for running up deficits. Hardly the fault of the euro, though Blyth blames it instead of them. France's myopic (anti)industrial policy is at least as much to blame for its fiscal woes as anything Societé Generale or BNP did to load up on sovereigns (country bonds). Germany's greed with its surpluses reminds us of China, only the Germans are the good guys for most of us, so it's acceptable. Blyth also conveniently and completely omits the out and out fraud of both Italy and Greece in entering the euro in the first place. While he notes that Greece had not generated a surplus in 50 years, he doesn't relate how it was able to (magically) declare less than 3% deficit in order to qualify for entry. It repeatedly failed to qualify, until the last minute, when it suddenly turned out Greece's ducks were all in a row after all - a model student. Please. But the powers that be bought it, lock, stock and barrel. The same scenario played out for Italy. And in the intervening years, neither country did anything to reform and legitimize their accession. So fraud is why the euro was "an accident waiting to happen" as much as anything Blyth posits about regulations.

Furthermore, the American dollar is living proof of why the euro will survive and thrive. Despite all the crises, the budget deficits, the trade deficits, the debt, the mismanagement and the uncertainty, the dollar refuses to decline. And this despite the treasury printing possibly nine trillion new dollars to save the banks (which Blyth shows is money down the drain). The dollar has no intrinsic value; it is a fiat instrument, just like the euro. Normally, you could not print so very much money and not have it seriously affect the currency. But if all the major fiat currencies are dealing with these same factors, and they're all trying to devalue, they will all remain in place relative to each other. At least that's how it has been working this millennium. It's a confidence game, not a value play. As long as people believe in the euro, there will be value attached to the euro. And that's why the discredited concept "austerity" continues to survive. You can't stop it, much as Blyth wants to, because despite the theory and despite all the evidence, people still believe.

It's no secret the euro is flawed because of all the constraints it members shackled it with to emulate their wonderful old national systems. That is being undone slowly, with small concessions from Germany and workarounds by the ECB, for example. Eventually, the whole thing will have to rationalized, or this will happen again, and worse, just like financial crises in the US. I don't think there's any controversy there. But there's more than just the euro in economics:

Blyth is hypercritical - of everyone and everything. Independent central banks "spread like a rash all over the face of the planet" is a typical description. Hard to please, it seems, but entertaining in an otherwise dismal science.

Austerity the concept needs no more disproof than the IMF and the "economic hit men" who impose it on every developing country, despite its total failure wherever it is implemented. It's garden-variety hypocrisy, and it's global. Contradictions in terms like "expansionary austerity" don't seem to dull its blade either. It's a pesky fly you can swat at, but not kill. But Blyth tries. He beats it up, body slams it to the mat repeatedly and clubs it over the head with an (economic) anvil. He meticulously trashes every study that supports it. I particularly appreciated the point that central banks can offset contracting budget cuts by lowering interest rates, but in our situation of near zero rates, there can only be pain from deep cuts. So in case you missed it - austerity the concept never works. Basically, contractions beget contraction, and expansion begets expansions. Everything else is fantasy.

Austerity the book is an expression of great frustration. If it shows one thing, it's that no economic school or theory works. There is some aspect that fits in every situation, but nothing covers totally or perfectly. They have a hard enough time fitting the past and none of them has a prescription that will work going forward. As JK Galbraith said, the only reason for economic forecasts is to build credibility for astrology.

Unlike austerity the concept, Austerity the book is very rewarding.
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VINE VOICEon 1 September 2013
Format: Hardcover|Vine Customer Review of Free Product( What's this? )
One of the best overviews I've read concerning our current financial circumstance. Broadened so as to not only explain what's going on but how we arrived here, Blyth repeatedly addresses the reality of how (and why) a disaster caused by a private few - the financial markets -- was rebranded, to allow both the blame and the debt to be pinned on the greater public.... in other words, us.

In terms of narrative styling, Austerity is slightly more dense than a mainstream read, but far less stuffy or pedantic than the vast majority of academic essays that pass for contemporary investigation these days. In Blyth's hands, a veritable history of our modern world emerges; one in which the micro and macro are explained clearly but above all relatively simply. The overall narrative is broken down into blocks of a few pages each; thus, Austerity is a book that can be read in stages, and the overall weight of information and financial/political jargon never overwhelms.

If you ever doubted the base connection between politicians and money-makers, you should read Austerity. Because, as Blyth argues by way of showing how we're doomed to further (potentially more ruinous) recessions, the drip-erosion of supply side economics and its infection of mainstream political rhetoric, is one huge justification for a system which is, in basic terms, as assured as the Emperor's New Clothes. For, as Austerity proves along the way, the financial services, in their race to conjure profits out of little more than zeroes and ones, have erected a system so atomically complex, nobody - not the people who use it, nor, more worryingly, politicians -- can ever be expected to understand the whole picture at any one time.

Thus, avoiding icebergs can only ever be a case of luck rather than political judgement. (Hence the recurring recessions we now experience every decade.) And if the financial industry is granted, via free market ideology, absolute freedom in return for only ever telling politicians what they want to hear, the true depth of potential for crises is a problem we're destined to keep experiencing over and over again.

Read this and weep - for it actually happened, and on the strength of Blyth's argument, it'll happen again... and again... and again.

Highly recommended for anyone with more than a passing interest in our 21st century state.
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on 9 October 2015
superb analysis of austerity. Written in a way that allows different readers to access different levels of detailed information. Worst it alone for the first chapter which gives an introductory (but not dumbed down) analysis of the financial crisis and its causes. Later chapters give specific analysis of the financial crash in different regions, going on to examine the history of austerity at different times. I'm a non-economist but am able to get a handle on some of detail through Blyth's clear writing style.
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on 8 November 2015
If you wish to understand why intelligent people and politicians prattle nonsense like 'we must live within our means' this is the book to read.
If you wish to understand how the costs of the lunacy known as the 2007/8 banking crisis are being distributed throughout modern democracies this is the book to read.
'Something is rotten in the state of Denmark/Britain/France/Germany/US...' as Shakespeare said with such foresight.
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Mark Blyth is an unashamed Keynesian with a irritating habit for talking good sense and highlighting that facts are stubborn things. His new book "Austerity" examines such programmes going back to the Gold Standard in the 1920s and historically demolishes the arguments of the austerity crowd including sadly the current ventriloquist dummy act being perpetuated by the two Ed's in the "Labour Party". He demonstrates the that "folklore" quality of the austerity movement central thesis is fatally flawed in a surprisingly accessible and jargon free book that postulates that the history of this theory rests on a foundation of sand. Let us start at first principles. Blyth helpfully reminds us that the current economic malady is not the fault of countries, public sector workers or any other of the usual scapegoats. As he states "only in Greece is the profligacy story possible". What is the case is that the blame squarely lies at the feet of the global banking system albeit with politicians seduced into believing that the bubble they tolerated (and failed to properly regulate) had abolished boom and bust. Blyth alternatively views what has happened in the past 5 years as a classic example of bait and switch. As he states " you build a business model around being too big to fail, which is essentially a free insurance and an extortion racket. And then when that goes bang you hand all that to the state. And the state puts it on its balance sheet. You get bailed out. And then you turn around to the state and say, my goodness, look at all that debt. That's terrible. We've been spending like drunken sailors. Now we need to cut it back".

The orthodoxy Blyth attacks was keenly articulated in the now infamous essay "Growth in a Time of Debt," by the Harvard economists Carmen Reinhart and Kenneth Rogoff. This acquired touchstone status in the debate over economic policy. This purported to show that countries with high levels of debt--specifically, those with debt-to-G.D.P. ratios of more than ninety per cent--grow much more slowly. This proposition was music to the ears of neo conservatives like Rep. Paul Ryan to the Chancellor George Osborne, to justify harsh belt-tightening programs despite deep, widespread economic pain in the U.S., U.K. and Europe. The problem with the Reinoff and Rogoff paper is that it contained figures which were completely wrong (proving Microsoft Excel can be as problematic as Powerpoint) which has led its two main proponents to row back so furiously on their thesis that they ought to sponsor the Henley regatta with their ill gotten gains. It was Maynard Keynes who once argued, "the boom, not the slump, is the right time for austerity" and Blyth takes this argument as his basic template. He painstakingly shows that the pedigree of austerity as an idea puts it firmly in the mongrel camp. Fundamentally in these days when equity is a dirty word he argues that tax distribution is at the heart of solving our problems and that in terms of pure conjecture he questions whether propping out the business investment model of banking a wise strategy. As he provocatively argues when you take the tale of fiscal adjustment in two countries; Iceland and Ireland, one "let the banks fails and is now doing really quite well... the other bailed them out and has condemned itself to a generation of misery because of it". Blyth's view of the Euro is equally stinging as "an unmitigated disaster for everyone but the Germans". There economic strength based on high quality manufacturing and people actually saving money rather than playing "roulette" property speculation, leads them to demand uber austerity from the PIIGs (Portugal, Ireland, Italy and Greece) which has led to mass unemployment, social disorder and images of decent Northern Europeans bailing out profligate, work-shy southerners. The real story is more complex. One study, by German insurance giant Allianz, has calculated that Berlin saved 10.2 billion euros in 2010-2012 because of lower borrowing costs, as yields on its 10-year bonds fell from 3.39 percent to 1.18 percent now. The other study, by Jens Boysen-Hogrefe of the IfW economic institute, suggests that the German federal budget saved 8.6 billion euros in 2011 due to low ECB interest rates and the safe-haven impact of investors putting money into Germany. Indeed it has been argued in Germany that if they were to return to the old Deutschmark, its annual GDP would be 0.5 points lower between 2013 and 2025, resulting in a loss of 1.2 trillion euros over the 13 years - half the size of the German economy in 2012. No one argues that some of the Southern economies recklessness bordered on lunacy (a bit like the British banking sector) but at the end of the day driving an economic minnow like into Greece into near bankruptcy with a contraction over the past four years of 25% and unemployment rising to a staggering 27-½ percent of the labour force, is far from Europe's finest hour.

Blyth's book does suffer some over generalisations and his solutions are much weaker than his analysis. Yet here in all its gory details is a major critique of "the state we are in" where we celebrate anaemic 0.6% growth like we are out of the woods. But let us remember that of this figure broken down into regions most of England had contraction in the range of 5-7% whereas London's figure was +12% with some other prosperous areas similar. There remains a tough journey ahead, but using austerity as the vehicle to travel this as Blyth convincingly argues is jumping on the wrong bus.
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Format: Hardcover|Vine Customer Review of Free Product( What's this? )
We've been told that Public Sector profligacy and Government Interference caused the 2008 crisis, and that the regulators should leave the market to look after itself. We've been told that the events that caused the Crisis were so rare they were "Black Swan" events, so rare that they would happen only three times in the whole history of the universe. And we've been told that the only solution is to cut government spending and cut government.
Mark Blyth examines this more closely. He writes brilliantly and clearly, yet for the interested (and generally cynical) person, he backs it up with scholarship and expert opinion. All you see in the text are little end-note markers so the text is easy to read.
A Black Swan event, named after the book of this name by Nissam Taleb, is neither rare nor unpredictable. Taleb forecast the Crisis in 2006, showing that the models the banks, traders, salespeople and regulators were using were fatally flawed. He compared it to centuries of Europeans who observed that all swans are white, and therefore predict that all swans will always be white. Then Europeans went to Australia, and found that there are lots of black swans there - they were foolish to assume that black swans didn't exist.
According to Blyth's presentation, the Crisis was caused by four factors which, accelerated by a number of other factors, rest on a wilful ignorance on the part of people who wanted to believe that the stock market and every other asset would always keep going up. Perhaps they knew the flaws of their assumption and wanted to hoodwink you and I into giving them our money. Perhaps they really were blind to the obvious. The result was the same - the crisis is entirely down to the models used to predict the market (as it turns out, wrongly), and nothing to do with public sector profligacy or government interference.
So if government isn't to blame, why is government picking up the pieces? Because those clever people in the banks, those brightest of the bright who could be better employed inventing new things or making production methods more efficient, realised that they could make the taxpayer bail them out simply by making themselves and their debts too big to fail. But I'm describing the book. There's no substitute for reading it yourself - it really is brilliantly written!
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on 6 March 2016
Clear, objective and highly structured basis for a the strong views presented. A fundamental read for anyone trying to understand today's European economical / political context.
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