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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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on 14 February 2014
Mark Blyth's "Austerity: The History of a Dangerous Idea" is an invaluable contribution to the debate on what direction policy should take post Credit-Crunch. In a civilised society, where ideas were debated on their merits and not on how useful they are to those with power and influence, it would minimally be a large part of the debate and in my opinion form the backdrop to a set of policies aimed at maintaining the welfare state, and bringing growth back to the economy.

Blyth includes the best short account of the credit crunch that I have read, and makes crystal clear where the sovereign debt came from: not over spending in the Public sector, but the costs of dealing with a massive private sector failure in the financial sector in terms of lost growth, bail-outs, and the rising welfare payments & tax shortfalls that accompany an economy which for the UK, in terms of GDP growth, has performed worse than it did during the Great Depression of 1929 onwards.

He looks at the theory behind the austerity idea and finds it to be somewhat threadbare, in short there is not much in the way of intellectual theory to back it up. It is more like a knee jerk reaction from central bankers (in particular the European Central Bank) and anti-state right wing politicians (among which one could include a substantial number of Labour politicians). What little theory there is, ie. the paper the Italian Alberto Alesina peddled at the ECOFIN meeting towards the end of the brief burst of Keynesian style expansion in 2008-09 is comprehensively debunked by Blyth for being decontextualized from actual political and economic events, and for setting time frames to produce results as favourable as possible for the pro-Austerity case. No matter, the media and the political right with their usual regard for facts, sang its praises to the sky!

As far as the "natural history" of Austerity goes, the record is miserable. Blyth makes the point that it only has a chance of working in a fairly narrow set of conditions, eg. one country does it in a context where neighbouring countries/trading partners economies are expanding, its not carried out in the middle of a recession, and its done gradually. None of these conditions apply, neither in the UK, the Eurozone (the main but by no means the main focus of Blyth's book) or the United States.

Austerity was also supposed to give the private sector the confidence to invest, on the basis that they knew public spending was being decreased and their future profits will thus not be highly taxed. But in the UK, according to even the Daily Torygraphs assistant editor Jeremy Warner: "UK corporates have cash sitting on their balance sheets of £754bn [2012 or 2 years into austerity], or around a half of annual GDP. These sums have doubled over the course of the past decade, with much of the growth having taken place during the financial crisis of the past four-and-a-half years." So much for that. Cameron/Clegg/Osborne now seem set on having another housing boom by insuring 15% of mortgages up to £600,000 thus reducing the deposits required from 20% to 5% of the house value. Doesn't seem particularly wise to me, or compatible with talk of rebalancing the economy, though not altogether different from Thatcher's policy of making consumer credit easier during the last bout of austerity during the early 1980's.

One alternative to Austerity which Blyth flags up, is to collect taxes. Richard Brooks (in his The Great Tax Robbery suggest that around £25bn could be raised not by introducing new taxes but in closing in on those who avoid taxes, and by closing loopholes with regard to existing taxes.

Overall this is an excellent book, that manages to be intellectually thorough as well as a well written, dryly witty, introduction to the arguments that is ideal for the general reader. Worth reading also on the subject (although their account of the credit crunch is confused and unsatisfactory) is Barry and Saville Kushner's Who Needs the Cuts?: Myths of the Economic Crisis which is particularly excellent on the media's handling of Austerity. On the tax side of the public finance equation Nicholas Shaxson's Treasure Islands: Tax Havens and the Men who Stole the World is priceless, as is Richard Brooks book cited above.
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on 19 April 2017
I picked this up after seeing Mark in a number of YouTube videos where he seemed articulate, clear headed, interesting, and most importantly; correct. So I came to this book with high expectations.

What I will say is that this is a very detailed historical account of a broad history surrounding the financial collapse and the context in which it occurred. Mark paints a clear picture, as I would have expected, that takes you easily through the events of interest.

Where I found myself disappointed was in how clearly biased Mark appears to be here regarding the 'authors' (so to speak) of the crash. Whilst his talks seem broadly (and I think correctly) critical of essentially all the institutions involved; here Mark seems to give several government actions a free pass.

Further more, there are several things that I can't help feel get characterised incorrectly, some of which I'll detail here. We have the issue characterised as a "black swan" which I think is clearly incorrect. Even characterising the crash purely in Mark's own terms this was not an unexpected event. In fact, it was the ONLY expected outcome. Regardless, I find "black swan"-arguments to be largely pointless where they are in fact correctly applied; how can you blame anyone for not predicting a truly unpredictable event? Secondly, his characterisations of particular views of markets expose clear biases I had not detected in his videos. Stating that certain theorists believed that markets would stay in "equilibrium", without boom and bust cycles, is simply flat out wrong. The differences in belief are typically more to do with frequency and magnitude. This is akin to suggesting that evolutionary theorists advocate that animals "evolve" once they reach final equilibrium in their "final" form. It's clear nonsense. Later still, Mark seems to put real weight behind the belief that wartime spending drives growth which, whilst argued by many Keynesian (or similar) economic theorists, is certainly not an accepted fact by any stretch. Rather more, it is the subject of quite some controversy.

All in all I actually found myself having to set the book down from time to time due to my disappointment and frustration with how clearly mischaracterised or misleading some sections are.

If you've come to this page for similar reasons to my initial ones then I'd say read the book. It's worth knowing more about the thoughts of an intellectual you enjoy listening too though they may detract from, rather than enhance, the image you have formed of them. Worth it either way in my opinion.
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on 18 August 2017
no probs
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on 19 May 2017
Superb, quick, no problems.
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on 11 September 2017
An excellent deconstruction of a very dangerous idea.
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TOP 500 REVIEWERon 8 March 2013
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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TOP 500 REVIEWERVINE VOICEon 16 August 2013
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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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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