September 29, 2011
As governments around the world enact deep spending cuts in to diminish their debt, people are taking to the streets. Protests against austerity measures are commonplace, particularly in Europe, where many countries have already tightened their belts – and now the European Commission is asking governments to do even more.
But is austerity a “dangerous idea?” Institute Faculty Fellow Mark Blyth thinks so, and, appearing on Australian radio in late September, he explained why.
“The problem with austerity is it comes into a big clash with democracy,” Blyth said, “because at the end of the day you have to justify why people are getting less when perhaps the blame for the crisis lies with someone who's still getting more.”
Speaking on ABC Radio National, Blyth said austerity “doesn’t work most of the time,” pointing to historical evidence that the “negative cases vastly outweigh the positive ones.”
Blyth appeared with British historian David Kynaston and Leonid Petrov, a lecturer at the University of Sydney.
Blyth’s forthcoming book, Austerity: The History of a Dangerous Idea, will investigate the return to prominence of the idea of a financial orthodoxy following the global financial crisis.
On the radio program, Blyth said austerity measures are a “dangerous idea” because they “try to combine two ideas that are mutually exclusive.”
“You can't cure debt with debt,” he said. “Therefore, you have to cut the debt.”
But the problem, Blyth said, is that “you can’t all cut your way to growth at once.”
“For someone to be saving, someone has to be spending, or you simply shrink the economy overall,” he said. “You get caught into this vicious cycle.”
Blyth went on to say the markets “want two contradictory things.”
“They want fiscal consolidation and growth,” he said. “And while that may in certain circumstances work on an individual basis, it simply doesn't work if everybody's doing it at once.”
“It's a dilemma. It's a problem,” Blyth concluded. “We need to be creative in thinking our way out of this.”
“In the United States' case it's really quite simple: raise your taxes,” he said. “But nobody wants to listen to that.”
By Watson Institute Student Rapporteur Lauren Fedor ’12