Austerity: The History of a Dangerous Idea Hardcover – 23 May 2013

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.

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.