336: Austerity by Mark Blyth
336: Blyth, Mark. Austerity: The History of a Dangerous Idea. Oxford, UK: Oxford University Press, 2013. 197 pp. ISBN 978-0-19-989798-8.
- 300: Social Sciences
- 330: Economics
- 336: Public finance
My favorite thing about reading occurs when I do not understand a concept. I read a book about it and then, magically, knowledge appears. This is perhaps a clichéd notion, but it still makes me feel good about reading. By no stretch of the imagination will I be able to teach a course in economics after this one, but when I hear radio and news reports of the economic landscape, I should be able to follow them with a little more understanding. Mark Blyth’s Austerity is a book really about three related things: convoluted economic instruments and how their interrelatedness sparked the current global downturn, the history of austerity as a way to alter a country’s financial standing, and how the clarion call for austerity measures in economically weak European countries is perhaps the wrong thing to do.
Austerity is the measure by which a country endeavors to tighten its fiscal belt in order to reduce the amount of debt it’s carrying and show to the world that it is trying to become less deficit-heavy. Interestingly, there are two things happening here. One is an actual change in balance sheets in that the government has to decrease actual spending in order not to go into default. The other is a perceived change to induce other countries to trust in the future liquidity and investment possibilities of said austere state. After reading this book, I realized that economics is always a combination of these two forces—the real and the imagined.
Blyth’s history of the current financial crisis is surprisingly easy to read, even though he has to explain things like credit default swaps, mortgage-backed securities, and value at risk analysis. While he clearly has an agenda (and who doesn’t), his explanations have merit. Most of what happened in the real estate crisis had little to do with state spending and government debt. The only hand the government had in the downturn was the omission of rigid and exact regulation on new banking products. When banks bundled together what they thought were low-risk, low-volatility products, they actually created high-risk securities that blow up in their face.
Blyth’s parallel history of the idea of austerity is in many ways not as interesting, We get the standard Locke-Hume-Smith thread that seeks to endow every citizen with the opportunity to amass property and calls for the state to check its own immense power to remove that property from the citizen. The problem comes from the disconnect between lawmakers enacting austerity measures and how that will invariably affect the populace in a disproportionate manner. If everybody has to take a financial hit once measures are in place, it’s those who are lowest on the totem pole who will invariably feel it the most.
This book was astonishing in the amount of information it has to offer. I was fully prepared to be put to sleep by all the economic mumbo-jumbo, but following Blyth’s arguments and polemic against the use of austerity turned out to be quite interesting. The metaphors he uses for modern financial theories and instruments are apt and elegant. While this book will of course have its detractors and bring out age-old political arguments, the history of the idea is certainly worth a look—even if it’s because you’re trying to know thy enemy.