At The New Republic, Ruy Teixeira reviews two books challenging the conventional conservative wisdom about austerity as an economic policy: Austerity: The History of a Dangerous Idea by Mark Blyth and The Body Economic: Why Austerity Kills, by epidemiologists David Stuckler and Sanjay Basu.
It is not just in conservative circles that the austerity idea remains strong. The idea also has significant purchase in progressive circles. For example, in Germany, while the social democrats offer some criticisms of austerity, their standard-bearer in the coming election, Peer Steinbruck, played a key role in undermining the brief period of Keynesian ascendancy and re-establishing the hegemony of austerity economics. Steinbruck is a particularly appalling example, but the ranks of European social democrats are full of politicians who subscribe to some variant of austerity economics or at least find it expedient not to oppose it.
Here in the U.S., of course, the Democratic Party has many prominent politicians and supporters who embrace a sort of “soft” austerity economics and fixate on bringing down the national debt. Indeed, the most prominent Democrat of them all, President Obama, now seems more pre-occupied with striking a grand bargain to cut the national debt further than with solving the far more important—and pressing—problem of growth and jobs.
Turning to the question of whether the austerity doctrine actually makes any sense, Blyth does a real service by meticulously reviewing the empirical record from the early twentieth century to the present day. He covers both the economic history of countries where austerity was applied and the academic literature that purports to show its effectiveness. The review turns up dozens of examples of the abject failure of austerity economics from the 1920s and 1930s—the examples that led Keynes to formulate his famous theories—to the recent attempts to apply austerity in Europe, whose dire anti-growth effects we are currently observing. Counter-examples are few and far between. As for the academic literature, it is and has been long on theory and short on solid empirical evidence, as Blyth convincingly demonstrates.
*For those who missed the 1960s pop reference, see here.