I just got around to reading Mark Blyth’s Austerity: the History of a Dangerous Idea. It is something of a revelation because it puts the modern economic debate into historical perspective. He starts way back at John Locke and his fear of the tyrannical state. Then he moves on to Hume and Smith who built on his ideas. John Stuart Mill managed to find the problem with where these guys were going in the land of fairies and elves known as libertarianism. But no one really paid much attention to Mill as the story unfolds.
All along the course of this thinking that leads to the modern proponents of austerity, there are a lot of good ideas. And many of the fears are justified. A good example is the Freiburg liberals in Germany during the 1920s. They claimed that the economic problems were based upon the fact that the legal system was corrupted by the use of private economic power. This has long been one of the linchpins of my argument against libertarianism and other forms of free market fundamentalism.
But as much as I get the thinkers who brought us to today, I still scratch my head over how the austerians can continue to think that the economy is driven from the wealthy on down. If there are not consumers with money it absolutely doesn’t matter how much or how cheaply stuff can be produced. The economy is driven by demand. It’s also interesting that these same people talk about the power of the government, but don’t seem concerned about private economic power. They also have a kind of “control economy” philosophy where instead of the government in control (as is the case in communism), it is the “job creators” who are in control. Any reasonable observer would be concerned about public and private power.
Blyth shows in sometimes exhausting detail that austerity is not only morally wrong but that it simply doesn’t work as it claims to. Although he maintains a fairly objective tone throughout the book, he comes out swinging in the conclusion:
This book has examined the case for austerity as both a sensible economic policy and as a coherent set of economic ideas, and it has found austerity to be lacking in both respects. Austerity doesn’t work. Period.
In the last part of the book, he predicts the way forward. He thinks we are going to get higher taxes on the rich and that the recent Fiscal Cliff deal is just the beginning:
So we are talking taxes, which no one likes. But since I found out that in 2010 I paid more taxes than the General Electric Corporation—really, I did, and so did you—I’m willing to give financial repression a chance. Yes, it will greatly limit my opportunities to buy and trade exotic derviatives and engage in international financial arbitrage games, but you know what? I’m willing to give it up. After thirty years of all the gains and all the tax cuts going to the people who brought us the bubble, payback is coming. Not because of Occupy Wall Street and not because of my personal preferences, but because it’s so much easier and more effective to do than it is to enforce self-defeating austerity that it’s bound to happen.
He continues to explain why it is right to tax the rich:
But there is plenty of room to tax the top because of the bailouts. It’s the gift that keeps on giving. After the 1929 crash income inequality and financial-sector pay declined sharply relative to ordinary earnings, but this time they did not, so taxing now is simply taking the bailout back to the taxpayer. This idea does not just resonate with progressive circles in the United States.
That’s an argument that I’ve long been making. We have had a governing infrastructure that rewarded the rich exclusively over the past 35 years. While we’ve enacted laws that have made the rich richer, we have also asked them to pay less and less in taxes. It is time to reverse that. Raising taxes on the rich is not a question of class warfare. It is a question of class survival. And truly, the rich should understand that better than anyone.
I’m going to have to read Austerity: the History of a Dangerous Idea a second time to get clear on all the economic movements. A lot of the material was brand new to me. But even with the one go, I learned a lot. Plus it was a pleasant read. At his best, Blyth is an amusing and breezy writer. And for anyone who wants to know how we got to such dysfunctional economic policy, it is a must read.