Austerity:The History Of A Dangerous Idea

Mark Blyth wrote a book with the title of this post.  He traces the idea of austerity back to the development of liberal economics in England.  There was a tension within the movement from the beginning about the role of the state in the economy.  It was understood that the state played a critical role in the economy, but that if the state were allowed to become too powerful it could overwhelm the economy.  The latest version of that tension was developed by Austrian economists who believed that booms and busts in the credit cycle were responsible for the business cycle.  They believed that the state should not attempt to mitigate the recessions that followed credit booms.  It should step aside and allow the creditors to who made bad investments to be liquidated.  This review of Blyth's book provides a commentary on this history.  The comments that follow the review are very interesting.  The debate is between those who believe that economists, and their ideas, are responsible for the austerity policies that have been adopted in many western nations, and those who argue that powerful interest groups choose the ideas that they want to pursue for their own self interest.