Austerity Is 'Complete Horsesh*t': Ivy League Prof Dismantles the Conservative Lie

[xchrom]

http://www.alternet.org/economy/austerity-complete-horsesht-ivy-league-prof-dismantles-conservative-lie



And this is why Brown University professor Mark Blyth’s book “Austerity: The History of a Dangerous Idea,” released in paperback last month, remains such necessary reading. Simultaneously functioning as an economics explainer, a merciless polemic, and a penetrating history, Blyth’s book offers a clear insight into austerity’s lineage, its theories, its champions and its failures. Recently, Salon spoke over the phone with Blyth about the book as well as the U.S. economy and the future of Europe. Our conversation is below and has been edited for clarity and length.

So, first off, I have to say that the book was a much funnier, feistier read than I’d expected, considering the subject.

[Laughs] I try to find the humor in death and gloom, yes.

In the introduction, you say austerity is an offensive canard. Can you tell me what you meant by that?

Canard, trope, truism, call it what you will. It’s one of those wonderful “well, it stands to reason that,” common-sense sort of tropes. The problem is, it fails because it’s not a common-sense argument. If there is a single insight that deserves the title of the key insight of macroeconomics, it’s the one that the whole is different from the sum of its parts. While it makes sense for anyone, family or firm or even state, to try and reduce its debts in order to grow better, if everybody tries it at the same time it becomes self-defeating. You need income from which to save, so if everybody tries to save at once nobody’s generating any income and therefore the project becomes self-defeating…
The common sense is, well, the more you cut the more you’ll be rewarded. No, I say the more you cut the more debt you end up with. That’s what I mean by being a canard, a trope. it’s one of those common-sensical things that seems to be true but just look at the evidence and you’ll find that the reverse is actually true.

Why is it something that you find offensive? What is it about austerity that you take personally?

Part of it is because what I think the financial crisis is best seen as — and we’re still dealing with the aftermath of it, whether we like it or not — is that there’s a class-specific put option. Let me explain what I mean by this: A put option is a contract that’s very common in finance where essentially someone is selling insurance and the other person is taking the income for payments. At some point, they get to basically cash in the put. One way to think about this is, Europe’s been expanding up to the borders of Russia and there’s a country called Ukraine, and, essentially, that means that Europe is writing a put option, which Ukraine has now decided to cash in. Which is why, basically, Europe’s now on the hook for all the crap that is Ukraine. That’s a put option contract.

[Turborama]

1. Excellent piece. Thank you for the share!

[xchrom]

2. ...

[djean111]

3. To be blunt (imagine that!), I think austerity gives the 1% and a lot of politicians a hard-on.

They know it causes misery and does not work. They love inflicting it, and love the profits to be made from it. They count on the profits to be made from it. Privatization makes them all warm inside.

[sendero]

4. Exactly....

..... it is about the privatization and other related asset stripping. Once in "austerity" mode, there is almost zero chance the economy can recover and bring about a situation that would actually help the debtor repay the debt.

They don't just want the debt repaid, they want everything of value.