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Austerity
The History of a Dangerous Idea
Austerity (2013) cuts through the confusion behind our recent financial crises and reveals what really happens when economists call for a policy of austerity to be implemented. This is when budgets are cut, public funding is slashed and working-class families suffer so that banks can be saved and continue to make billions. Find out what’s really going on and who’s really being protected when your country gets pushed into austerity.
- Students of political science and economics
- Readers who want a better understanding of the recent banking crisis
- Activists fighting against the top 1 percent
Mark Blyth is a professor at Brown University, where he teaches Political Economy and is known for his criticism of austerity politics. He is also the author of Great Transformations: Economic Ideas and Institutional Change In the 20th Century.
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Austerity
The History of a Dangerous Idea
- Read in 12 minutes
- Audio & text available
- Contains 7 key ideas
Synopsis
Austerity (2013) cuts through the confusion behind our recent financial crises and reveals what really happens when economists call for a policy of austerity to be implemented. This is when budgets are cut, public funding is slashed and working-class families suffer so that banks can be saved and continue to make billions. Find out what’s really going on and who’s really being protected when your country gets pushed into austerity.
Key idea 1 of 7
Austerity weakens a country’s economy and it hits the lower classes hardest.
The recent financial crisis, which began in the United States back in 2007, hit Europe hard. Many nations are still struggling to recover, and there are some who think they know the best policy for getting the European economy back on track. This policy is called austerity.
Austerity, however, isn’t a one-size-fits-all solution. Though often effective when a single institution finds itself in crisis, it’s a dangerous policy when applied to a nation.
Austerity is the process of reducing spending by issuing budget cuts, the goal being to boost an economy’s competitiveness and inspire confidence in its businesses.
But we can already see evidence that austerity on a national level fails and weakens the economy, especially when it’s applied to multiple countries at once. Spain, Portugal, Greece, Italy and Ireland are all cases in point.
To understand why this is so harmful, imagine that your family has gone over budget. In such a situation, it makes sense to cut back on spending until things return to normal. But imagine that every household in the state did this at the same time. Money would cease flowing into local businesses, and stores and employers – burdened with expenses of their own – would begin to suffer.
To weather the tough times, businesses would need to take out loans and lines of credit, creating even more debt – debt that they’d be unable to pay off until the households in the state begin spending money again.
As you can see, this situation benefits no one – and it’s exactly the situation that austerity applied on a national level gives rise to: citizens spend less, the economy shrinks and debt grows.
Furthermore, it’s the members of the lower classes who get hit the hardest.
When budgets are cut, it invariably hurts welfare programs, unemployment benefits and the people who rely on social programs to get by.
In times of austerity, the average struggling worker always suffers more than the banker who caused the crisis.
Key ideas in this title
- Austerity weakens a country’s economy and it hits the lower classes hardest.
- There’s a long history showing that austerity fails to heal the economy.
- The recent economic crisis was the result of the US banking system and mortgage defaults.
- EU nations were already struggling, but they made their situation worse by bailing out the banks.
- Ireland has struggled under austerity, but Iceland has thrived after letting its banks go bust.
- There are viable alternatives to austerity that help the majority at the expense of the few.
- Final summary
