Mark Blyth, Austerity: The History of a Dangerous Idea
and John Authers, Europe's Financial Crisis: A Short Guide to How the Euro Fell Into Crisis and the Consequences for the World
recently announced EU bailout of the Republic of Cyprus had immediate
benefits, but not for ordinary Cypriots. The mainly German monetary
transfusion caused bounces in major world stock markets, while bond
dealers stopped their massive Cypriot money exodus. Banks that sank
depositor money into crazily risky Greek investments will remain afloat,
but the state must introduce “capital controls” so common citizens
can’t access their own money.
is a microcosm of the entire world economy since the banking crisis of
2007-2008. And it serves as an important cautionary tale about how we
might work going forward, because many of the controls the European
Central Bank imposed in Cyprus, Greece, and Spain perfectly mirror
controls already implemented in Britain, and which have been proposed in
America. And if we don’t understand the current economy, these controls
look surprisingly appealing.
cannot understand current economics if our horizons stop at national
borders. Financial journalist John Authers titles his latest book Europe’s Financial Crisis,
yet he leaves Europe for entire chapters, because the influences
jeopardizing the Eurozone have causes, and effects, in America, China,
Brazil, and elsewhere. Europe’s hybrid economy, rife with compromise,
couldn’t withstand transnational forces which had no known precedent.
we also mustn’t mistake how the crisis occurred. Political economist
Mark Blyth first notes that this financial crunch, like many others,
began when banks overleveraged themselves, then let the state backstop
their debt. In other words, ours is essentially a private-sector
collapse. Second, Blyth explicates the history of the idea that cutting
the state opens the economy—and what real consequences financial
austerity has had over the ages.
one economic explanation suffices. The common parables of capitalist
decay and moral failure don't explain how different firms and nations
took different hits. No, Blyth and Authers see a single effect with many
causes. This includes American investment banks blinded by fallacies of
composition, and European economies shackled with one currency but
seventeen fiscal policies. Blyth calls this "too big to fail" versus
"too big to bail."
Euro meant to bring Europe into a single integrated economy, but didn’t
address underlying gaps. Seventeen nations shared a currency, but did
not tie their fortunes together. Thus the Eurozone has one monetary
policy, but seventeen fiscal policies, meaning member states had no
autonomous recourse when financial markets did anything outside the
the European Central Bank, governed by fiscally conservative Germans,
saw Greece, Portugal, and Ireland in such dire straits, it demanded a
single fix, even though different economies had different problems. But
the ECB's mandatory austerity didn't work, so it demanded even more
austerity. Not surprisingly, this made a bad situation even worse. What
economists initially termed a "haircut" turned into a scalping.
desire to slash governments goes clear back to the late Seventeenth
Century, with the rise of early capitalism. But as Blyth notes, economic
circumstances differed then. England and America had only salutary
competition, and states were led by self-serving monarchs. When
competition became more fierce, firms needed governments to take a
coordinating hand. Laissez faire only works in limited circumstances.
in the Twentieth Century have states become big enough to cut. But when
nations do so, results have been disputable. Though capitalist purists
claim small states encourage trade, look at today’s Eurozone: massive
youth unemployment, skyrocketing debt, anarchic markets, and widespread
suffering. Cutting the state hurts most those who can absorb hardship
problems were exacerbated by transnational supply lines and Internet
banking. The global financiers who stuck money in Euro-American markets
while the sun shone moved their money posthaste at the first sign of
weakness. State-based financial policy proved unprepared for such
foundational surprises, and conventional remedies crumpled. This was
worsened by the fact that Eurozone nations can't print their own money
to control supplies.
books don’t make easy reading. Though Blyth and Authers translate
complex economic principles into plain English, they use a lot of ideas,
which readers must keep in mind indefinitely. These authors do their
best to remain accessible, and inject them with moments of unexpected
humor, but readers should prepare to invest a healthy chunk of time into
the reading process.
for those willing to make such an investment, they makes a complex case
regarding how we reached this impasse, and where we go from here. We
have to know the economy as it is, not as our ideologies make it. Only
then can we solve the economic bleed that puts us all at risk.
See also: High Noon For the Economic Assassins