Mark Blyth’s Copenhagen lecture on ‘Austerity: The History of a Dangerous Idea’, audio recording available here.
The current on-going global financial crisis invited a reading of its inception that was based upon ‘runaway government spending’ that had to be tempered with a firm diet of austerity. The problem was that ‘runaway government spending’ – at least in the form of government debt – was an effect rather than a cause of the crisis. The actual cause, both in the US and the EU, lay in banking systems that were ‘too big to fail’ and ‘too big to bail’ respectively. While the US was able to delever and recapitalize its banks, the EU has not been able to do so, which has resulted in a continent-wide game of ‘extend and pretend’ regarding the balance sheets of European banks paid for by slashing the public budgets of Southern European sovereigns. Meanwhile those states that have cut the most have in fact seen their debts increase the most. Why then is such a self-defeating policy still so eagerly pursued. The History of a Dangerous Idea offers us a clue.