Visualizing the Nonsense of Fiscal Austerity
In a new short video, Mark Blyth breaks down the “nonsense” of fiscal austerity, now all the rage in governments across the globe. Austerity, while claiming to be virtuous, really “involves a question of equity: who pays and who doesn’t,” Blyth explains. “Like a unicorn with a magic bag of salt, it’s a nice idea,” he says, but in reality it’s baloney. Here’s why:
Before the crisis, everyone took on debt. Those at the bottom 40% of income distribution took it on to pay the bills, because after all they hadn’t seen a real wage increase since 1979, Blyth points out. The banks, on the other hand, levered up, which is like “going double or nothing in blackjack,” he says. They pushed in all those blackjack chips — but each was just an IOU, and when the whole thing crashed they became Too Big To Fail.
So the problem is debt, but not the way fiscal conservatives want you to think. Everyone, from corporate treasurers to single moms, will use any cash they have to pay down debt — not to spend. So public consumption — i.e. government spending — takes the place of private consumption. “All of these pieces are connected,” Blyth says. “If the public sector cleans its balance sheet at the same time as the private sector, then the whole economy craters.”
“Austerity: the pain after the party,” Blyth mimics. “But here’s the kicker: the hangover of austerity is not going to be felt the same across income distribution.” In fact, a cycle perpetuates wherein those with the lowest income keep bearing the brunt for those with the highest.