by Kelechi Okoye-Ahaneku
Austerity’s Dangerous Lesson
Mark Blyth asserts that the
interwar period taught us some valuable lessons about why austerity does not
work a why its application is a dangerous idea. First point Blyth makes is that
building an entire international monetary order with an inherent deflationary
bias that can’t work in a democracy is a bad idea, number one. The second point
is that if doing the same thing over and over again while expecting different
results is the definition of madness, then repeated rounds of austerity is
country after country was madness. Nothing really good came out
of it.
As Blyth depicts only from a few short-term expansions in the early 1920’s,
when countries were not on gold, but not only did the application of austerity
not work, it made the depression deeper, longer and arguably laid the
foundations for the war that would engulf the world in the 1940’s. Blyth seems
to show the accumulative effect of austerity on not just national economies but
the overall global economy and how that affects the political landscape.
Blyth also points out that
the US liquidationist doctrine continued after the Wall Street crash, turning a
series of bank failures and a relatively minor budget deficit into a full-blown
financial crisis and depression that abated only when austerity ended. The repercussions felt by using
the policy of austerity are nothing short of astronomical. British instantly
generated a million unemployed and a slump that persisted until the end of the
1930’s. In regards to Germany, in the late 1920’s, austerity was applied to
keep the country on gold which had the effect of throwing the economy off the
proverbial cliff. The Social Democrats in Germany was seen to be more orthodox
than its liberal opponents. This resulted in a cross-party austerity that held
the doors of power open and the Nazi’s walked right through them. Japan also
underwent several rounds of deliberate deflation to get back on gold that was
to prove utterly futile. In the process they annoyed their own military so much
that it saw the assassination of key members of the financial elite and forced a
reflation of the economy far greater than the Swedes or the Germans ever
managed.
Finally, Blyth highlights that France remained on the gold standard
longer than anyone else and ended up, arguably suffering the most out of all
the nations in the period. France ceased to exist as an independent nation.
French financial elites were so afraid of inflation, and were so determined to
maintain the value of the franc, that they paralyzed France’s military ability
to mobilize against Hitler. Austerity didn’t just fail it helped to blow up the
world. It’s a domino effect that can have close to cataclysmic results. In Mark Blyth's eyes, that’s the very definition of a very dangerous idea. Blyth
mentions and tries to understand why we have forgotten the lessons of austerity,
well the last 30 years of neoliberal ideas chipping away at our perceptions of
the 1930’s was certainly a part of it.
Blyth also asserts that this
new economic instruction sheet not only denied such an interpretation of
possible events. The neoliberal rule book even presupposed that the opposite
was true that austerity leads to growth and that the slump, not the boom is the
time to cut.
This is an dangerous rule and
notion to follow as we have seen in the past 100 years how dangerous an idea
that is and what it can become. Austerity if not used well, can be a dangerous
idea.
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