Austerity: The History of a Dangerous Idea

Austerity: The History of a Dangerous Idea. Mark Blyth. Oxford: Oxford University Press, 2013.

Political theorists have long made the connection between politics and emotion. Plato, in his Republic, recognized both greed and anger as a central problem of political life. Early modern thinkers, like Machiavelli and Hobbes, recognized the importance of fear in political life.  Modern thinkers, like David Hume, Adam Smith, and John Stuart Mill wrote extensively about the passions. Only dreamers, like Francis Bacon and Rene Descartes, thought emotions could be bracketed such that political life might finally be rational. For a while, with their rational choice theory, economists also thought they might describe human behavior devoid of emotions, but this has also proved a dream.

In Austerity: The History of a Dangerous Idea, Mark Blyth makes little effort to bracket his emotions regarding his topic. Appealing to our emotions, austerity is “dangerous nonsense.” In other words, we should be fearful of this idea. Expressing anger, he tells us that “austerity as growth” is nothing more than “bullshit” (x) for both material and ideological reasons. Moreover, there is little doubt about Blyth’s moral and normative commitments—austerity he tells us, is not only bad economics, it is also “unfair.” Pity, it seems, should also inform our economic analysis.

The point is that after beginning his narrative with appeals to fear, anger, and pity, Blyth tells us that he worries economics, especially discussions of debt, might “take the form of a morality play” (12). As he puts it, “we have turned the politics of debt into a morality play, one that has shifted the blame from the banks to the state. Austerity is the penance—the virtuous pain after the immoral party—except it is not going to be a diet of pain that we shall all share. Few of us were invited to the party, but we are all being asked to pay the bill” (13).  Blyth, it seems, is creating his own morality play that centers on a certain political “immorality”—austerity is merely a seductive trope that “enables conservatives to try (once more) to run the detested welfare state of town” (10). In the same scene, he points a finger and says “Populism, nationalism, and calls for the return of ‘God and gold’ in equal doses are what unequal austerity generates, and no one, not even those at the top, benefits” (15). This, we know, is patently false. Those at the top always seem to benefit, be it the economic elite or politicians seeking re-election. Blyth knows this well; it forms the core of his “Keynesianism-as-fairness” argument.

This said, Blyth’s normative commitment to welfare politics seem to inspire his dogged effort to dissociate the financial crisis with the moral failings of politicians. For example, we get perplexing statements like this: “you can blame regulators for being lax or negligent and politicians for caving to banking interest all you like, but this was a quintessentially private sector crisis, and it was precisely how you get a multibillion dollar financial panic from a bunch of defaulting mortgages” (26). Yet, we know these “bunch of defaulting mortgages” were central to the crisis. Some bad mortgages were certainly made by private sector lending, but the vast majority of them were backed by the GSE’s. It was the GSE’s, by order of whoever happened to be in the Oval Office, who ultimately filled the mortgage backed security world with “shitty” mortgages.  By giving easy credit to anyone who wanted, by allowing anyone who accumulated equity in a home to refinance, it was the GSE’s, and by extension, particular people with particular moral failings, in the public sector, to fill the private sector with what Blyth dismisses as “a bunch of defaulting mortgages” (26).  Blyth, I would suggest, thus misses the mark when he claims “the moral failings of individuals are irrelevant for understanding both why the financial crisis in the United States happened and why austerity is now perceived as the only possible response, especially in Europe” (25). Political economists, like political theorists, might themselves benefit from an affective turn.

With an affective turn, Blyth might reconsider his claim that it was merely a failing of probability theory that created the crisis and would not then leap to the conclusion that “none of this has anything to do with the state’s spending habits or individual morality” (37). After all, just a few pages earlier Blyth outlines how the greed of financiers was sated by batches of securities that were “increasingly made up of NINJA (no income, no job, no assets) mortgages collateralized by the eBay earnings or bar tips of the new mortgager, or by purely fabricated income statements and robo-signed paperwork” (29). In other words, the financial crisis was begotten precisely from the failures of individual morality—unless Blyth considers lying, fraud, profligacy, and shortsightedness, to be outside the realm of individual morality. If we keep in mind that leading up to the crisis the single greatest predictor of mortgage default was repeated refinancing, even more can be said about the failure of individual morality. It is not surprising that people who treat their homes as an ATM, withdrawing growing equity to spend on boats and cruises were also most likely to default. Bankers who encouraged borrowers to commit fraud were surely guilty of some moral failing. Bankers who committed outright fraud, lying about the quality of loans included in their mortgage-backed securities, were surely suffering some sort of moral failing.

When Blyth puts his argument in economic terms, there is little to dispute and this book is no doubt worth reading. I have no inclination to contest the raw economics of Keynesianism and the particulars thereof. For instance, he argues that austerity economics makes the bottom 40% pay the debts of the banks, which is probably true. When he argues that austerity does not lead to growth, this too is probably true. But as Blyth demonstrates, political economy is a morality play, and political economists might do well to address this. While austerity might hurt individuals, it is the collective view of, and response to, these policies that needs to be considered. As Kathy Cramer’s recent book, The Politics of Resentment, demonstrates, it is those insulated from the downside of global economics—the wealthy and unionized government workers themselves—towards whom resentment is aimed. In other words, while economists are now considering emotions of individual decision-making (microaffect) they might be well served by considering what I call “macroaffect.”

When Blyth says we all lose with austerity because we have to take a pay cut, he is not speaking to macroaffect. Generally speaking, cuts are made to those being paid by the state—most of the time, it is the government employee, say, a professor teaching at the University of Wisconsin. Sometimes, it is the welfare recipient; sometimes it is the veteran who cannot get medical service at the VA. The CEO’s of Fanny Mae and Goldman Sachs, however, still get their bonuses. People know this. This is what both Trump and Sanders supporters felt in the recent election: resentment and anger. The election of 2016 spoke to the macroaffect inextricably bound up with the combination of politics and economics, which can only be separated in a dream world. Factually correct or not, the people feel that banker and hedge fund managers benefit most from the abstract system. Bankers, the international system, GDP’s, “growth” all benefit from the system, be it austere or prodigal. Everyone, it seems, benefits except the woman who used to work at the GMC plant in Janesville, Wisconsin.  That plant, which built Cadillac Escalades, was mostly closed in December 2008 and finally mothballed in 2009. The workers, after having their homes foreclosed on, have had plenty of time on their hands to watch movies. In 2015, they watched The Big Short and have a general sense that everybody, except for the middle class, benefits from the system. Hillary Clinton, from behind the closed doors of Goldman Sachs, called them deplorable, which stoked macroaffect. Too bad they won’t be building Escalades any time soon again.

In the European case, we need only think of a recent joke: A Portuguese, a Spaniard, and a Greek go into a whorehouse. Who pays? Of course—the Germans. In other words, it’s macroaffect all the way down. Call it resentment, call it selfishness, call it a sense of injustice, call it “ordoliberalism,” call it whatever you want, it is a morality play, and there is no escaping it. Germans, as we learned in the middle of the last century, are only willing to suffer humiliation for so long.  Thus, while Keynesianism as an economic theory works, the problem, as Blyth points out, is democracy (155-6). When democratically elected politicians make economic policy, the neoliberals tell us, they must be attentive to the desires of voters. For Blyth this means that economic policy is subordinated to “elected officials seeking to maximize votes” (155) and that “elections determine the content of economic policy making” (156). For Blyth, these are “pathologies that are endemic to democracy” and something “must be done to save the liberal economy from the destructive forces of democracy” (156). Fortunately for Germans and former assemblers of Escalades, Blyth concedes that although “banning democracy would be effective,” it would also “be unpopular”. Fortunately for political economists, he tells us, there is salvation in a second best solution—an unelected body, a gift of the ordoliberals: the central banks (155). Presumably, the men and women directing the central banks will be immune to the morality play that Blyth derisively dismisses. But would that this were so.

Hayek, we should recall, regarded emotions as a) residue from primordial, tribal, communal, small herd society, and b) thought that emotions, generally speaking, lead to the desire to direct society toward a specific end, i.e. social justice and central planning. It is difficult to imagine technocrats in a central bank operating outside the morality play that is political economy. But more importantly, it is difficult to imagine central banks being guided by emotionless, apolitical individuals. As Blyth has amply demonstrated, even a clear-eyed Keynesian political economist brings his or her normative commitments to the table. Non-casual readers of David Hume know his thinking about debt is bound up with his thinking on the human passions (Hanley 2016; Merrill 2015). Non-casual readers of Adam Smith know well that his Theory of Moral Sentiments is the more important part of his oeuvre (Hanley 2009). A central bank, populated by Keynesians, will no more be excused from the grand morality play of political economy than conservatives trying to undermine the welfare state in the name of austerity. It is the Keynesians, after all, who, in good times, are going to have to look voters in the eye and say, “We’re cutting your benefits. The economy is flush, so go get a job—just don’t look for one on an infrastructure project.” Nobody does this, and this is the basic and inescapable macroaffective barrier to functioning Keynesian economics. As such, the Keynesian cycle is: spend in down times, then genuflect before the altar of growth and GDP data in good times (Stiglitz, Sen, and Fitoussi 2010). The only other alternative, as Blyth concludes, is an even more vexing morality play: taxation. As he puts it, “This is how we are going to deal with our debts—through taxes, not through austerity” (244). While this might work with passive citizens in Scotland and Canada, macroaffective politics are different in America. If one is a democratic politician in the United States, this morality play already has a history as a dangerous idea. Thus, while we can certainly agree that economically speaking, “austerity simply doesn’t work” (244), increasing taxes, decreasing democracy, and obsessing with growth and GDP, is bad theatre.

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