Abstract
Blyth shows convincingly that ‘Austerity does not work’. But he seems to imply that financial repression, higher taxes and monetary expansion would. Are they really compatible, however? Financial repression requires growth, real or nominal. Real growth is widely believed to require lower, not higher taxes. Nominal growth, that is inflation, is difficult to contain as well as to bring about, given trade union weakness and widespread dependence on fixed transfer incomes. Monetary expansion, finally, may simply add to general indebtedness, as it has since the late 1970s when real growth embarked on a long-term decline.
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Notes
Presented by Blyth under the wonderful subtitle, There is a Free Pranzo if You Skip Your Cena: The Italian Origins of Expansionary Austerity.
I also have doubts on Blyth’s essentially ideational interpretation of the position of the German government in the present conflicts over Europe and the Euro. Blyth forgets that until the middle of the 2000s, Germany was ‘the sick man of Europe’, allegedly because it had failed to restructure toward a ‘service economy’. In those years Ireland’s per capita income was statistically higher than Germany’s, and Spain with its apparently booming economy was by some featured as a model for Germany to emulate. 2008 showed how fragile the sudden wealth at the European periphery really was, and how dangerous for everybody else. No German government in its right mind can opt for a return to the politics of easy money – based on interest rate convergence and an EMU nominal interest rate above the German inflation rate – that had caused this calamity, given the peculiar nature of the German economy as a center of advanced, export-oriented manufacturing.
Skeptic that I am, I tend to believe that the present noise about rooting out the global tax havens is fundamentally no more than a political smokescreen for soon-to-come increases in value-added tax, payroll taxes and social security contributions.
To be sure, even if we took the financial sector out, to look only at government, households and the ‘real’ economy, there would be a steep increase in indebtedness from roughly 200 to almost 500 per cent of GDP.
References
Bank for International Settlements (BIS). (2013) 83rd Annual Report, 1 April 2012–31 March 2013. Basel: Bank for International Settlements (BIS).
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Streeck, W. Will Expansion Work? On Mark Blyth, Austerity: The history of a dangerous idea. Comp Eur Polit 11, 722–728 (2013). https://doi.org/10.1057/cep.2013.23
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DOI: https://doi.org/10.1057/cep.2013.23