Austerity: Reading Between the Lines of the Economic Debate

9780300203936In his searching new book, Austerity: the Great Failure, historian Florian Schui tackles the central economic debate that has emerged from the Great Recession: whether decreasing government spending will renew economic growth. To this debate, Schui brings vital historical perspective and looks at the dismal track record of austerity policies over the course of their long history. Examining the arguments of key theorists of consumption, ranging from Aristotle to Margaret Thatcher, Schui demonstrates that no argument against spending has ever successfully refuted the Keynesian logic of anti-cyclical government stimulus.

What Dr Schui reveals instead is that austerity’s long life is due to its moral and political underpinnings – not to economic justification. The moral authority of abstinence over greed, coupled with political maneuverings against labor and the Left, has kept austerity alive in public discourse despite empirical shortcomings. This confusion of arguments, which Shui ably parses, is as alive in the media today as it has ever been.

Now in their fourth year, the austerity measures placed on debtor nations of the Eurozone by the International Monetary Fund and creditor-state Germany continue to return mixed results. Unemployment in Europe still sits above 10%, and the situation in the hardest pressed nations remains bleak. In Greece, households burn furniture for heat, and the health care system is a shambles.

Yet Europe’s economic leaders continue to insist on austerity before aid. Their reasoning? Lately, the supporters of austerity have been eager to point to the apparent successes of the policy in the Baltics, particularly Latvia and Estonia.

With Schui’s argument in mind, consider some of the reports on the state of these Baltic nations from local political leaders and major media outlets. Are their arguments purely economic, or might there be moral or political traces in their statements?

  • On Estonia’s adherence to austerity, despite a GDP drop of 14% in 2009: “[Estonian president Toomas Hendrik] Ilves divides Europe into countries that follow the rules and countries that don’t… Estonians, in their own eyes, have always followed the rules, and in 2009 took their lumps to do so.”
  • Swedish economist Anders Aslund responds to Nobel laureate Paul Krugman’s critique of the Baltic ‘triumph’: “[Krugman] praises the fiscally irresponsible and scolds the virtuous, denigrating the Baltic achievements while trying to explain away miserable failures, such as Greece.”
  • On Latvia’s ‘high pain threshold’: “In Greece and Spain, cuts in salaries, jobs and state services have pushed tempers beyond the boiling point, with angry citizens staging frequent protests and strikes… But in Latvia, where the government laid off a third of its civil servants, slashed wages for the rest and sharply reduced support for hospitals, people mostly accepted the bitter medicine.”
  • And anecdotally: “When a credit-fueled economic boom turned to bust in this tiny Baltic nation in 2008, Didzis Krumins, who ran a small architectural company, fired his staff one by one and then shut down the business… But instead of taking to the streets to protest the cuts, Mr. Krumins, whose newborn child, in the meantime, needed major surgery, bought a tractor and began hauling wood to heating plants that needed fuel.”

For more close readings of the austerity debate – from the Commercial Revolution to the modern day – look out for Austerity: The Great Failure, in bookshops now.

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