Austerity: The Great Failure
By Florian Schui | Yale University Press | $34.95
MOST AUSTRALIANS are bleakly uninterested in the history and influence of the political, moral and economic ideas that ultimately shape the nation’s political culture and public policy. So it is deadset easy for second-rate politicians to persuade voters that a few simplistic and second-hand nostrums will magically solve the problems of life and prosperity. As Keynes observed: “Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”
This gloomy thought persisted throughout my reading of Florian Schui’s Austerity: The Great Failure, the latest of several recent books on the current international obsession with austerity policies. (Others are by Mark Blyth and Richard Seymour.) The great virtue of Schui’s short book is that it embraces the history of ideas, moral philosophy and politics as well as sophisticated economic analysis. Its conclusion is simple and direct: “there are no convincing economic arguments for austerity policies in their current form and there is no compelling moral or political case for them either. Austerity, in its current form, is simply a great failure.”
Similar conclusions have also been reached by Blyth and Seymour, and you might think that this consensus among respected academic thinkers from the centre, the left and the right might at least prompt some cautionary reassessments by the American, European and Australian political and economic ideologues who daily offer frenzied assertions of the need for austerity. Tony Abbott, Joe Hockey and their army of cheerleaders in the Australian and the Australian Financial Review keep bawling the slogans. Do the hard yards! The age of entitlement is over! Tighten your belts!
As Schui notes, austerity policies have brought all the pain of economic stagnation but hardly any of the promised benefits of debt reduction, renewed growth and prosperity. But support for the policies remains strong among the masses who feel most of the pain as their elected leaders set about recreating counter-Enlightenment societies that will be less fair, less tolerant and more authoritarian, and reflect a deeply pessimistic view of human nature. How to explain this paradox?
Schui’s answer emerges from his intriguing analysis of how deeply Greek, Judeo-Christian and medieval support for moderation in consumption have been culturally hardwired into the collective Western mindset over 2500 years. “As a part of our cultural heritage, we tend to have a moral affinity with the message of austerity,” he writes. It is a reality that has to make things easier for the likes of Abbott and Hockey when they demand that the punters tighten their belts and do the hard yards.
No less significantly, Schui contends that arguments in favour of austerity are mainly based on moral and political considerations and not on economic analysis or on the history of economic thought and policy outcomes. He supports this contention with crisp yet cogent examinations of Mandeville, Voltaire, Rousseau, Smith, Weber, Marx, Veblen, Keynes and (especially) Hayek, whose defences of what Isaiah Berlin called negative liberty shaped the devastating austerity policies imposed on Britain by Margaret Thatcher (and which remained inadequately examined critically until after her death last year).
Thatcher’s economic and social vandalism was not, of course, the first instance of the failure of an austerity program that was supposed to repair government finances and to restore economic dynamism and competitiveness. Schui points to Britain’s catastrophic, if brief, return to the gold standard after the first world war (imposed by the then finance minister Winston Churchill, who later called it the worst decision of his political career). And then came Germany’s failed attempt to respond to the 1929 financial crisis with an austerity program and, more universally, the failure of austerity programs to ease the burden of the Great Depression in the United States, Europe and Australia until Keynesian ideas found political traction.
The flight from Keynesian ideas towards austerity programs in the 1970s also damaged international economic growth and intensified stagflation, high unemployment and low growth. Now austerity has become international political orthodoxy again in the wake of the global financial crisis, and politicians are again pursuing the chimera of prosperity through pain (particularly pain inflicted on those least able to protect themselves).
Schui’s book shows how the political advocates of austerity, seduced by dubious moral arguments about freedom, have learned nothing and forgotten nothing from economic history and analysis. Instead they assume that freedom is the only or dominant value of concern to citizens, and persist in cutting public spending and the size of government. Welfare, healthcare and education are targeted for savage cuts. So are wages, jobs and working conditions, with trade unions singled out for demonisation and destruction. The results, historically, have been longer slumps and weaker recoveries.
Despite his condemnation of economic austerity Schui sketches a vision for “ethical austerity” based on Aristotelian ideas of moderation, Roosevelt’s famous four freedoms, and the values and policies of the green movement. It is a seductive vision, not fully worked out, and unlikely to influence the political reactionaries now running most Western economies. They have calculated that the Judeo-Christian heritage means they are most likely to stay in office by promising blood, sweat and tears in the doomed quest for prosperity through austerity. •
