Austerity: The History of a Dangerous Idea. Mark Blyth.

Austerity, a renowned term in the realms of political economy- is a term used to describe government initiatives to tackle existing crises such as government debt. Austerity can come in a form of cuts in public expenditure, tax increases or both and it is usually done in very tight economic conditions.  

Blyth's book; Austerity is a guide to understanding how the global economy has found itself in crisis and he offers the following definition to the term Austerity when he says it is “a form of voluntary deflation in which the economy adjusts through the reduction of wages, prices and public spending to restore competitiveness, which is best achieved by cutting the state’s budget, debts and deficits”. One of the world's largest economies, the UK has adapted a fiscal policy as a response to the great recession and in 2009 David Cameron declared that "the age of irresponsibility is giving way to the age of austerity" and by the 2010 Coalition government of the Conservative and Liberal democrats the first austere policies were in action which lead to less people being able to access the housing market, less people in employment, the rate of life expectancy in England nearly halved between 2010 and 2017, and more people were living off of food banks due to the George Osbourne, the Chancellor of the Exchequer's who achieved his goals by goals through substantial reductions in public expenditure and tax increases amounting to £110 billion. 

In his book, Blyth presents three reasons as to why austerity is dangerous and that is because it impacts those on the lower income bracket more than anything else (40% of the US income distribution hasn’t had a wage increase since 1979), it ignores the notions that all countries cannot be austere at the same time and that it simply doesn't work. He structures the book into three sections, the second section of the book is an examination of previous historical attempts at using austerity as a way to restore economic growth through market competition. 

 In this section the author combines the austerity with liberal economic policy that is weary of state intervention in the economy seeing as it as useless. He combines the ideas from Locke and Smith to the Austrian School, Schumpeter and Friedman, Blythe demonstrates the persistence of austerity policies. The strongest element of this section is the ‘natural history’ of austerity in which the experiences of austerity in the US and UK in the 1920s and 1930s, and Denmark and Ireland in the 1980s, are considered in the context of the countries such Lithuania, Bulgaria, etc..   

The crises of austerity

Austerity , commonly defined as the difficult economic conditions created by government measures to reduce public expenditure .This definition stands in confrontation with the Political Economist Mark Blythe who defines it as the nonsense way on how to pay for the massive increase in the public debt caused by the financial crisis.

Giving clear analysis on how the modern day world lives in an all-encompassing debt from credit cards, mortgages and government debt as a result of the 2008 financial crisis. Blythe makes the argument that austerity is really an unjust use of the working class for the repayment of the upper-class debt.

Can this really be the case found in today’s society? According to Blythe there is no doubt, and here is why:

The bottom 40% of the US income distribution hasn’t had a wage increase since 1979 so it can be understood as to why many people have been found in a place of debt. Blythe re-asserts the point that banks who took loans were really just trying to maximise their own profits over base survival which is why there is clear inequality in how the repayment is arranged.

Blythe paints the picture of the private sector that is focused on reducing and paying off their debt, ultimately decreasing spending .This causes for the Government intervention , which has so far showed itself through increasing public consumption over private consumption by  either increasing taxation or ridding of the government services.

This brings us to the point that Blythe is emphasising in his book which is that the results of government intervention in cutting of services is felt very differently on the scale of income distribution because, the bottom 40% are the ones most in need of government services such as the police, healthcare and education so really, they are experiencing the effects of the crises more dramatically than the top percent who have caused the colossal magnitude of the crisis in the first place.

Is this relevant ?

In 2014 it was found that 71 coalition MP’s who voted for NHS privatisation had financial link from companies trying to profit from this deal.Moreover a recent survey by the public services found out of nearly  11,000 employees, including paramedics, teaching assistants, hospital porters and police staff of which (43%) described their standard of living as worse than a year ago, and a quarter (26%) said they owed more money than they did 12 months ago whilst In the US, the richest 400 Americans own more assets than the bottom 150 million.

The Concept of 'Neoliberalism' in the 21st Century

Neoliberalism can be historically defined as a modified form of liberalism, tending to favour free market capitalism. Neoliberals have often argued that economic freedoms such as less taxes on the rich and less welfare spending will inevitably lead to and secure political freedoms such as the right to freedom of speech. From a perspective like this, it's quite easy to assume that as the world becomes more grounded on the idea of universal human rights, nation states will follow and establish laissez-fairre economic policy as the norm as Francis Fukuyama predicted in his book The End of History and the Last Man (1992). 
This claim is questionable but this blog isn't about whether neoliberalism is actually put in practise but rather about whether neoliberalism as a theory is changing or evolving?

So what is new about neoliberalism at least in the 21st Century? Pierre Dardot and Christian Laval contend in their book The New Way of the World: On Neoliberal Society that it is now more than just a new economic paradigm as just described -- it is a system for transforming the human subject. Rather than a return to classic liberalism, neoliberalism now envisages the modern corporation as a model for government, conjuring a future in which society is nothing other than a web of market-based relations.

Dardot and Laval discuss in their book neoliberalism in many aspects; its historical background, its gradual evolution as a concept as the modern world progresses, the paradox between political democracy and capitalism, how capitalism commodifies human relations (which Marx and Polanyi highlighted in their works) and how personal liberty cannot exist without a state that guarantees its existence. But more importantly it is discussed in the book how the individual is being further commodified into an enterprise. Dardot and Laval back this up by highlighting how classical liberalism has failed to adapt to reality (individuals aren't just 'fictitious commodities'; they have personal lives, ambitions and career goals); Dardot and Laval argue "neoliberalism now isn't a matter of a man never being reduced to the status of a passive object or recognising that a man at work remains a man, but more a matter of viewing him as an active subject who must participate and engage completely in his professional activity". In this view, neoliberals envisage a new world in the future "where individuals should work for enterprises as if they were working for themselves, abolishing any distance between individuals and the enterprises employing them". They go on further to say "the construction of the market, enterprise and money tends to lead to the idea of 'personal enterprise' and this is all made possible by subtle techniques of motivation, incentivisation and stimulation". Moreover, the role of the government is to promote and teach enterprise at all levels. Margaret Thatcher provided a clear formulation of this rationality: "Economics are the method. The object is to change the soul."

What's most interesting about the arguments in this book is the paradox between political democracy and capitalism as they both progress. Political democracy is meant to be based on pluralism, equality and social cohesion between all classes yet critics often argue that capitalism will generally lead to elitism, inequality and rivalry between the social classes. The rise of populism in the recent decade highlights the backlash from a large portion of society against elitism and unfairness as rich people tend to have more influence on public policy then average or poorer people. Even the American linguist, author and political activist Noam Chomsky has highlighted how dangerous neoliberalism as an ideology is to a fair and just democracy.

Quick Questions:
- Is Neoliberalism relevant/pragmatic today?
- Is The New Way of the World: On Neoliberal Society accurate on its claims about how neoliberalism is changing?
- Are you a Neoliberal?

William Davies; Economics and the ‘nonsense’ of law: the case of the Chicago antitrust revolution

Antitrust laws are a collective of federal and state government laws that regulates the conduct and organisation of business corporations, generally to promote fair competition for the benefit of consumers. They are more generally known as competition laws in the UK, and aim to restrict the formation of cartels and prohibit other collusive behaviours and practices. There long standing mantra is that their function is to ‘defend competition not competitors’.  In the US the first antitrust law was passed in 1890 and called the Sherman Act, it originally focused on illegalising restraints on trade as committed by the larger railroad trusts towards small businesses.

In this article Davies, seeks to trace the pre-history and history of the Chicago ‘revolution’ as well as explain the three areas of transformation which lead to an essentially unchallenged authority for neo-classical economic logic in the decision- making procedure of the US antitrust authorities. He suggests these areas to be, 1; the Law and Economic movement in the University of Chicago during the 1930’s, 2; the change in understanding of economic competition and 3; the adoption of the Chicago paradigm by the antitrust authorities, which began in the Supreme Court in the mid-1970’s.

The Chicago school of economics is regarded as part of the neoclassical school of economic thought, however Friedrich von Hayek, who is considered the father of neo-liberalism was considered to unorthodox to be hired by Chicago's economics depepartment but was hired instead by the Law school, in hindsight he considered one of the key figure heads within the school.  As a school they’re known for their willingness to take neo-classical economics into areas it had previously never been, in this case law.

Until the mid-1970’s antitrust policies had been used to pursue various political and moral goals for example the redistribution of wealth or attacking organised crime, but these were abandoned due to the Chicago definition of efficiency being recognised as the only coherent objective regarding maintenance and regulation of the market. The school’s main critique was that the sole goal of antitrust policies should be economic efficiency. Ronald Coases (a lecturer at the school) is once quoted to have jokingly said when speaking about how sick he was of teaching antitrust, “When the prices went up the judges said it was monopoly, when the prices went down, they said it was predatory pricing, and when they stayed the same, they said it was tacit collusion” implying the courts to be making ‘nonsensical’ decisions.

The Chicago University proposed that some actions that were originally seen as anti-competitive could actually promote competition. For example, a monopoly is in the eyes of the antitrust authorities seen as extremely uncompetitive, however it could actually be an outcome of higher efficiency, in that very efficient firms will inevitably outshine the inefficient ones, or according to Schumpeter, a risk taking firm can create a wholly new market, in which they may have a monopoly purely because they are the first firm to enter said market.

The origins of neoliberalism: Ludwig von Mises

The origins of neoliberalism: Ludwig von Mises

Born in 1881, Ludwig von Mises was an Austrian-American economist, well-known for his essay “Economic Calculation in the Socialist Commonwealth”. In this, Mises provides a damning critique of the socialist model in economics in place at the time of writing and challenged socialists to explain how the pricing system would actually work in practice. In a purely socialist state, there is no private ownership of production meaning that all decisions are made by a central planning authority i.e. a government. However, as no prices for capital goods can be obtained in a socialist economy if the government owns the means of production, the government have no market prices to guide them.  Therefore, what can socialist governments use in place of market prices?

Mises argues that without market prices to guide production, no rational economic calculation is possible, meaning that the rational economic planning of socialism leads to economic chaos and mass inefficiency and this thesis demolished the foundations for the case for central planning and rendered socialist economics redundant.

However, Mises’s essay is not just limited to condemning the impracticality of socialist economy.  In Joseph Salerno’s postscript, writes how the essay “provides the rationale for the price system, purely free markets, the security of private property against all encroachments, and sound money”(1) and indeed, Mises points out the nature and necessity of the price system, particularly in terms of value.  According to Mises, each member of society in an economic system of private ownership must participate in two ways; as a consumer and as a producer. As a consumer, the person must establish a scale of valuation for goods ready for use in consumption, and as a producer the person puts goods of a higher order, i.e. capital goods, into such use which produces the greatest return. Thus, all capital goods are valued in accordance with the immediate state of social conditions of production and of social needs, and through these two processes of valuation, a price will be reached.

Consequences of Mises’s essay?

One of the outcomes of “Economic Calculation in the Socialist Commonwealth” is that it triggered the debate of economic calculation which lasted for decades.  The economic calculation problem is a critique of using economic planning, the resource allocating mechanism used in socialist economies, as a substitute for market-based allocation, and is one of the dominant aspects in Mises’s essay.  The essay has also been viewed by some as the cornerstone of classical liberal economics due to its rejection of socialist economics and approval of the price system and free markets, which follows the principles of economic liberalism. Furthermore, Mises’ theory on rational economic calculation influenced many economists, in particular Friedrich Hayek, a student of Mises, who then went on to further develop the economic calculation problem.

In addition, Mises’s theory continues to be relevant, even today, in understanding why government economic intervention does not always achieve results which are beneficial to society.