All we hear about in the news these days is the need to cut the deficit, cut the debt, sequester, shrink government, etc. But this book demonstrates how wrong-headed this idea is. It may seem like common sense that cutting government expense will make the economy stronger, but in fact, as he amply demonstrates, it will do the exact opposite, and for reasons that are not too hard to understand.
I appreciated the clear exposition of how both the US and the Eurozone got into our current semi-crisis. The answer is simple: banks did foolish things, and the banks were in danger of collapsing. Banks are private businesses, and when they make a profit, that money goes into private pockets. And a LOT of money flowed into the pockets of investment bankers over the past 10-12 years. But unlike other businesses (well, actually, like some other large, favored businesses such as automotive manufacturers) when things went south, when the richest among us faced the consequences of their big gambles, a hue and cry went up, and the government essentially took the losses onto their own balance sheets.
And then, in the shadow of that mess, the real economy also started collapsing, and so revenue into government coffers declines, while the need for help from the government for laid-off workers increased. But note carefully that the root cause of the crisis was bad business decisions made by well-paid private companies--the banks.
Suddenly, the banks losses are on our backs, and then we are told that the only solution (TINA, There Is No Alternative) is for ordinary working people, who never benefited from the banking excesses, have to tighten their belts, absorb the losses, in order to let the banks go on their merry way.
All that would be galling enough, if austerity (cuts to government expenses, ie to things that put money in the pockets of millions of people) actually did work to cut the deficit and pay down debts (that were caused, remember, by the actions of banks and bankers.) But as the author demonstrates clearly, Austerity doesn't work, never has, never will. Austerity, cutting government, leads to *higher* debts, not lower, because it slows the whole economy so that GDP shrinks, tax receipts shrink, and therefore even a steady amount of debt now constitutes a larger ratio to GDP.
Blyth provides a highly readable survey of the historical origins of the idea of the laissez-faire doctrine (which somewhat confusingly is known as liberal or neo-liberal economics in recent times, but is espoused by political conservatives, not Democrats or other liberals. It helps to think of it as libertarian, as opposed to the usual concept of liberal.) He traces the thought of John Locke, who begins with a stunning thought: "Men have agreed to an unequal possession of the earth." In other words, inequality, poverty (and wealth) are something that people have decided to accept and live with. (The poor, evidently, not being consulted.) He shows how those who benefited from early capitalism were eager to defend the rightness of a system that meant immense suffering for the working poor of England and other early capitalist states.
He then traces the development of the argument as to whether the state could do anything to ameliorate the ups and downs of one banking crisis after another. After the Great Depression, the argument seemed to have been settled with a positive answer to that question. Left to its own devices, the market ran aground every so often, and when it did, many innocent victims suffered tremendous losses. The role of the state to set standards and a legal system, to enforce rules, and in particular to offer a counter-balance in times of lack of demand from the private sector seemed to be clear. But the Austrian (and Anglo-American) belief in the superiority of laissez-faire, hands-off, the market is always right thinking lay dormant.
It has now sprung forth in the form of the Tea Party, and what passes for common sense, and even President Obama seems to believe that "reducing the deficit" is job 1, when in fact, creating an economy in which everyone who wants work can find it and at a living wage would go farther, faster than cutting and expecting, by some long and winding mechanism, that to result in economic growth.
All the bodies are buried here. What about Latvia? What about Ireland? What about Greece? Blyth delves into the papers that seem to support austerity, as well as the test cases that are trotted out, and in every case he shows that austerity does not deliver on its promises. Cutting government expenses in times of economic slowdown merely prolongs the suffering, and it puts the burden on the backs of the poor, even though the crisis was created by the very wealthy banks.
In the end, he even opines that perhaps investment banking as a concept is finished. If you read Joe Nocera's articles in the NY Times about how Goldman Sacks screws over companies going public, in order to siphon windfall profits into the pockets of its favored friends, you will not lament its loss.
Bottom line: the government didn't go broke, the government didn't cause the crisis of 2008, and cutting government expenditures will not fix it. This is a great, great book.