One of our foremost economic thinkers challenges a cherished tenet of today’s financial orthodoxy: that spending less, refusing to forgive debt, and shrinking government—“austerity”—is the solution to a persisting economic crisis like ours or Europe’s, now in its fifth year.
Since the collapse of September 2008, the conversation about economic recovery has centered on the question of debt: whether we have too much of it, whose debt to forgive, and how to cut the deficit. These questions dominated the sound bites of the 2012 U.S. presidential election, the fiscal-cliff debates, and the perverse policies of the European Union.
Robert Kuttner makes the most powerful argument to date that these are the wrong questions and that austerity is the wrong answer. Blending economics with historical contrasts of effective debt relief and punitive debt enforcement, he makes clear that universal belt-tightening, as a prescription for recession, defies economic logic. And while the public debt gets most of the attention, it is private debts that crashed the economy and are sandbagging the recovery—mortgages, student loans, consumer borrowing to make up for lagging wages, speculative shortfalls incurred by banks. As Kuttner observes, corporations get to use bankruptcy to walk away from debts. Homeowners and small nations don’t. Thus, we need more public borrowing and investment to revive a depressed economy, and more forgiveness and reform of the overhang of past debts.
In making his case, Kuttner uncovers the double standards in the politics of debt, from Robinson Crusoe author Daniel Defoe’s campaign for debt forgiveness in the seventeenth century to the two world wars and Bretton Woods. Just as debtors’ prisons once prevented individuals from surmounting their debts and resuming productive life, austerity measures shackle, rather than restore, economic growth—as the weight of past debt crushes the economy’s future potential. Above all, Kuttner shows how austerity serves only the interest of creditors—the very bankers and financial elites whose actions precipitated the collapse. Lucid, authoritative, provocative—a book that will shape the economic conversation and the search for new solutions.
Kuttner (The Squandering of America), cofounder and co-editor of the American Prospect, pulls no punches in his latest full-throated defense of Keynesian economics and repudiation of the modern neoliberal system. Kuttner argues that rather than helping countries live within their means, austerity hampers economic growth and prevents recovery. Alternately rousing and oversaturated with statistics, the author nevertheless makes a convincing case that fiscal policy has been hijacked by the vested interests of international finance and the moneyed classes. Every economic crisis over the past several decades has sparked the same two-pronged response of prodigal bailouts of multinational investment banks and crippling strictures on the public sector. These strategies are enforced by elites with no democratic accountability and dangerously little local knowledge. For example, in their negotiations with Greece, the E.U. and the E.C.B. have demanded that the majority of Greek airports be abruptly sold off, a strategy that may raise several million dollars but would create massive social disturbances. When elected Greek officials agree to absurd conditions like these, they are of course voted out of office, while the jobs of the bureaucrats who came up with them remain secure. Kuttner's deft overview of economic history most notably his coverage of the Marshall Plan demonstrates that economic stimulus can be very effective at ending recessions.