An American economist, Mark Blyth, author of Austerity: the History of a Dangerous Idea, gave a talk to members of the German Social Democratic Party on why so-called austerity is a bad idea.
I write “so-called” because the dictionary meaning of austerity is doing without things you don’t really need. Food rationing in the UK and USA during World War Two is an example of austerity. It doesn’t mean prioritizing the requirements of holders of financial assets over the needs of everybody else.
Here’s why Blyth had to say.
Back in the 1970s, a period that now seems quite benign, corporate profits were very low, labor’s share of income was very high, and inflation was rising. We were told that this was unsustainable, and new institutions and policies were constructed to make sure that this particular mix of outcomes would never happen again.
In this regard we were singularly successful. Today, corporate profits have never been higher, labor’s share of national income has almost never been lower, and inflation has given way to deflation. So are we happier for this change?
What we have done over the past thirty years is to build a creditor’s paradise of positive real interest rates, low inflation, open markets, beaten-down unions, and a retreating state — all policed by unelected economic officials in central banks and other unelected institutions that have only one target: to keep such a creditor’s paradise going.
In such a world, why would you, the average worker, ever get a pay rise?
Phil Ebersole's Blog 