Thursday, September 30, 2010

Austerity Politics. Kind Of.

. Thursday, September 30, 2010

WatsonMedia presents Mark Blyth on Austerity from The Global Conversation on Vimeo.

Mark Blyth gets animated in the literal sense, which as far as I know is a first in the history of IPE. Beyond the novelty, I recommend watching this short video on austerity. I agree with about half off it: the part where he emphasizes the distributional implications of austerity. Unfortunately, he merely toys with idea before regressing into demagoguery. Surely he doesn't believe that living standards have not improved for the bottom 40% of Americans in the past 40 years. And he completely misses the international dimension of austerity politics. The domestic dimension too, really.

I part ways when he passes off value judgments as objective observations. That's not to say that his value judgments aren't reasonable or maybe even valid; just that his conclusions don't follow from his premises. He seems to argue that austerity, if and where and when it happens, should be borne entirely by bankers. That's an understandable position. But it ignores the obvious complication: if bankers are made to suffer, then so are those who seek credit from them. This is especially true of the less-credit-worthy among us. If we want to punish the banks by limiting their risk-taking, then that means we are restricting the ability of the lower classes to access credit. We can have a world in which financial entities are heavily restricted in their activities, but the distributional effects of such a policy are not likely to be favored by the class warriors.

I will say that Blyth is correct in saying that austerity everywhere all the time is not the right reflex. Some states truly do need to consolidate. Others have more room. But by taking a reflexive position, Blyth is missing the really interesting (and important) dynamics. It's a short video that's apparently based on an upcoming book, so maybe he'll deal with these issues in a more nuanced way in print. I hope so.


Latinamericanist said...

About the bottom 40% - his claim is that their real wage didn't increase since 1979. That's objectively true for the US. There are some arguments about lower cost real cost of middle-class goods (TV, VCR, fridge, washer etc.) but that's a whole different argument. He's right about the real wages.

Clearly he's making a normative argument - the reason for making the "bankers" pay is because they caused the crisis. But I think your concern about the cost of regulating and punishing bankers (in the broadest sense) on the cost of low-income credit doesn't seem empirically grounded.

How would, for example, taxing capital gains more heavily or at least plugging the notorious hedgefund/private equity loophole in the US tax code affecting low income lending?

There are some problems with a financial transaction tax, but I've never heard that drying up low-income credit was one of them. And so on.

Kindred Winecoff said...

LA -

I don't necessarily disagree with any of that. I would say that "real wage" does not always equal "standard of living". I am definitely in the bottom 40% (pretty close to the poverty line, and maybe actually under it), but I have a laptop, a good education, and access to more information and entertainment via the internet than someone in the bottom 40% could have possibly dreamed of in 1979. It's not a "whole different argument", it's comparing like to like.

As for the bankers causing the crisis... sure they did. As did borrowers who defaulted on their loans, and the Fed for keeping monetary policy too low, and the government for encourage subprime loans, and Chinese for channeling domestic savings into U.S. investment, and the U.S. for running persistent deficits that were funded by foreign capital, and the regulators for pursuing a "light touch" policy, etc. There's plenty of blame to go around. Blyth picks one target and one target only... I find that disingenuous.

I'm all in favor of closing the hedge fund loophole, and it probably wouldn't adversely affect low-income lending. But raising capital standards and cutting into financial sector profits through increased taxation surely would. I'm not saying it isn't worth it on balance, I'm just saying that there are distributional consequences that are being ignored.

And so on.

Austerity Politics. Kind Of.
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