This week, Weekend Reader brings you an excerpt from Mark Blyth’s new book, Austerity: The History Of A Dangerous Idea. Congress hasn’t passed a budget since 2009 — exposing the failure of a highly polarized government to agree on anything. The GOP remains completely unwilling to change or compromise their stance on the budget. They still uphold the idea that austerity, a combination of spending cuts and tax decreases, will somehow help the economy despite a majority of claims from expert economists who promise that austerity will not do anything but hurt our economy. Blyth, a political economist, explains the damage austerity has already done to our economy and what the future holds if Republicans win.
You can purchase the book here.
The Distribution of Debt and Deleveraging
Austerity advocates argue that regardless of its actual origins, since the debt ended up on the state’s “books,” its “balance sheet of assets and liabilities,” the state’s balance sheet must be reduced or the increased debt will undermine growth. The economic logic once again sounds plausible, but like Bill Gates walking into a bar and everyone becoming millionaires as a result (on average), it ignores the actual distribution of income and the critical issue of ability to pay. If state spending is cut, the effects of doing so are, quite simply, unfairly and unsustainably distributed. Personally, I am all in favor of “everyone tightening their belts”—as long as we are all wearing the same pants. But this is far from the case these days. Indeed, it is further from the case today than at any time since the 1920s.
As the Occupy movement highlighted in 2011, the wealth and income distributions of societies rocked by the financial crisis have become, over the past thirty years, extremely skewed. The bursting of the credit bubble has made this all too clear. In the United States, for example, the top 1 percent of the US income distribution now has a quarter of the country’s income. Or, to put it more dramatically, the richest 400 Americans own more assets than the bottom 150 million, while 46 million Americans, some 15 percent of the population, live in a family of four earning less than $22,314 per annum.
As Robert Wade has argued: The highest-earning 1 percent of Americans doubled their share of aggregate income (not including capital gains) from 8 percent in 1980 to over 18 percent in 2007. The top 0.1 percent (about 150,000 taxpayers) quadrupled their share, from 2 percent to 8 percent. Including capital gains makes the increase in inequality even sharper, with the top 1 percent getting 23 percent of all income by 2007. During the seven-year economic expansion of the Clinton administration, the top 1 percent captured 45 percent of the total growth in pre-tax income; while during the four-year expansion of the Bush administration the top 1 percent captured 73 percent…This is not a misprint.