Indeed, Reinhart-Rogoff may have had more immediate influence on public debate than any previous paper in the history of economics.
In This Review
The 90 percent claim was cited as the decisive argument for austerity by figures ranging from Paul Ryan, the former vice-presidential candidate who chairs the House budget committee, to Olli Rehn, the top economic official at the European Commission, to the editorial board of The Washington Post. So the revelation that the supposed 90 percent threshold was an artifact of programming mistakes, data omissions, and peculiar statistical techniques suddenly made a remarkable number of prominent people look foolish.
The real mystery, however, was why Reinhart-Rogoff was ever taken seriously, let alone canonized, in the first place.
Moreover, Reinhart-Rogoff was actually the second example of a paper seized on as decisive evidence in favor of austerity economics, only to fall apart on careful scrutiny. Much the same thing happened, albeit less spectacularly, after austerians became infatuated with a paper by Alberto Alesina and Silvia Ardagna purporting to show that slashing government spending would have little adverse impact on economic growth and might even be expansionary.
Surely that experience should have inspired some caution. The answer, as documented by some of the books reviewed here and unintentionally illustrated by others, lies in both politics and psychology: the case for austerity was and is one that many powerful people want to believe, leading them to seize on anything that looks like a….
Find this book:. At times I wondered if it was a contradiction in terms to enjoy so much a book about austerity.
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This is an intelligent, well-written book that is recommended for anyone wishing to understand, in both practical and intellectual terms, how the global economy has found itself in crisis. The book is structured in three sections.
In the first section, Blyth sets out the sources and consequences of the current economic crises. The chapters in this section consider the US and European experiences and contain an impressively clear and detailed but yet concise explanation of how we arrived in the current mess.
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It is among the best descriptions of our path to crisis that I have read and is highly recommended to anyone who wants to understand the current economic climate. While the author convincingly shows that the roots of the problems facing the global economy lie in a banking crisis rather than a sovereign debt crisis, one small criticism is that I think he is too forgiving of the roles played by governments and their regulators.
They were found wanting as the seeds of the crisis were planted in financial institutions and speculative bubbles that appeared in many economies and spent too long trying to understand the scale and sources of crises subsequently. The second section of the book is a consideration of the intellectual bases of austerity and a fascinating description of previous historical attempts at austerity as a means to restore competiveness and economic growth.
In this section the author conflates the austere approach with liberal economic policies that distrust the state and see a very limited role for it in regulating a market economy. The third and final section is unfortunately the briefest. I suspect the author over-simplifies the Icelandic developments and whether they can be generalised.
Austerity: The History of a Dangerous Idea
The Icelandic government protected its citizens from the full impact of the banking collapses, but only at the expense of foreign deposit holders who saw savings wiped out. Even in countries with a significant proportion of foreign deposit and bondholders this may not have been an option for states in a monetary union. This is not to take away at all from what is a fine book and one that is certain to become an important reference point for anyone studying this turbulent period. The author has done a great service by describing the path to crisis in such an interesting and lucid way and also by putting the current policies in the context of the battle of ideas.
It would be wonderful to think that ministers for finance and economy around the world will bring a copy of the book on holidays with them.
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We could expect a fresh approach on their return if it were the case and the clear message from the book is that we require fresh thinking to allow our economies and societies renew themselves. He holds a PhD in Economics and his research interests include business innovation, regional development and competitiveness, economic growth, human capital and education.
He also has substantial management and corporate experience gained prior to joining UCC.
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