Must-read: Simon Wren-Lewis: “Understanding the Austerity Obsession”

Must-Read: Simon Wren-Lewis: Understanding the Austerity Obsession: “The diagnosis in the case of the Republican party in the US is reasonably clear…

…The main economic goal is to cut taxes, particularly for the very rich. That requires, sooner or later, less public spending. What about evidence that more public investment would help everyone?… This group suffers from the delusion that the only way to help the economy is to tax the rich less and starve the beast that is the state… infect[ion] by the neoliberal ideology virus….

Germany… is much more difficult to diagnose… Swabian syndrome: a belief that the economy is just like a household, and the imperative is to balance the books. This seems like a case of labelling rather than explaining a disease. There may be an allergy involved: an aversion to Keynesian economics, and anything that sounds vaguely Keynesian. But the microeconomic case for additional public investment in Germany is also strong… the German public capital stock has been shrinking for over a decade…. The nature of the illness in Germany is therefore more of a mystery….

The Conservative Party in the UK also seem to have the symptoms associated with Swabian syndrome…. Some… argue that in reality the party are feigning the symptoms as a means of winning elections, while still others claim that tests have revealed clear traces of the ideology virus. What has become clear is that the traditional way of treating the austerity obsession, which involves occasional counselling with well trained economists, is having little effect. We also now know that the financial crisis shock treatment only makes the neoliberal virus more virulent. Extended therapy is the only known cure for this virus. As for Swabian syndrome, our best hope may be that the public gradually develop an immunity to the disease as its consequences become clear.

March 3, 2016


Brad DeLong
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