Austerity: When is it a mistake and when is it necessary?

by John Fender

Austerity has dominated economic debate since the financial crisis of 2008. Governments have implemented austerity policies by reducing their spending on goods and services, increasing taxation and cutting welfare budgets.

John Fender explains how austerity (or "fiscal consolidation") works in theory and how it has played out in practice especially in the UK and the eurozone. He provides a clear and rigorous guide to the principles and mechanisms of austerity economics and offers a balanced account of the economic thinking behind contentious policy decisions.

Boris Johnson has said that the UK government "has absolutely no intention of returning to the 'A-word'", but with the Covid-19 crisis likely to result in much more government debt, it will be difficult to avoid more austerity. Understanding the impact of austerity policies is more important than ever and this book offers a first step on that path. For anyone seeking answers to such questions "What can we learn from the UK’s economic history that is relevant to current policy?", "Is austerity ever necessary or desirable?" and "Can the harmful effects of austerity programmes be mitigated?" then this book will be welcome reading.

144 pages, Paperback

Published September 10, 2020

Reviews

[Barbara · Rating 4 out of 5]

This is good and very important, on the leading edge of economic policy decisions. The main argument is that austerity, a reduction in government debt and borrowing, can actually be expansionary. This is a theoretical book but does not mystify with algebra and takes into account an institutional perspective, so often left out of traditional theory. Keys are expectations and long term interest rates and the transmission mechanism of money and banking. It seems apparent to me that Chancellor Sunak will have to raise taxes or lower public expenditure at some time, which would be politically difficult. Because of this, I have already reined in my expenditure. Possibly most people live more financially in the moment, but you can't count on it. You are more likely to achieve expansion by cutting expenditure than by raising taxes, a message that I don't think he will dare to follow to the detriment of all our lives.