mraymer9's review against another edition
3.0
Since well before the 2008 financial crisis, the practice of economic austerity has beleaguered American and European politics. Praised by the right as a panacea of renewed financial responsibility, and decried by the left as a mechanism for dismantling the West’s already struggling middle classes, austerity signifies a critical juncture where battered economies face radically different strategies for picking up the pieces. Robert Kuttner’s Debtors’ Prison: The Politics of Austerity Versus Possibility is a plangent polemic that deconstructs and rejects the political ideology behind the austerity model. Kuttner is an undeniably partisan force, but he goes to great lengths to justify his biases. Presenting a view that is historically resonant and globally aware, Debtors’ Prison makes a convincing case that austerity policies lack the ability to revitalize our economies and to justly distribute economic prosperity throughout the Western world.
Kuttner posits that the primary cause of the ’08 crisis was not irresponsible government spending, but rather a complex web of specious financial practices. As European and American leaders flailed for ways to cope with the crash, austerity hawks shifted the political focus from untenable financial practices toward a misleading narrative about overreach in government spending:
"Despite the very different institutional particulars, the most important factor in Europe’s self-inflicted economic distress is the one that mirrors the American experience: the political dominance of financial interests. In Europe as in the United States, the collapse did not lead to greater restraints on speculative finance. On the contrary, the vulnerability of sovereign debt created new opportunities for speculative windfalls and escalating attacks on government bonds. By 2011, a crisis created largely by private financial excesses had been redefined as a crisis of improvident public spending, leading to the self-defeating remedy of general austerity." (112)
Austerity policies have been the vanguard of the conservative agenda since Reagan’s election in 1980. According to Kuttner, these policies conflate “several kinds of debt, each with its own causes, consequences, and remedies. The reality is that public debt, financial industry debt, consumer debt, and debt owed to foreign creditors are entirely different creatures” (19). Debunking the position that financial instability stems from overspending on programs like Medicare and Social Security, Kuttner claims that the real culprits are “two wars and gratuitous tax cuts for the wealthy,” “declining real wages,” states that “paid for tax cuts by reducing funding for public universities,” and several decades of financial deregulation that resulted in egregious financial industry debts incurred by “investment banks, hedge funds, commercial banks with ‘off-balance-sheet’ liabilities, and lightly regulated hybrids” (20-1, 23).
This cesspool of war spending (much of which is pocketed by private contractors), unnecessary tax cuts, general divestment in the public sector, and indefensible banking is, frustratingly, the result of austerity as well as the justification for its continued use. When we systematically smother the ability of governing bodies to tackle big problems, the neoliberal narrative that “government is the problem” becomes a self-fulfilling prophecy.
Turning austerity ideology on its head, Kuttner argues that reduced government spending is the worst possible response to economic distress, because beating a depression requires a massive increase of pubic investment in good jobs and basic infrastructure. This case has been made many times by numerous leftists and Keynesians, but Kuttner’s historical analysis is particularly powerful. The Great Depression and post-WWII economies in America and Europe show that a temporary increase of government debt is necessary to reboot a national economy, and that the proper time to address deficit reduction is after recovery (17). He also demonstrates that debt restructuring or outright forgiveness––for desperate nations as well as individuals––is often the most expedient way for both creditors and debtors to get back to business. While forgiveness for errant creditors (financial institutions) has been the historical norm, those same creditors hypocritically balk at the suggestion of taking a loss so an indebted country or citizen can rebound from financial ruin (Chapter 7).
Although the Obama administration has not fully supplicated itself to austerity, Kuttner is highly critical of the President’s turn toward deficit reduction in lieu of infrastructure spending and job creation (62-3). In 2015, we can observe that while the economy has improved somewhat and unemployment has come down considerably (partly because citizens have given up looking for work), we still have not seen adequate growth in living wage jobs, a minimum wage increase, or an infrastructure bill that would truly end the Great Recession for those hit hardest by the crash.
Similar to Naomi Klein, Kuttner believes we should re-embrace managed capitalism, with the economy as a consciously controlled engine for distributed prosperity, not a radically free market where the most privileged reap the greatest rewards. Readers concerned about social justice and climate change will be pleased that Kuttner’s prescription for infrastructure spending involves environmentally-conscious growth: “People need jobs and income, and the economy should realize its potential. A World War II-scale green investment program could simultaneously pull the economy out of its deep hole and allow better living standards at lower cost to the planet” (294). Echoing Angélica Navarro Llanos’s 2009 call for a Marshall Plan for the Earth, Kuttner thinks we can integrate the fight to ease environmental degradation with the struggle against global inequality. These renewed investments in the real economy should be complemented with “financial repression”:
"I’ve urged Congress to create an expert commission that would study all of the financial innovations of the past three decades and report back on which ones truly added economic efficiency and which ones added only risk and middleman profit. A vastly simplified financial system whose purpose is to serve the rest of the economy should be the national policy goal. That would have the additional benefit of reducing the bankers’ political power." (293)
Kuttner admitted that the political will to make this happen was all but nonexistent in 2013, and the same seems true two years later. Regulatory capture and what Joseph Stiglitz has called “cognitive capture” of public officials is still the norm, and Kuttner’s recommendations are not driving the preliminary 2016 election rhetoric (the exception being that indomitable champion of socialist democracy, Bernie Sanders). Other questions compound our political malaise: How will technological unemployment affect the “green growth” revolution, and will the carbon emissions enabling that revolution spell game over for the climate? Do full-on globalization and technological acceleration constitute a genuine “it’s different this time” scenario where postwar strategies may not work as they once did (282)? With a revitalization of regulation and centralized spending, how can we minimize bureaucratic bloat and internal corruption?
Irrespective of how we come to answer (or ignore) these questions, it’s clear that much is at stake in the next several decades of economic policy. The West’s continued prosperity is far from guaranteed, and Kuttner rightly warns that, “Unless the broader ideology of austerity for states and license for bankers is reversed, Europe will continue to lurch from crisis to crisis, and the Continent’s institutions will face a generation of lost prosperity and lost legitimacy for its democratic governing institutions” (169). I see no reason why the same logic would not apply in the United States. And it’s not as if there aren’t hungry and humming economies ready to supplant us: BRICS countries (Brazil, Russia, India, China, South Africa).
"What unites these diverse countries, who have just under half of the world’s population and almost a quarter of its GDP, is that they reject the Western development model, with its conceptions of free speculative capital markets and its notions of austerity as the remedy for recession. To the extent that the West clings to these policies, it stands to be displaced." (268)
While we should welcome the efforts of developing countries seeking to bring economic prosperity to huge populations, we don’t want their achievements to coincide with the deterioration of Western nations and institutions, or to preside over the final destruction of ecosystems the West has mistreated for centuries. The world won’t wait, and austerity has already cost us decades of progress. But we do not have to continue down this road. “We must begin,” Kuttner says, “by reclaiming democratic politics” (295).
This review was originally published on my blog, words&dirt.
Kuttner posits that the primary cause of the ’08 crisis was not irresponsible government spending, but rather a complex web of specious financial practices. As European and American leaders flailed for ways to cope with the crash, austerity hawks shifted the political focus from untenable financial practices toward a misleading narrative about overreach in government spending:
"Despite the very different institutional particulars, the most important factor in Europe’s self-inflicted economic distress is the one that mirrors the American experience: the political dominance of financial interests. In Europe as in the United States, the collapse did not lead to greater restraints on speculative finance. On the contrary, the vulnerability of sovereign debt created new opportunities for speculative windfalls and escalating attacks on government bonds. By 2011, a crisis created largely by private financial excesses had been redefined as a crisis of improvident public spending, leading to the self-defeating remedy of general austerity." (112)
Austerity policies have been the vanguard of the conservative agenda since Reagan’s election in 1980. According to Kuttner, these policies conflate “several kinds of debt, each with its own causes, consequences, and remedies. The reality is that public debt, financial industry debt, consumer debt, and debt owed to foreign creditors are entirely different creatures” (19). Debunking the position that financial instability stems from overspending on programs like Medicare and Social Security, Kuttner claims that the real culprits are “two wars and gratuitous tax cuts for the wealthy,” “declining real wages,” states that “paid for tax cuts by reducing funding for public universities,” and several decades of financial deregulation that resulted in egregious financial industry debts incurred by “investment banks, hedge funds, commercial banks with ‘off-balance-sheet’ liabilities, and lightly regulated hybrids” (20-1, 23).
This cesspool of war spending (much of which is pocketed by private contractors), unnecessary tax cuts, general divestment in the public sector, and indefensible banking is, frustratingly, the result of austerity as well as the justification for its continued use. When we systematically smother the ability of governing bodies to tackle big problems, the neoliberal narrative that “government is the problem” becomes a self-fulfilling prophecy.
Turning austerity ideology on its head, Kuttner argues that reduced government spending is the worst possible response to economic distress, because beating a depression requires a massive increase of pubic investment in good jobs and basic infrastructure. This case has been made many times by numerous leftists and Keynesians, but Kuttner’s historical analysis is particularly powerful. The Great Depression and post-WWII economies in America and Europe show that a temporary increase of government debt is necessary to reboot a national economy, and that the proper time to address deficit reduction is after recovery (17). He also demonstrates that debt restructuring or outright forgiveness––for desperate nations as well as individuals––is often the most expedient way for both creditors and debtors to get back to business. While forgiveness for errant creditors (financial institutions) has been the historical norm, those same creditors hypocritically balk at the suggestion of taking a loss so an indebted country or citizen can rebound from financial ruin (Chapter 7).
Although the Obama administration has not fully supplicated itself to austerity, Kuttner is highly critical of the President’s turn toward deficit reduction in lieu of infrastructure spending and job creation (62-3). In 2015, we can observe that while the economy has improved somewhat and unemployment has come down considerably (partly because citizens have given up looking for work), we still have not seen adequate growth in living wage jobs, a minimum wage increase, or an infrastructure bill that would truly end the Great Recession for those hit hardest by the crash.
Similar to Naomi Klein, Kuttner believes we should re-embrace managed capitalism, with the economy as a consciously controlled engine for distributed prosperity, not a radically free market where the most privileged reap the greatest rewards. Readers concerned about social justice and climate change will be pleased that Kuttner’s prescription for infrastructure spending involves environmentally-conscious growth: “People need jobs and income, and the economy should realize its potential. A World War II-scale green investment program could simultaneously pull the economy out of its deep hole and allow better living standards at lower cost to the planet” (294). Echoing Angélica Navarro Llanos’s 2009 call for a Marshall Plan for the Earth, Kuttner thinks we can integrate the fight to ease environmental degradation with the struggle against global inequality. These renewed investments in the real economy should be complemented with “financial repression”:
"I’ve urged Congress to create an expert commission that would study all of the financial innovations of the past three decades and report back on which ones truly added economic efficiency and which ones added only risk and middleman profit. A vastly simplified financial system whose purpose is to serve the rest of the economy should be the national policy goal. That would have the additional benefit of reducing the bankers’ political power." (293)
Kuttner admitted that the political will to make this happen was all but nonexistent in 2013, and the same seems true two years later. Regulatory capture and what Joseph Stiglitz has called “cognitive capture” of public officials is still the norm, and Kuttner’s recommendations are not driving the preliminary 2016 election rhetoric (the exception being that indomitable champion of socialist democracy, Bernie Sanders). Other questions compound our political malaise: How will technological unemployment affect the “green growth” revolution, and will the carbon emissions enabling that revolution spell game over for the climate? Do full-on globalization and technological acceleration constitute a genuine “it’s different this time” scenario where postwar strategies may not work as they once did (282)? With a revitalization of regulation and centralized spending, how can we minimize bureaucratic bloat and internal corruption?
Irrespective of how we come to answer (or ignore) these questions, it’s clear that much is at stake in the next several decades of economic policy. The West’s continued prosperity is far from guaranteed, and Kuttner rightly warns that, “Unless the broader ideology of austerity for states and license for bankers is reversed, Europe will continue to lurch from crisis to crisis, and the Continent’s institutions will face a generation of lost prosperity and lost legitimacy for its democratic governing institutions” (169). I see no reason why the same logic would not apply in the United States. And it’s not as if there aren’t hungry and humming economies ready to supplant us: BRICS countries (Brazil, Russia, India, China, South Africa).
"What unites these diverse countries, who have just under half of the world’s population and almost a quarter of its GDP, is that they reject the Western development model, with its conceptions of free speculative capital markets and its notions of austerity as the remedy for recession. To the extent that the West clings to these policies, it stands to be displaced." (268)
While we should welcome the efforts of developing countries seeking to bring economic prosperity to huge populations, we don’t want their achievements to coincide with the deterioration of Western nations and institutions, or to preside over the final destruction of ecosystems the West has mistreated for centuries. The world won’t wait, and austerity has already cost us decades of progress. But we do not have to continue down this road. “We must begin,” Kuttner says, “by reclaiming democratic politics” (295).
This review was originally published on my blog, words&dirt.
matthew_p's review against another edition
3.0
Definitely an interesting perspective, but I'm still wrapping my head around some of the points where I maintain a contrary viewpoint.
venkyloquist's review against another edition
3.0
A much needed work to demonstrate the dangerous consequences of some ill-conceived economic policies that are being formulated, nay foisted upon the helpless and the affected across the world under the ruse of 'austerity'. An unfortunate example is that of Greece. A nation that has been buffeted into virtual submission by both internal economic inefficiencies (to a good extent) and by insidious external policy diktats (to a significant extent) by the European nations headed by Germany.
What Robert Kuttner admirably proves in this marvelous work is the fact that these kind of tragedies are perfectly avoidable. He does not say this sheltered and enriched by the benefit of hindsight. Resorting to a careful analysis of economic polies, relying upon a dissection of both macroeconomic and financial follies and studiously explaining available alternatives, Kuttner in “Debtor’s Prison” launches a very assault on what he terms “The Politics of Austerity”. My personal key takeaways from a reading of this illuminating and trenchant work would be the following:
1. Burgeoning financial industry debt
Rampant financial speculation and the creation of exotic financial instruments by investment banks, hedge funds and unregulated/barely regulated hybrids led to incredulous amounts of leverage in the financial sector. During the so called ‘boom years’, these institutions were typically operating with leverage ratios of 30:1 and in some unbelievable instances, more than 50:1!
2. Wall Street and Social Spending
A coalition of the so called deficit hawks of the likes of the billionaire investor Pete Peterson and his ilk engage in extensive lobbying and intense funding with a view to slash expenditure on social insurance and to direct the focus of the Government towards balancing budgets and cutting deficits.
3. The Greek Fiasco
In a splendid Chapter titled “A Greek Tragedy”, Kuttner chronicles the devastating impact of austerity collectively thrust upon an already suffering Greek populace. Harsh and inexplicable measures imposed in exchange for financial aid, such as cutting pensions, introducing three new tiers of value added taxes, and slashing pay packages of the salaried classes ensured that the Greeks were saddled with the most deflationary package ever imposed on the member of the European Union.
4. The Mortgage Mania
Unscrupulous brokers generating mortgages irrespective of the credit worthiness of the borrower, splicing and dicing of esoteric financial instruments with the covert blessings of credit rating agencies nursing conflicts of interests with the issuers of such instruments and a complicit, if not bewildered bunch of regulatory agencies all combined to create a domino effect that took the wind out of the sails of the global economy. Instead of aiding and assisting the hapless homeowners, Treasuries and Federal Reserve Banks on both sides of the Atlantic, came to the rescue of the very same greedy bunch of bankers responsible for triggering the very crisis which the world was trying to avoid, by mopping of trillions of dollars of toxic assets thereby recapitalizing and bailing out the ogres who were the creators of a dangerous specter.
Even though a decade has passed since the Great Recession, we are still ransom to the murky and shadowy practices adopted by the so called “Too-Big-To-Fail” institutions. The systemic risks posed by them are very real and their penchant for leverage has only exacerbated an appetite for risk taking. Policy mavens will do well to read the prescriptive remedies being offered by Kuttner before it becomes too late to reign in a global catastrophe!
What Robert Kuttner admirably proves in this marvelous work is the fact that these kind of tragedies are perfectly avoidable. He does not say this sheltered and enriched by the benefit of hindsight. Resorting to a careful analysis of economic polies, relying upon a dissection of both macroeconomic and financial follies and studiously explaining available alternatives, Kuttner in “Debtor’s Prison” launches a very assault on what he terms “The Politics of Austerity”. My personal key takeaways from a reading of this illuminating and trenchant work would be the following:
1. Burgeoning financial industry debt
Rampant financial speculation and the creation of exotic financial instruments by investment banks, hedge funds and unregulated/barely regulated hybrids led to incredulous amounts of leverage in the financial sector. During the so called ‘boom years’, these institutions were typically operating with leverage ratios of 30:1 and in some unbelievable instances, more than 50:1!
2. Wall Street and Social Spending
A coalition of the so called deficit hawks of the likes of the billionaire investor Pete Peterson and his ilk engage in extensive lobbying and intense funding with a view to slash expenditure on social insurance and to direct the focus of the Government towards balancing budgets and cutting deficits.
3. The Greek Fiasco
In a splendid Chapter titled “A Greek Tragedy”, Kuttner chronicles the devastating impact of austerity collectively thrust upon an already suffering Greek populace. Harsh and inexplicable measures imposed in exchange for financial aid, such as cutting pensions, introducing three new tiers of value added taxes, and slashing pay packages of the salaried classes ensured that the Greeks were saddled with the most deflationary package ever imposed on the member of the European Union.
4. The Mortgage Mania
Unscrupulous brokers generating mortgages irrespective of the credit worthiness of the borrower, splicing and dicing of esoteric financial instruments with the covert blessings of credit rating agencies nursing conflicts of interests with the issuers of such instruments and a complicit, if not bewildered bunch of regulatory agencies all combined to create a domino effect that took the wind out of the sails of the global economy. Instead of aiding and assisting the hapless homeowners, Treasuries and Federal Reserve Banks on both sides of the Atlantic, came to the rescue of the very same greedy bunch of bankers responsible for triggering the very crisis which the world was trying to avoid, by mopping of trillions of dollars of toxic assets thereby recapitalizing and bailing out the ogres who were the creators of a dangerous specter.
Even though a decade has passed since the Great Recession, we are still ransom to the murky and shadowy practices adopted by the so called “Too-Big-To-Fail” institutions. The systemic risks posed by them are very real and their penchant for leverage has only exacerbated an appetite for risk taking. Policy mavens will do well to read the prescriptive remedies being offered by Kuttner before it becomes too late to reign in a global catastrophe!
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