Austerity everywhere: But are they working? What can be learnt from the history of past austerities?
A short history of austerity: it almost never works
“The most famous episode of austerity was during the interwar years, as Germany, Britain, France and Japan all fought to stay on the Gold Standard even amid the Great Depression. The deflationary impact of keeping their currencies pegged to gold, along with the austerity policies they followed to do so, was disastrous.In Britain, unemployment jumped from 10.4% in 1929 to 22.1% by early 1932, even while government debt surged. In Germany, the Social Democrats stupidly clung to the orthodoxy of austerity, pushing joblessness up to to 30% by 1932, and opening the door to the Nazis.
In Japan, the Showa Depression saw household incomes more than halve within two years between 1929 and 1931. Tokyo cut spending by nearly 20%, with the military bearing the brunt of the privations. The result was a wave of assasinations of government ministers and bankers and attempted coups. As the political scientist Mark Blyth says in his new book, Austerity: "Austerity didn't just fail – it helped blow up the world. That's the definition of a very dangerous idea."