Expert cited in Greene report says austerity 'never works'

·3 min read
Mark Blyth, director of the William Rhodes Center for International Economics and Finance at Brown University, is the author of Austerity: The History of a Dangerous Idea.  (Submitted by Mark Blyth - image credit)
Mark Blyth, director of the William Rhodes Center for International Economics and Finance at Brown University, is the author of Austerity: The History of a Dangerous Idea. (Submitted by Mark Blyth - image credit)
Mark Blyth, director of the William Rhodes Center for International Economics and Finance at Brown University, is the author of Austerity: The History of a Dangerous Idea.
Mark Blyth, director of the William Rhodes Center for International Economics and Finance at Brown University, is the author of Austerity: The History of a Dangerous Idea. (Submitted by Mark Blyth)

When it comes to austerity measures, Mark Blyth doesn't mince words.

"It almost never works," the political scientist told CBC News in a recent interview. "In fact, I would go further: I would say it never works."

Blyth, the director of the William Rhodes Center for International Economics and Finance at Brown University, is the author of Austerity: The History of a Dangerous Idea, a 2013 book that examines austerity as an economic policy.

Critics of the report from the economic recovery team headed by Moya Greene have said the recommended spending cuts and downsizing of Newfoundland and Labrador government services amount to austerity measures.

Blyth's work is cited three times in the report, but he said spending cuts don't just cut waste.

"You're cutting jobs, you're cutting services, you're cutting spending," he said. "So the underlying economy shrinks and the debt stays the same and you end up with more debt rather than less."

Cutting economy to feed debt

Blyth uses the example of Greece, which he says cut spending by 30 per cent to prevent insolvency, only to sabotage its own economy.

"They literally took out 30 per cent of Greek GDP. What happened? Unemployment went to 25 per cent for adults, 40 per cent for youth, a million people left the country and the economy ended up a third smaller."

He says Newfoundland and Labrador's situation is similar to Greece's, but substantially better, as the province is much further from actual insolvency.

"You're spending less than the other Atlantic provinces, as far as I can figure out," said Blyth. "So if you're spending less per capita, where did all the debt come from? The answer is, don't look at Greece, look at the United States. You guys love tax cuts and you've been cutting taxes for a decade and that's your revenues.

"So you don't have a debt problem so much as you have a revenue problem."

No magic money tree

The Greene report recommends raising personal income tax and harmonized sales tax by one percentage point each, and corporate income taxes by two, but Blyth talks about raising taxes, he means business and wealth taxes.

"I'm not saying there's a magic money tree lying around, but you certainly did take in higher revenues before and you didn't bankrupt the state in doing so," he said.

"And it seems to be at least kind of prima facie evidence that if you have a deficit now and that deficit is directly traceable to cutting taxes in the past, then surely there must be the same room to raise them now."

It's a similar recommendation as the one offered in the independent People's Recovery Report, released in response to Greene's recommendations.

"Getting your revenues back to where they were 10 years ago and then getting your growth rate up to around two per cent [would] pretty much solve everything," says Blyth.

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