Austerity is back and it could be even more self-destructive now

Mark Blyth is director of the Rhodes Centre for International Economics and Finance at Brown University and the author of 'Austerity: The History of a Dangerous Idea'

- MARK BLYTH

What do Rachel Reeves, Javier Milei and Elon Musk have in common? All are preaching the gospel of austerity as a necessary cure for what ails their respective economies.

Hence, Reeves, the UK's Chancellor of the Exchequer, has tightened rules for government spending and investment, despite the fact that fiscal constriction has been a major cause of the country's problems over the past 15 years. Similarly, Milei has framed austerity as the price Argentina must pay for 20 years of overextension. He argues that defeating inflation is the only path to prosperity, even if doing so deepens an already deep well of poverty.

And for Musk, the US needs austerity to spare it from bankruptcy. This argument is just a ruse: states with sovereign currencies, especially the main global reserve currency, cannot go bankrupt. Musk's obvious motivation for slashing public budgets is to make room for tax cuts and fire public employees who do not share his agenda.

The last time we heard the drumbeat of austerity was during the global financial crisis. In the US, the prescribed response took the form of a milquetoast 'sequester' (spending caps). But in Europe, fiscal tightening went much further, destroying a decade's worth of growth, undermining public investment and contributing to many of the problems that the continent is still struggling with today.