Once you've done that, watch a not-as-short video.
Once you've got the gist of his talks, get the book.* What he is saying is a breath of fresh air clearing out the bullshit getting laid thick in this time of Austerity! Rah! Rah! Rah!
Part of what academics do is generate ideas and teach. The other, perhaps more important part, is to play the role of "the Bu*l*hit Police." Our job is to look at the ideas and plans interested parties put forward to solve our collective problems and see whether or not they pass the sniff test. Austerity as a route to growth and as the correct response to the aftermath of a financial crisis does not pass the sniff test. The arguments given for why we all must be austere do not pass the sniff test.
(Mark Blyth, Austerity: The History of a Dangerous Idea, Oxford University Press, 2013, p. x. I left his quaint avoidance of bullshit intact. You can hear him say the word quite a bit in the second talk, though!)
What did cause the crisis now facing Europe provides the reason austerity should be questioned, and questioned hard.
What actually happened in Europe was that over the decade of the introduction of the euro, very large core-country European banks bought lots of peripheral sovereign debt (which is now worth much less) and levered up (reduced their equity and increased their debt to make more profits) far more than their American cousins. Being levered up, in some cases forty to one or more, means that a turn of a few percentage points against their assets can leave them insolvent. as a consequence, rather than being too big to fail, European banks, when you add their liabilities together, are "too big (for any one government) to bail," a phenomenon that the euro, as we shall see, only exacerbates.
(Ibid, p. 6.)
What's wrong with the Euro? While most countries have their "printing press"—the monetary creation ability granted to lenders of last resort, aka central banks (and, in the case of the US, the Federal Reserve, which farms out the un-backed lending ability to private banks, doing essentially the same thing as real central banks)—the Euro's introduction outlawed that.
So, according to Blyth, banks that bought up highly profitable (meaning "risky") sovereign debt in the form of bonds before the introduction of the Euro thought, as history informed them, that if the bonds "blew up" with that country defaulting on its bonds, the banks' countries would bail them out. After the Maastricht Treaty, that was no longer possible. There is no printing press backing the Euro.
Why? There is a delusional myth that hyperinflation in Germany led to Hitler. As I've noted before, this is complete bullshit. Ah, but bullshit ideas sometimes take on lives of their own, as Blyth notes: "John Quiggin usefully terms economic ideas that will not die despite huge logical inconsistencies and massive empirical failures as 'zombie economics.'" (Ibid, p. 10.)
The Weimar hyperinflation is just such a Zombie Idea. It serves a purpose; to prop up the political boogieman of Austrian (now more accurately termed Austerian) economics, as I pointed out in the other entry.
So, again, do yourself a favor. Watch the videos. Then watch another and maybe another. The message is the same: austerity is the problem, not the solution.
There is just on problem with this diagnosis [of state spending out of control]: it is wrong. The ongoing Eurozone crisis really has very little to do with the fiscal profligacy of periphery sovereigns, only one of which, as noted, was meaningfully profligate. There is a crisis in European sovereign debt markets; of that there is no doubt. But treating it as a crisis brought about by debt-fueled consumption and profligate spending is to confuse correlation (they happened at the same time) with causation (out-of-control spending caused the crash).
Just as we saw in the US case, the crisis in Europe has almost nothing to do with states and everything to do with markets. It is a private-sector crisis that has once again become a state responsibility. It has almost nothing to do with too much state spending and almost everything to do with the incentives facing banks when the euro, a financial doomsday machine the Europeans built for themselves, was introduced.
(Blyth, pp. 52-53, I emboldened.)
*I linked to it not, as everyone does, through the Great River That Is Helping Kill Seattle for a reason. If the austerians have their way, that library that got me Blyth's book will close, and damn the consequences. Fuck that notion.