Simultaneous deleveraging by all states makes export-led growth self-defeating
Evidence
This problem is especially pernicious under a policy of generalized austerity because if a country’s private and public sectors are both paying back debt at the same time (deleveraging), then the only way that country can grow is by exporting more, preferably with a lower exchange rate, to a state that is still spending. But if everyone is trying the same strategy of not spending, as is happening in Europe today, it becomes self-defeating. The simple story of “too much debt, cut it now” becomes surprisingly complex as our own commonsense actions produce the very outcomes we are trying to avoid, and the more we try to cut, as Greece and Spain are proving to the world, the worse it gets. We cannot all cut our way to growth, just as we cannot all export without any concern for who is importing. This fallacy of composition problem rather completely undermines the idea of austerity as growth enhancing. — Mark Blyth, Austerity, 48
Categorization
- DEFINE: Explains why simultaneous private-plus-public deleveraging forces a rival beggar-thy-neighbor export strategy that cannot work for everyone.
- SEED: Angle: the coordination problem of austerity as a prisoners’ dilemma among states — everyone cutting to export more is structurally identical to tariff wars or currency wars.
- XREF: connects to: Baltic export-led recoveries partly relied on neighbors’ demand, not austerity itself — Mark Blyth, Austerity: The History of a Dangerous…, 609; Universal export-led surplus strategies produce global depression, not growth. — Mark Blyth, Austerity: The History of a Dangerous…, 379; Rational self-interest yields collectively disastrous resource depletion — Roderick M. Kramer, Geoffrey J. Leonardelli, Robert W. Livingston, Social Cognition, Social Identity, and…, 2498 (+1 more)
Broader Connections
- Universal export-led surplus strategies produce global depression, not growth.
#corroborates(0.95) — Mark Blyth, Austerity, 379 - Capital-account liberalization creates surplus-deficit imbalances and boom-bust cycles
#expands(0.80) — Natascha van der Zwan, Making Sense of Financialization, 34 - Rational self-interest yields collectively disastrous resource depletion
#corroborates(0.75) — Roderick M. Kramer, Geoffrey J. Leonardelli, Robert W. Livingston, Social Cognition, Social Identity, and…, 2498