A thorough investigation of the current combination of austerity and extravagance that characterizes government spending and central bank monetary policy.

At the close of the 1970s, government treasuries and central banks took a vow of perpetual self-restraint. To this day, fiscal authorities fret over soaring public debt burdens, while central bankers wring their hands at the slightest sign of rising wages. As the brief reprieve of coronavirus spending made clear, no departure from government austerity will be tolerated without a corresponding act of penance.

Yet we misunderstand the scope of neoliberal public finance if we assume austerity to be its sole setting. Beyond the zero-sum game of direct claims on state budgets lies a realm of indirect government spending that escapes the naked eye. Capital gains are multiply subsidized by a tax system that reserves its greatest rewards for financial asset holders. And for all its airs of haughty asceticism, the Federal Reserve has become adept at facilitating the inflation of asset values while ruthlessly suppressing wages. Neoliberalism is as extravagant as it is austere, and this paradox needs to be grasped if we are to challenge its core modus operandi.

Melinda Cooper examines the major schools of thought that have shaped neoliberal common sense around public finance. Focusing, in particular, on Virginia school public choice theory and supply-side economics, she shows how these currents produced distinct but ultimately complementary responses to the capitalist crisis of the 1970s. With its intellectual roots in the conservative Southern Democratic tradition, Virginia school public choice theory espoused an austere doctrine of budget balance. The supply-side movement, by contrast, advocated tax cuts without spending restraint and debt issuance without guilt, in an apparent repudiation of austerity. Yet, for all their differences, the two schools converged around the need to rein in the redistributive uses of public spending. Together, they drove a counterrevolution in public finance that deepened the divide between rich and poor and revived the fortunes of dynastic wealth.

Far-reaching as the neoliberal counterrevolution has been, Cooper still identifies a counterfactual history of unrealized possibilities in the capitalist crisis of the 1970s. She concludes by inviting us to rethink the concept of revolution and raises the question: Is another politics of extravagance possible?