The financial crisis that initially developed in the United States in 2007–8, and rapidly became global, has proved deep and protracted. Though its impact has been felt everywhere, there is considerable variation in the way it has been experienced both between nations and between social classes (Farnsworth and Irving, 2011). The costs of the crisis are economic, as in declines in GDP (gross domestic product) and lost income for individuals, and social, as with forfeited opportunities for youth and, more generally, increasing health problems (all of which also carry an economic cost). A common response to this situation, especially since 2010, has been implementation of austerity policies aimed at cutting government expenditures. This seems to indicate a narrow focus on the fiscal costs of the crisis, represented by increasing public debt, rather than a broader economic focus in which growth to counter unemployment and lost incomes might feature more prominently.

As this preliminary formulation hints, the issues of the costs of the crisis and of austerity considered as a response are likely to be complex. This is not just because of the variability of experience but also because of the difficulty of attributing costs directly to the crisis itself, or to the responses to the crisis – some of which, such as austerity policies, have arguably made the crisis worse and hence increased its costs. Certainly policy responses like austerity have a distributive impact, imposing harsh burdens on some sectors of society while easing burdens on others.

Adding to this are the distinctions between direct costs, such as unemployment, underutilisation of capacity, lost output for the economy as a whole and the bills for government bailouts of threatened enterprises or general fiscal stimulus spending, and indirect costs, often manifested in the longer term, such as the health effects and associated resource allocations resulting from increased unemployment, poverty and inequality. Further, it can be argued that less tangible costs, such as the erosion of democratic governance and loss of national and popular sovereignty, are augmented by austerity.

An additional layer of complexity is provided by the role of austerity within the neoliberal paradigm that has dominated policy discourse and choices for several decades (McBride and Whiteside, 2011; Blyth, 2013).