Back to the future

Sli Eile: John Maynard Keynes, speaking in UCD in 1933, praised the self-sufficiency policies of various countries including, at the time, ‘Italy, Ireland, Germany’ (what a trilogy!). This was not flattering company, especially as Keynes observed that these countries ‘have cast their eyes or are casting them towards new modes of political economy’. The rest is history. A key development since 1933 has been the collapse in many world models including:

• Self-sufficiency, which for Ireland ended in the tragic failure of national economic policy in the 1950s;

• Communism, which could not give the people the peace, bread and land it promised and came down with the Berlin Wall without a shot being fired (almost); and

• Neo-Liberalism, which dominated thinking and policy practice in that other trilogy of the USA, UK and Ireland for the past decades.

And now the demise of neo-liberalism is signalled by a monumental failure to give the people the peace, bread, land (and housing in the case of Ireland) it promised. It was an illusion based on lies about real values, prices and debts. It came crashing down in 2008 as quickly as the Berlin Wall fell in November 1989 and, like Humpty Dumpty, all the kings’ horses and all the kings’ economists couldn’t put Humpty together again - not even with another dose of recapitalisation.

So, what is next? Hard to say. One thing is sure: the world will never be the same again, and you know this when 20 eminent economists of various ideological hues write an article in the Irish Times desperately calling on the Irish Government to nationalise the banks (or what the left used to call 'parts of the commanding heights of the economy'). A few salient points are in order:

1. If the old models of self-sufficiency, communism and neo-liberalism failed abysmally, the new models – if there are any around to emerge in the coming years – may not work so well either;

2. Change is possible and hope is vital, precisely because power is everywhere and that power is vested in democracies where citizens are sovereign and Governments can take ownership of assets where the need is apparent and the common good demands it;

3. The notion that Ireland is finished and can only wait for an international recovery (see Paul Krugman:

Ireland appears to be really, truly without options, other than to hope for an export-led recovery if and when the rest of the world bounces back)

is fundamentally flawed because a member of the European Union can choose to spend, tax, not regulate and guarantee in particular ways. There are options, and many of these are reflected - among other sources - in the ten-point plan issued by the Irish Congress of Trade Unions.

Would a Keynesian-type domestic stimulus work in Ireland? It all depends. Specifically, it depends on four great unknowns:

• The impact of the US-led Keynesian stimulus;

• The length, depth and geographical distribution of the Great Recession

• The way public expenditure is distributed in Ireland and its differential impacts on investment and domestic consumption; and

• Events – political, social and cultural – that are impossible to tell or predict in this world of uncertainty.

The irony of Keynes' remarks in 1933 is that the Great Depression of 1929 was, ultimately, resolved by a mixture of policy responses - some of which turned out to be extremely bad (like public work programmes in fascist dictatorships) - and then a World War which solved the unemployment problem for a time. Keynes could not have fully foreseen this. But, when it happened, he worked behind the scenes to help put in place the post-War architecture of global financial institutions which reigned for almost 30 years until 1973. The legacy of social democratic Governments in that period – and more recently ‘New Labour/Third Way’ - is mixed, especially the latter. Looking to the future, Obamesque tinkering with the existing social and economic order is unlikely to deliver unless it is surpassed by fundamental change driven by the grass-roots and led from the top by a new political generation.

A fair bet is that a domestic stimulus in Ireland, alone, will not work especially if it is not accompanied by fundamental change in Irish social and economic policy – whatever happens or does not happen internationally. Part of that change must concern shifts in political power (and not just personalities, office holders and parties in power), in the way in which markets are regulated and in the balance of public, private and voluntary engagement in the provision of goods and services.

Peter Bacon was not right to say that it does not matter which nameplate appears over a bank’s door (to argue against nationalisation, in his case). But he would have been right to apply the nameplate analogy to political power, if a change of Government represents a change of persons and parties without a fundamental change in the direction of economic and social policy away from neo-liberalism to a new social order.

At the end of this sorrowful tale it will not be the Government, the banks, the EU or capital markets that will save us. We can only save ourselves by reinventing democracy and effecting social change through democracy.

Posted in: Economics • Economics • Economics • Fiscal policy

Tagged with: stimulus • Political Economy • Keynes • krugman