Economic Stimulus and Objective Economics

Tom O'Connor: Most of the academic economic advisors to the government have done a Master's or PhD in the USA and though believing that they are 'objective' are actually working ex-ante from a neoliberal mindset, based on neoliberal training. The economics they studied in the USA or the US-led economics they base their views on is already ideologically driven before they make a single pronouncement.

This has huge significance for the obvious need to stimulate the economy. I asked several senior eminent economists how they could justify non stimulation. Their answers were, ' it's the banks job to lend' or 'the money would leak from the economy'.

My response to these economists was: the banks are not lending, and when they did they didn't do so appropriately. Ergo, the state is the only entity that can stimulate the economy and get funds to existing and new businesses. The responses included blanket rejections of lean neo-keynesian solutions, 'you can have that' based on nothing more than ideological opposition.

The 'leakage' arguments do not hold water: if the government was to invest in indigenous exporting industries, this would increase Irish exports and improve the balance of payments. Ergo, no leakage. If the government was to invest money in building schools, mental health services and other internationally non-traded areas, there obviously would be no leakage either. If the government set up state-owned enterprises which were competitive in high knowledge areas, there would be no leakage either.

None of these forms of stimulation have been tried. I have had discussions with Prof.Aldo Mustacchio of Harvard Business School on the subject of setting up state-owned enterprises (SOEs). His view is that these have always been a part of the capitalist system and that, in the post-financial collapse era, SOEs are a hugely viable option.

The Irish cabinet does not have any economic competence itself and depends on paid economists to advice it. These are overwhelmingly either American-trained or American-led. They set their face against bold solutions such as the above and the cabinet follows suit. This is the antithesis of democracy.

At the heart of neoliberal ideology is the classsic Phillips Curve mindset. In times of recession, the government must wait for the economy to naturally correct itself despite the huge increases in unemployment. This will be good in the long run, as the over supply of wage labour will drive down wages to incentivise employers to rehire, and then the economy will grow again without government intervention. The fact that wages may fall to slave labour proportions can only be good for the competitiveness of the economy.

This is essentially the way the Irish model works. That is why there are no plans for government intervention, even though 500,000 people will be signing on the live register by june 2010. If you read the Winter Quarterly Economic Commentary from the ESRI at the end of 2008, it advises the government to do nothing, sit tight and wait for an international recovery. This is precisely the type of ideology I am referring to. In the meantime, the unemployed person, to quote Norman Tebbitt, ex-Chairman of the Thatcher's Conservative Party, should 'get on your bike'.

It is imperative that this mindset be challenged and ultimately changed.
Tom O'Connor lectures in Economics at the Cork Institute of Technology

Dr Tom O'Connor     @justeconomics

Tom O’Connor is a lecturer in economics, public policy and health/social care at Cork Institute of Technology.