Challenging an Economic Orthodoxy

Blissett
Ógra Shinn Féin

‘Capitalism is the extraordinary belief that the nastiest of men for the nastiest of motives will somehow work for the benefit of all.’ John Maynard Keynes (1883-1946)

To look at our present politicians, one would never guess it. But in their hands is the greatest opportunity any politician could dream of. The opportunity is there, for anyone who wants to seize it, to shape the politics of this country for the next 20 years. The question is who will seize it…



The boom times are over. Lessons are there to be learned, if we are willing to learn them, particularly in the 26 counties. We learned that low tax economies can often create wealth, at an impressive rate. But we also learned that to try and demand the very finest public services on the cheap, simply is nonsense, deeply compounded by the wasteful spending of the governments of the last 10 years.

Let’s look at where this has left us. Not only was our tax take far too low, but we have also found that what taxes were coming in, have slumped in an alarming manner, being as they quite often were, asset based taxes. Our low tax economy led to massive inequalities in society as the FF/PD government allowed their cronies to make a fortune, while our health system crashed to a halt. Then when our luck ran out, the government decided that pensioners, students, children were for the scrapheap, and that taxpayers money would be better spent feathering the beds of the banking executives.

It has become clear that sustainable growth requires an increase in the tax take. And this must be targeted at those who can afford to pay, and those who benefited during the Celtic tiger period. There are many ways to do this. A third tax band at a rate of above 50% is one option, for those earning significant sums (say €90,000) is one option.

The removal of the PRSI ceiling is another, and one which was proposed by Sinn Féin in its pre budget proposals. But whatever must be done, we must be clear to the public, that the low tax illusion is precisely that. Cervical cancer vaccines can be provided, and medical cards for over 70s, and more. But we have to pay for it, and we should be confident in the ability of the Irish people to make the right choice.

Let’s have the courage of our own convictions, and propose the measures that can provide these services.

Of course public services aren’t the only problem we face at this moment in time; job creation has to be a priority, with unemployment reaching levels not seen for many, many years. What we ought to concentrate on at this moment in time, is a large public works programme. Let’s see this crisis as an opportunity to develop.

Now is the time to build schools, social housing, invest in proper insulation, invest in green industries and renewable energy. This would provide jobs, particularly in the construction industry and related industries, and would stimulate growth. Even noted socialists such as Brown and Obama see capital spending as part of the solution, yet the political consensus here seems to revolve around slashed wages and services.

What gives?

What then of the financial institutions?

These last 12 months has seen the incredible spectacle of a number of very august building societies, banks and insurers come crashing to earth, having gambled away the very ground beneath their feet.

The survivors cling to life timidly, unwilling to lend to those who need it most, small and medium enterprises, creating major difficulties for the economy, bearing in mind that 4 out of 5 enterprises fall in to this category.

Naturally the government wishes to get the banks to lend, which leads to expensive recapitalisation schemes which places huge swathes of taxpayers money in the hands of the very same people who got us in to this mess!!!

What’s the alternative? Would it not be better value for money to simply take banks that find themselves in severe difficulty into government administration?

Given that no private investors could possibly match the level of capital that the state has, then surely this would free up credit, aiding those businesses who are at present being forced to lay off left right and centre.

As I write this, the government has indeed recognised the folly of recapitalisation in this nature, and have nationalised Anglo Irish Bank.

The way it has been done, however, leaves much to be desired. Sinn Féin claims it is the right move, but the wrong bank. This may very well prove to be the case, Anglo Irish, as was seen in the Seán Fitzpatrick farce, was clearly under regulated. It’s difficult to know whether or not this will end up being an enormous burden on the exchequer.

A full and thorough review of the banks accounts and loans should have occurred before taxpayer’s money was spent. But the basic principle remains sound. A state bank would be much better able to direct investment where it’s needed, and the precedent is there in the Swedish response to a similar banking crisis in the 1990s.

And better availability of credit would not be the only advantage. The fact is banks have been operating their businesses in a way that shows flagrant disregard for social concerns. But then, to be frank, that’s exactly what they are supposed to do.

Consider this quote from Naom Chomsky –

‘Under capitalist rules, it is not their business to consider the cost to others if their practices lead to financial crisis, as they regularly do. In economists' terms, risk is under priced, because systemic risk is not priced into decisions. That leads to repeated crisis, naturally. At that point, we turn to the IMF solution. The costs are transferred to the public, which had nothing to do with the risky choices but is now compelled to pay the costs - in the US, perhaps mounting to about $1 trillion right now. And of course the public has no voice in determining these outcomes, any more than poor peasants have a voice in being subjected to cruel structural adjustment programs. A basic principle of modern state capitalism is that cost and risk are socialized, while profit is privatized. That principle extends far beyond financial institutions.’

Now we find that the rest of us are asked to pick up the tab for the largesse of the likes of Sean Fitzpatrick formerly of Anglo Irish Bank, who treated himself to an €87m loan, while the conservative parties consider a fire sale of assets such as the ESB and Bord Gáis. Profits privatised, losses socialised.

Indeed that sacred cow of modern capitalism, the IMF has its own difficulties. It has long been an enemy of the poor and a friend of the wealthy, and clearly is in need of reform, recent attempts being totally inadequate.

It needn’t have been so.

At the Bretton Woods conference 64 years ago, economists from all over the world assembled for the United Nations Monetary and Financial Conference. There they discussed the future of global economists.

One man in particular recognised the danger that international debt created for stability, but also recognised, that once in debt, debtor nations were limited in what they could do.

This man proposed a system whereby an International Clearing Bank would be established, and that debtor nations would be charged interest on their accounts if there was a large trade deficit.

More tellingly, he proposed the exact same thing for those nations who amassed large trade surpluses. This would oil the wheels of international finance, forcing the wealthy nations to plough money into the poor nations, thus clearing their debts, and creating really financial equilibrium.

But the U.S. was opposed, and so the idea fell by the way side. Ever since, the IMF has enforced strict conditions on debtor nations, often making circumstances worse through aggressive liberalisation, and none on the wealthy.

It may have become apparent to you, that what i am talking about resembles a rudimentary, and basically articulated version of Keynesianism, the school of economics based on the thoughts of John Maynard Keynes, to whom the quote opening the piece belongs, and the man who proposed the system at Bretton Woods.

This is a school of economics that has previously found favour in times of economic difficulties, particularly in post war Britain, which helped bring Britain out of depression. But perhaps this is the wrong approach, to look to the past to find our way out of the present difficulties.

I am not an economist or anything of the sort, so there is nothing I would like more than for to see these ideas ripped to pieces, and new ideas to emerge. Over to you Ógra….