David Quinn: Moral bankruptcy is cause of credit crisis
Friday August 27 2010
THE decision by ratings agency Standard & Poor's to downgrade our credit rating the other day is just one more sign that Ireland is still in danger of becoming a sub-prime country.
The sub-prime crisis is like a contagion. First the banks lent to sub-prime customers against all common sense. That made the offending banks themselves sub-prime.
To stop those banks going under, governments then started pumping public money into them with the consequent danger that those governments themselves will go sub-prime. That has already happened to Greece.
Greece, like the banks, then received its own bailout -- with Germany and the EU as lenders-in-chief. But if Germany and the EU have to bail out too many countries, then Germany and the EU as a whole will also go sub-prime. At that point there will basically be nothing left to rescue the system because the system itself will have gone sub-prime.
This is the nightmare scenario that has been before us ever since the credit crisis erupted almost three years ago.
In countries like Greece the response has been sometimes violent street protests against cuts in public spending. In America there have been sometimes angry but never violent protests, but not against spending cuts -- because there haven't been any to speak of -- but against the huge expansion in government spending.
Those protests have been led by the so-called 'Tea Party' movement and they embody the difference between America and most of Europe. In Europe we hardly ever think as a matter of principle that the government can do too much. In America they do, even in liberal Massachusetts, where they elected a Republican to succeed Ted Kennedy precisely as a protest against excessive public spending.
Here in Ireland we have neither a Tea Party, nor anything like the violent street protests against spending cuts, even though the left here would love us to copy the Greeks. But of course, if we copy the Greeks and never rein in spending then we'll end up exactly like the Greeks -- which is to say our credit rating will reach junk status and we will lose our economic freedom.
That is the real consequence of the current economic crisis; you end up losing your freedom because you end up in hock to other people. If you can't exercise self-control, you end up being controlled.
This is why there is a moral dimension to the crisis and it's why business schools are disastrously misguided if they turn out graduates who know a lot about marketing or accountancy or economics but nothing about those old, despised things called the virtues which underlie all behaviour.
When it boils right down to it, the cause of this crisis is a lack of good judgement -- which is to say prudence. It also stems from a lack of self-control, which is to say temperance.
It stems from an inability to delay gratification -- I want everything now -- and that stems partly from a lack of fortitude; in other words, the ability to stick at something that's hard and requires sacrifice.
To a certain extent, it even stems from a lack of justice. Not only did we want everything now, we didn't care about the consequences for other people.
If the individuals who run our banks, who run our unions, who run the Government, who are in charge of the opposition, lack these qualities, then it is absolutely inevitable that we will end up in trouble.
It doesn't matter how technically proficient our leaders may be, if they lack those virtues everything else is undermined.
Some of the rest of us have to take some of the blame as well.
For example, those shareholders who demanded that their company directors deliver bigger and bigger dividends each year and forced them to chase short-term profitability regardless of the long-term cost.
For example, those voters who demanded both spending increases and tax cuts until the books no longer balanced.
Then again, good leadership sometimes involves telling people what they don't want to hear. Imagine how much better things would be now if more company directors had told their shareholders that maximising profits in the short-term was dangerous.
Or imagine if Fine Gael had warned loudly and clearly against excessive government spending and had been willing to try and educate the public about the dangers of this?
They would now be reaping the benefits of having been proved right.
BUT such leadership has been almost entirely lacking here, and in most other countries. In Europe only Germany, because of its historical legacy, seems capable of not running up insane levels of debt -- which is why it annoys ordinary Germans so much that they have to bail out the Greeks.
The move by Standard & Poor's this week can be criticised on technical grounds, but there is no getting way from the fact that our economy remains in the intensive care ward.
If we ever get out of this situation the only way to ensure we don't repeat past mistakes is to start practising once again those old, forgotten things called 'the virtues'.
dquinn@independent.ie
- David Quinn
Irish Independent
