Monday 24 October 2016

What have we achieved so far before we go any further?

Published 30/01/2014 | 02:30

THE most damning indictment of Christopher Columbus in the famous epigram is that, when he got back from his great voyage, he did not know where he'd been.

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Sometimes it is more useful to know where you were than to be sure of where you're going. The Portuguese had a shrewd idea where Columbus had been and ended up getting Brazil, as well as going to India the sensible way.

Five years ago, at the start of the Crash, no one could have been sure how things would turn out. Few would even have predicted that the chart prepared for the troika programme would turn out to be remarkably accurate.

It is impossible to say how the next five years will turn out either. But it would be a help in getting through them if we could agree on what actually happened in the last five. That might seem simple but, in fact, there is no agreement at all.

This was starkly evident at the recent hearings in Dublin by the European Parliament's Economic and Monetary Affairs Committee. Members include Fine Gael's Gay Mitchell and Labour's Emer Costello and the committee is trying to assess the impact of austerity programmes on the bailout countries.

One wishes it well. "Austerity" itself is a loaded word. A seasoned teacher of English pointed out to me recently the dangers of what start as metaphors being turned into realities in the churning excitement of media discourse.

"Austerity" was a handy description for the policy of dealing with budget deficits through real cuts in spending and increases in taxation. Alternative approaches would involve defaulting on debt or merely continuing to borrow and never mind the deficits.

Economists have had ferocious arguments as to which of these approaches, or what combination of them, is best. The United States is at the centre of the arguments, although they have also featured strongly in Britain.

Naturally, they wash up on these shores but they are rarely adjusted for Irish conditions. The Americans have aircraft carriers but that does not mean we can have some too.

One feature of the financial panic was that the US and UK governments could borrow long-term at the lowest interest rates in more than a century. There was a plausible argument that they should fill their boots while this lasted, instead of slowing their economies with budget cuts.

Ireland's case could not be more different. The Irish Government could not borrow at all, never mind at bargain price rates. The argument would be relevant only if it could have persuaded its fellow EU governments to lend it more than €200bn, at less than 2pc, repayable in the 2030s.

Oh yeah? One imagines that some MEPs from the creditor countries will have seen the implications of such talk in Ireland. They will also be aware of the implications for themselves of any default on Irish debt, whatever the theoretical merits of such a move.

That still leaves plenty of scope to argue about the speed of adjustment, the role of borrowing for sensible public investment, and the sharing of burdens between rich and poor, indebted and creditworthy.

But what is one to make of the submission from the Irish Congress of' Trade Unions that Ireland "was subjected to a painful ideological experiment whose aim was to engineer the shrinking of the state along with the erosion of labour rights and the wider European social model".

That is entirely different from ICTU's next sentence: "The troika's legacy is one of corrosively high unemployment, weakened social provision, frightening levels of emigration and the prospect of a 'lost generation' of youth, along with an entirely unpayable debt."

One could find a lot of agreement around that particular statement. The first one is planting a flag of battle. If this becomes an argument between left and right, we really will be heading for stormy waters.

Yet one can see the attractions of such a fight. Blaming the situation on mysterious ideological forces following some neo-liberal agenda makes it easier to take a position on the problems outlined in the second sentence.

The fact that these forces would have to include the German trade union movement and several social democratic parties in the creditor countries makes such a position dubious, to say the least. One line of thinking behind such ideas seems to be that austerity is so self-evidently wrong that no one could advocate it unless they were either very ill-informed or had a hidden agenda.

Congress spoke of the "abundance of evidence" that such policies are counterproductive. Social Justice Ireland even used the word "neo-liberal". This is another aspect of those arguments between eminent economists.

Yet in Ireland's case, the only alternative was, and is, debt default. By definition, there is no evidence at all as to what that would mean, because it has not been tried. It is a matter of opinion, honestly held, as to which is better or worse.

A striking example of the belief that some opinions cannot be honestly held came in a study of Irish newspaper reporting of the bailout, published in the 'Cambridge Journal of Economics'. This found that most of the items examined were in favour of austerity – 52pc in the case of the Irish Independent and 57pc for 'The Irish Times'.

That did not surprise me. There is a clear consensus among editors and senior journalists that the hard road is the right one in this case. Perhaps it is memories of the 1980s; perhaps it is a natural scepticism, of miracle cures. They – we – may be wrong but the opinion is genuinely held.

That idea was too much for the study. Such an outcome, it suggested, must have been the result of commercial pressure from management or advertisers. That seems an odd idea, considering what austerity has done to their businesses. Actually, what little pressure there was took exactly the opposite view.

The Parliament committee did hear opposite views. The ESRI (Economic and Social Research Institute) submission maintained that the five-year programme was the easiest that could have been applied before debt became unsustainable and that there was a case for an even sharper adjustment.

In another context, the ESRI has written of the need for evidence-based policy. On this journey there is no evidence on which to base policy for the future, only unproven ideas and theories. A little more humility in recognising that uncomfortable fact would at least improve the chances of devising a workable compromise.

If, instead, people are given the impression that malign forces are responsible for the sufferings of the last five years, they are unlikely to tolerate what will be the inevitable difficulties of the next five.

Irish Independent

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