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Bring on Keynes's animal spirits

There is a delusion that because of the budget on December 9 we have turned some invisible corner, that we have stabilised, that we are at the bottom, and that from the second half of 2010 it will inevitably be onwards and upwards to growth.

There is not much more basis in fact for this assumption than there was in the familiar mantras in an earlier part of this cycle, such as that the fundamentals were sound, that we were in danger of talking down the economy, that a soft landing was coming and, later on, in a brazen somersault, we were told that we don't know how bad things really were.

In truth, this is not the end, it is not even the beginning of the end, and there is very little evidence to convince us that it is anything more than the end of the beginning.

Look at the fundamentals. We take in something over €30bn in taxes, we spend nearly €55bn, and we borrow nearly €25bn.

Not far below the surface of society is a dark, uncivilised canyon where survival of the fittest rules, and where we are entitled to nothing that we can't pay for.

Since the budget, we have been distracted by floods, snow, Christmas, more snow, ice and Brian Lenihan's illness, but when the deluge subsides and the waters abate, we see the dreary steeples emerging once again.

It can be argued that Noel Dempsey is entitled to his holidays, that people are entitled to social welfare, that public servants are entitled to their pay and pensions. That may be so, but only if there is enough money to pay for them.

In fact, we are entitled to nothing at all if the money isn't there.

The day before Hitler attacked western Europe in 1940, the Belgian army increased its annual leave from two to five days a month. Eighteen days later, King Leopold surrendered unconditionally, leaving a 30-mile gap in the front line.

No doubt the Belgians felt entitled to the extra holidays, but did they get them?

Did it even matter?

We have, in effect, two parallel economies: one growing -- the export-led multination-

als; the other -- locally traded (including retail), still shrinking. As the two economies diverge, we will see, in the short term, a domestic economic wasteland languish in the shadow of a burgeoning export trade.

Convinced that export-led growth is the way to recovery, the Department of Finance is determined to drive down wage costs, using the crudest of instruments: business closures, job losses, depressed domestic demand, and the collapse in property prices.

Consumer spending is bombing out and even those who have some savings are, in general, afraid to spend them.

All this might work out in the long term, with exports eventually dragging the locally traded economy out of recession. But it is a ruthless policy: if you lose your business or your job today, the chances are you won't get another one. You will be regarded by the mandarins, from their secure glass boxes, as an expendable and inevitable casualty of war. And if you're under 30, your prospects right now are poor -- negative equity and even emigration stare you in the face.

As for the mandarins, would you put them in charge of a corner shop?

Much of our financial sovereignty has been ceded to Brussels, we are locked into a weak economy with a strong currency (a huge mountain to climb for exporters to sterling or dollar markets), and we will continue to decline this year when the US, the UK, most of the eurozone, and many developing economies will grow.

At least two generations ago, a sort of economic nationalism became evident in the Department of Finance. The sentiment was that it would be good to withdraw from the British sphere of influence and enter the European, more specifically German, sphere. Inherent in the thinking was a strong streak of Anglophobia.

We were over-dependent, it was argued, on trade with Britain.

That might be so, but at this particular time and place, Britain will grow in 2010 -- whereas we won't. But that, we are assured, is merely the short term.

Britain, we are told, is doing the wrong thing, is printing its own money and, much as we might envy its monetary sovereignty, it will come a cropper in time.

That could well be right, but where are we ourselves in the short term?

In 1924, when unemployment was twice what it had been before the Second World War, John Maynard Keynes (now, again, the flavour of the moment) wrote: "We have stuck in a rut. We need an impulse, a jolt, an acceleration." The economist-philosopher was advocating not only policy changes, but a radical alteration in mindset as well.

The 'animal spirits' that Keynes believed drove exuberant capitalists to risk, investment, adventure and, they hoped, profit, are in danger of being suppressed in the present judgemental, retributive atmosphere.

"There may be stimulating medicines that are wholesome. Business is weighed down by timidity," Keynes wrote, again in 1924.

"Capitalism, wisely managed, can probably be made more efficient in attaining economic ends than any alternative system yet in sight, but in itself it is in many ways extremely objectionable."

Words, he believed, "ought to be a little wild, for they are the assaults of thoughts on the unthinking".

Keynes, however gifted, might not give the answers to today's problems, but he will certainly provide clues to the answers.

After the trauma of the past two years, few people want to take risks -- and most are now, understandably, seeking safety.

But is it the safety of the cage?

Keynes's words may sometimes seem a little wild in these cautious times, but there is wisdom in them as well.

"Bring on the animal spirits!" Keynes would say. Because he would know that the alternative is too dismal to contemplate, even for an economist-philosopher.

Sunday Independent