Thursday 18 July 2019

Eilis O'Hanlon: 'The future may look bright, but we haven't forgotten the past'

The deep wounds caused by the economic crash may have healed on the surface, but the psychological scars still linger, writes Eilis O'Hanlon

'If crashes can’t be predicted, one could happen at any moment'. Stock photo
'If crashes can’t be predicted, one could happen at any moment'. Stock photo

Eilis O'Hanlon

The term "trauma" comes from the Greek word for wound. "In adopting the term," say the authors of the classic text, The Language Of Psychology, "psychoanalysis carries the three ideas implicit in it over on to the psychical level: the idea of a violent shock, the idea of a wound, and the idea of consequences affecting the whole organisation". The financial crash of 2008, and all that followed, shows how this can also happen on a social and economic level.

What made it more traumatic was what preceded the crash. There had been recessions before. There will be recessions again. If there is a solution to the cycle of boom and bust, no one has found it yet. What made this one different is that it followed an unprecedented period of self-confidence in Irish life. The Celtic Tiger was not simply an economic phenomenon, but a psychological one. Irish people felt, perhaps for the first time, that they were deserving of the best life.

It didn't last long. The global crash pulled out the rug from under everybody's feet, and they couldn't find their footing. What isn't appreciated enough is how that continued. What Freud brought to the study of psychological trauma was an understanding that the damage could be hidden.

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When the outer shield which protects people from harm is breached, it leaves what he called "mnemic traces". It may take time for their effect to be felt, but it explains why, when we're now "safe" and the economy is growing, those mnemic traces still linger.

We ought to be feeling content. The indicators are all good. There is almost full employment. Wages are rising in real terms. The economy is out-performing most other European countries, and is set to grow again by 4.1pc this year. Still there's that trace of uncertainty. Some of that is because we remain over-exposed, as the economists say, to further economic downturns. There are a lot of non-performing mortgages still held by Irish banks. The recent drop in consumer confidence is among the biggest in decades.

Brexit obviously has something to do with it. As such, the election of Boris Johnson as new Tory leader, and hence UK prime minister, as now seems almost unstoppable, can only make matters worse. He has pledged to take Britain out of the EU by the next deadline of October 31 with or without a deal.

There's also a feeling that the recovery may be built on shifting sands. In 2015, Irish GDP shot up by a massive 25pc in a single year. That was believed to be down to a single multinational company shifting certain parts of its operations from Jersey. Further spikes in GDP were also attributed by the Economic and Social Research Institute to activity by multinationals. That doesn't do anything for ordinary people. Their wealth didn't increase by a quarter in a single year. Looking at these figures, it's not unreasonable to wonder if economists are living on the same planet as ordinary people.

Fewer than one in five in Ireland fear for their jobs as a result of Brexit, but 69pc of people think it will lead to higher prices in the shops. As such, they're minded to be cautious. Consumer confidence did rise slightly in May, but it was still only slightly above the February figure, and that marked a 51-month low. Even when they are spending more, it's on rents and mortgages, which again doesn't do much for the broader economy.

The striking thing is that Irish people are more pessimistic about Brexit than the Brits themselves, which again points to the memories of trauma which are being stirred up. No one wants to relive 2008. With the characteristic understatement of his fellow number crunchers, KBC Bank Ireland chief economist Austin Hughes says it may be that "the scars of the recent crisis make Irish consumers particularly sensitive to any form of downside risk". You don't say?

Even if there is a recovery, it has come at a cost. People don't forget that easily. They started to see their children emigrate again after a time when they believed that would no longer happen. People in rural areas have also not enjoyed the same benefits of recovery as Dublin. Economist Alan Ahearne, who predicted the property crash in Ireland, expects the impact of even a hard Brexit to be manageable for Dublin, but obviously much more severe in counties that rely on farming.

It has been suggested that Irish consumers are perhaps overstating the risks. The reality hasn't changed, it goes, but they just feel nervous. The problem with this analysis is that it ignores history. During the Celtic Tiger, there were plenty of people saying: "What are you worrying about? Everything's going to be fine." It wasn't. Many of those urging confidence now sound as if they are equally optimistic. Goldman Sachs says the chance of a recession this year is just 10pc. Sounds great. But there is contraction worldwide. Germany is not looking in great shape. There's a potential euro crisis looming as Italy increasingly clashes with EU budgetary rules.

The Goldman Sachs prediction is just for the next four quarters and that's not enough to calm fears. Nobel Prize-winning economist Paul Krugman told the World Government Summit in Dubai earlier this year that "there is quite a good chance that we will have a recession late this year or next year," and that his greatest worry was, that if one did strike, "we don't seem to have a safety net".

The risks may be exaggerated; economists get plenty of things wrong. But isn't that the point? Rather than being reassuring, it simply increases uncertainty. If it's impossible to rely on predictions, then a crash could happen at any moment, and for any number of reasons, so how can one relax?

This hyper-alertness is a common symptom of trauma. Even where there's little chance of experiencing the same event, one still watches out for danger. These feelings - not trusting people; regarding the world as unsafe; seeing yourself as at fault, as weak - all persist. When the worst has happened before, it's only natural to expect it to happen again.

In 2013, The Economist quoted a study which found that Germans were more worried about inflation than they were about contracting cancer, a remarkable statistic considering that the hyperinflation of the 1920s was a century old. It talked of the "national obsession with price stability". Ireland doesn't appear to have any similar neuroses, except for a worry that Northern Ireland will erupt again, and that, being a more recent folk memory, is an understandable preoccupation; but perhaps it has the same debilitating effect.

On a personal level, financial crises either seem to make people go crazy with money, or make them excessively cautious. Ireland has a strong and stable middle class that forms a bulwark against extremism, but it's not immune from global moods. Krugman argues that the rise of populism demonstrates that people, even if they're doing slightly better than before, remember they were treated badly. That's true in Ireland too. People might be glad that the economy is, for the time being, on the up, but that doesn't mean they have forgotten or forgiven the recession. The wound still bears a scar. Politicians would be foolish to not see it.

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