July 19, 2010
In the preface to The General Theory of Employment, Interest and Money, John Maynard Keynes writes: ‘‘The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.”
This is the problem in every crisis.
The issue is not that the lack of solutions to Ireland’s problems; the issue is that we don’t allow ourselves the permission to think our way out of the mess. So instead of examining new ideas, the first reaction of the establishment is to attack the premise of any new idea.
When obvious solutions are proposed for our economic dilemmas, the default position for those who don’t want change is to dismiss such ideas as ‘populist’.
The slur ‘populist’ is supposed to be enough to render new ideas useless or naive. Many of us who have seen what has happened to this country over the past two years would take ‘naivety’ over the ‘experience’ that has been on display from the ‘safe pairs of hands’ who run this place.
What about the counter-idea that populist ideas are popular because they are right?
Maybe we should consider that popular ideas are naive not because they are shallow and ill-conceived, but because they are devoid of the dripping cynicism that characterises economic policy in Ireland.
And what, we should also ask ourselves, is wrong with being popular or on the side of the people.
This is particularly apposite in Ireland, because the opposite of populism, or putting the people first, is elitism and elitism in Irish economic management means crony capitalism. So the people who oppose the crony capitalist and the interests of the insider elite in Ireland get tarred with the populist brush.
But what if there is some significance or merit in populism simply because it isn’t cronyism?
The obvious solution to the banking crisis is to let the bank guarantee lapse, protect the deposits with a deposit guarantee scheme backed by the European Central Bank (ECB) and let the other non-trust creditors hang.
The reason I say an ECB-backed guarantee of deposits is because this is an ECB problem. It controls the monetary union, and a banking problem in a member state is a monetary problem, and the ultimate monetary authority in the eurozone is the ECB.
Such a suggestion is popular and populist not because it is naive, but because it is right.
However, the people who will suffer are the cronies and the elite who might see their investments – or their so called ‘credibility’ – go up in smoke. Rather than do this, the insiders continue with their less than credible policies, and now we have the spectacle of them all pointing the finger at each other in order to survive.
When I see the likes of Patrick Neary being tarred and feathered by the same people who employed him, I see a smear campaign orchestrated by one bunch of insiders against another insider.
But the horrible thing is that the former bunch is still in power.
Why not just move on and entertain new ideas that put the people first and destroy the crony system that has got us into this mess, rather than waste our time concentrating on a piece of ‘after-the event’ bullying that is designed to put distance between the people who took the decisions and the decisions themselves?
It is also heartbreaking to see the media playing along with this game. The only way we will get out of this crisis is to think differently and risk being accused of populism not because it is easy but because it is right.
Let’s look at examples of politicians who took populist financial decisions on banks and currencies because they were right and in so doing liberated the people.
Franklin D Roosevelt was accused of being naive and populist and his solutions were consistently attacked as being too simplistic.
Yet they were right.
Roosevelt understood that simplicity was good, not bad. In fact, sometimes the more simplistic the solution, the more the person who proposes the solution understands the issue.
So when faced with banks lying to him, Roosevelt simply closed them down.
He protected depositors and then allowed the banks and their investors to go to the wall.
He also chose to keep others open, fully realising that the US needed some banks, but not every bank.
He did this rapidly with a series of bank holidays, which allowed the authorities to close down banks and move on without the people panicking and causing a run on the banks.
Equally, he defaulted on all of the US’s debts by taking it off the gold standard in 1935.
All the advisers said this was a populist move and would ruin the US’s credibility. It did precisely the opposite: the move off the gold standard was welcomed the very next day as equity and bond markets rallied, because the markets understood that, by changing the currency, Roosevelt had given the US a chance to recover.
Right decisions can be popular because they are right.
With our banks, the government should follow Roosevelt’s example and do the right thing.
Let the guarantee lapse, as envisaged two years ago. It prevented a bank run two years ago. It has done its job, so just let the guarantee lapse.
Then the problem becomes an ECB problem, which is what it should be, particularly because the majority of Irish bank creditors are other eurozone banks.
We move on. It really is that simple. This is a real plan and it would be popular.
However, we are now being exposed to the unedifying spectacle of the cabal of insiders turning on themselves – as if that will solve anything.
At the end of all this, the Irish people will vote with their feet and take their money out of the Irish banks because we don’t believe the ‘insiders’ about our banks any more.
Why should we?
That’s what is likely to happen here, and a run on the banks will be considerably nastier than anything imaginable from even the most populist solutions.