May 29, 2014
More austerity is like putting an anorexic on a diet and expecting the body to strengthenPosted in Behavioural Economics · 69 comments ·
This week 100 years ago, a young Serb was practising his shot in a Bosnian forest. A month later, he would be successful in his murderous mission. John Redmond, the undisputed leader of Nationalist Ireland, had, after an epic parliamentary struggle, just forced through the Government of Ireland Act. Home Rule was here. It had massive public support.
Had anyone suggested that the Irish Parliamentary Party, the dominant force in Irish politics for the previous half century, would disappear over the next few years, that person would have been laughed at.
Had anyone gone on to suggest that the Russian, Austro/Hungarian and Ottoman Empires would also disappear, they’d have been committed. Indeed, had someone suggested that soon Britain would fight Germany and win, but soon after the war victorious Britain would have lost more of its pre-war landmass than defeated Germany, there would have been howls of laughter.
Yet all this happened.
By 1918, the mighty Home Rule party had only one Home Rule MP in Ireland. But stranger things happened. For example, the first President of the New Irish State was a man who was the subject of nationalist Ireland’s ridicule because he believed that Irish men shouldn’t wear long trousers – as they were too bourgeois, too English and not worthy of proper Irishmen.
My point is that what you think can never happen, sometimes does.
In 1914, the Irish Parliamentary Party gambled on a short war. Had the war been “over by Christmas” as many expected, there can be little doubt that Redmond would have prevailed and the extreme republican Sinn Fein would have remained on the fringes of history. But this didn’t happen.
As the war dragged on, the credibility of the Home Rule Party’s support of the British war effort disintegrated.
The Home Rule Party argued that, given the prospect of a civil war with Ulster in 1914, there was “no alternative” but to support the war. But with its guns aimed at its enemy, the pro-British unionists of Ulster, the Home Ruler never saw the enemy within, Sinn Fein, stealing up behind. In the end, Irish Nationalism was defeated not by extreme Britishness, but by extreme Irishness!
Today, our mainstream parties are making a similar mistake. They are gambling – and have been for 10 years now – that orthodox economic polices will get them out of the economic mess. But it was orthodox policies that got us into the mess in the first pace. The more orthodox economics fails, as it is failing now, the parties that embrace orthodoxy will fail too.
We are not just seeing this in Ireland but all over Europe. Like the World War I general the mainstream are fighting the last war, not realising that everything has changed. But they stick to yesterday’s blueprint.
In Ireland, the policies of blind allegiance to the euro, trying to please the ECB at every juncture, forcing people in negative equity to pay back all their mortgage debts, paying the gambling debts of bank creditors and allowing the currency to appreciate against our major trading partners, these are the types of economic orthodoxy that commit a country to a long economic war.
Constant looting of the middle classes to keep the show on the road engenders resentment of the very class they are trying to protect.
The rhetoric is the Government is sorting things out but its inability to balance the budget means that the country falls into even more debt at a time when the Government is supposed to be sorting things out financially.
The casualties of the long economic war are both the unemployed and, ironically, the working middle classes who see their tax rates rise and their disposable income fall. When faced with too much debt and slow or no growth, austerity is like putting an anorexic on a diet and expecting that person’s body to strengthen.
The only people who benefit from this situation are those who are already very wealthy, who can profit from cheaper asset prices by picking them up now in the expectation of being able to sell them back to the squeezed middle in a few years.
This process of opportunistic speculation is playing itself out in the housing market now and on a much bigger scale in the commercial property market.
Out of this, can the emerging Sinn Fein alight upon a set of economic ideas that are (a) attractive to the broader but struggling middle and (b) likely to push the growth rate up?
It is argued that Sinn Fein has no economic policies, but maybe that is a good thing. Having no economic baggage means it is not wedded to anything good or bad. It means it can pick and choose. It also means it can choose wisely, if it wants.
At the moment, the charge levelled at Sinn Fein is that it has no experience in government; however, given what a mess the “experienced” parties have made of the place, maybe having no experience isn’t a bad thing.
Sinn Fein has already claimed the scalp of the leader of the vanquished Labour Party. Who could be next?
The easiest way to take scalps is to be a party of permanent opposition constantly pointing the finger – a sort of democratic version of Robespierre. But this doesn’t offer the country a route to prosperity. It might maximise Sinn Fein’s pre-government strength but it will not exercise power in any meaningful way.
Sinn Fein voters are young. The party with the young voters is the party of the future, by definition.
They didn’t desert Sinn Fein even when Mr Adams was arrested on suspicion of the heinous murder of a Belfast mother in the 1970s. Is it because new voters don’t care? No, it is because history is doing what history does: becomes less and less relevant and more and more distant.
The political message must be that yesterday is not so important when tomorrow looks so uncertain.
To win tomorrow, Sinn Fein must come up with a set of workable economic ideas. Can it do that? There must be a fair chance. If you were a betting man, what odds would you give? In 1914, no one saw Sinn Fein coming. After last weekend, there’s hardly a person in the country who can’t hear the thundering hooves of a stampede.