February 8, 2016
The other day there was a vox-pop on RTE radio that asked people how they were going to vote. One voice said that he was from a family of 15, nine of whom had a vote and all of whom were registered in one house. He went on to say that his mother was waiting for the government to buy her an extractor fan in her kitchen. He concluded that whatever politician paid for the mother’s extractor fan would get all the votes in the house!
Is this the role of government? Is it the role of the state to install extractor fans? As I listened, I thought why didn’t this man and the nine able bodied voters in the house look after their own mother, chip in and buy her an extractor rather than wait for the “government” to pay for it? It is an example of dependency culture to the power of ten thousand; the journalist didn’t challenge the voter or even raise an eyebrow. A society like this can’t come to any good.
On reflection, this attitude is down to ‘auction politics’. If politicians didn’t go around claiming to be able to do things like install extractor fans with other people’s money, this guy wouldn’t have felt he had the right to make his vote conditional on getting the fan installed.
And this is one of the key problems with our Irish-style democracy where each party promises the earth to anyone who will listen in the hope of securing a vote. This leads to the situation we have this week where each party is abandoning any notion of prudence and is trying to buy the election in a Peronist-style “free for all”.
The economic debate is therefore reduced to who can give most, and sometimes to the least deserving. Every now and then, there is a semblance of indignation when one party spokesperson points out that there isn’t enough money to go round, and then the next day, having scored the point, they all carry on regardless.
So the economic agenda is reduced to one shower saying there’s loads of money in the kitty and they are going to spend it and the other shower saying there’s no money in the kitty but they are going to spend it too. But what they are actually talking about isn’t economics, it’s accountancy.
This is what I would term election economics as opposed to real economics.
Election economics in this country is reduced to static accountancy, where the number that falls out at the end of the national accounts, the budget deficit or surplus, becomes both the facilitator of political ambitions and the stick with which to bash the same ambition on the head.
The lamentable state of debate is largely the fault of the politicians and the political commentators who fixate on this deficit/surplus figure. However, this figure is only a residual: it’s the thing that falls out at the end when all the economic activity is counted and divvied up. It is an end point not a starting point.
Fixation on the final number of surplus or deficit misses the whole point of government spending in the economy. In reality, the government is a major player in the economy and without it, we would have very little. Unfortunately, the rhetoric of the frugal saver has dominated our discourse on government spending with commentators screaming that we have to balance our books. But does the state have to balance its books? As long as it’s not spending money on extractor fans at election time, why does the state need to balance the budget?
The easy answer is that we should live within our means. That’s what you hear all the time, isn’t it? I would like to make a clear distinction between election economics and real economics.
During election time, when the politicians are giving out sweeties, it is proper to admonish them for spending because most of the spending is to buy votes. But, hang on, what about government investment?
The idea that we should always live within our means, which sounds logical, pre-supposes that our means are given and are fixed in perpetuity and we cannot spend beyond them.
However, when you think about, for example, building a new school, you can see that our means in the future are determined by what we do today. The school will educate children and make them more productive in the future.
Therefore, in real economics, our means are not fixed and, as a result, the very idea of living within them loses its meaning.
For example, lots of students all over the world borrow for their college education and this enhances their future means and therefore, living beyond your means now is the right thing to do.
Consider governments at this juncture.
Like individuals, of course, a government can increase its means in the long run by borrowing to invest in things that will make the economy more productive, and thus increase the tax revenue. If a government invests in improving the transport system, it will make the country more efficient. Or if it invests in healthcare and education, that will make the workers more productive.
This is where today’s government spending can be of huge future significance. It raises the productivity and the wealth of the nation and it increases the “means” in the future. And so we see that notions like “living within our means” become more complex than the rhetoric suggests.
Unfortunately, because politicians engage in auction politics that leads voters to expect extractor fans for their mother (which they could put in themselves) in exchange for votes, we arrive at a place where all government spending is seen as wasteful.
This influences the debate because this is what people remember from the election and in the long-run real government spending, which is good for all of us, becomes contaminated with election spending, which is actually bad for everyone.
In the next few weeks, election economics will dominate the airwaves. Enjoy it if you can, but don’t forget that real economics will re-emerge by St Patrick’s Day.