Is it really a good idea to elevate one fashionable orthodoxy to the status of unbreakable law?, asks FINTAN O'TOOLE
“. . . the essential crime that contained all others in itself. Thoughtcrime they called it.”
George Orwell, 1984
IN THE referendum we are now to have, the question is – ah, but what is the question?
It is not, as Michael Noonan wrongly claimed last year, a referendum on whether Ireland should leave the euro zone. (They can’t throw us out.) It is not, as the Taoiseach variously claimed last week, about “economic recovery” or “jobs” or whether
we “wish to participate in the European community and the euro and the euro zone from now on”.
It is surely not about how to define a structural deficit of 0.5 per cent – if it were, it would be the weirdest thing ever put to a public vote.
What it is about, however, is the creation of a thoughtcrime. A certain way of thinking is to be outlawed. It is not Nazism or racism or some other hateful ideology.
It is, in fact, a way of thinking that was, for three decades after the second World War, the dominant economic “common sense” of much of the developed world: the philosophy of John Maynard Keynes.
This is the intellectual framework of most of the European centre-left and of New Deal Democrats in the United States. And it is to be banned by an international treaty, like human trafficking or chemical warfare.
Banning Keynesianism after the great crash of 2007 is like reacting to a mass shooting by banning body armour. Ireland is a case in point. Keynes’s idea was that governments should operate counter-cyclical policies, running deficits to boost flagging economies and cutting spending to cool over-heating economies.
Charlie McCreevy announced that he would do the exact opposite – cut spending in bad times and let it rip in the boom years: “when I have it I spend it, and when I don’t, I don’t.” And what a great success that was.
But the basic proposition of the fiscal treaty is the crude notion that a government must be like a household, flashing the cash in the good years and battening down the hatches in the lean years. Its considered view of Keynesian economics is: don’t even think about it. Counter-cyclical fiscal policies are verboten.
Even if you think the Keynesian approach wrong, is it really a good idea to elevate one fashionable orthodoxy to the status of unbreakable law? This is the stupidity of an ideology unwilling to countenance any possibility that it might be wrong. It is crass ideological opportunism, using the crisis to transform one partisan view of economics into an unquestionable fact.
But the fiscal treaty does not deal in “facts”. It is right-wing opinion given the force of law. The “structural deficit” is a highly contested interpretation of complex data – trying to make it a legal concept is nuts.
More importantly, ideas of what is or is not a sustainable level of public debt are wide open to debate. The answer always depends on circumstances like economic growth, demographics, political stability.
Japan has public debt of 230 per cent of GDP – almost four times the euro zone limit. The markets, whose judgment we are all supposed to treat as gospel, don’t seem too bothered: Japanese 10-year bond yields are below 1 per cent. It is circumstance, not the absolute level of debt, that determines whether or not you have a crisis.
The fiscal treaty, however, assumes that circumstances are irrelevant. It takes largely arbitrary rules on debt, turns them into fetishes and obliges us all to pay homage. It pretends that circumstances and contexts do not exist – one level of debt is the right one for all times and places.
It doesn’t even bother to argue why the particular limits it enshrines make sense. The rough consensus among economists is that public debt in excess of 80 per cent of GDP hurts economic growth. But the euro zone’s limit is 60 per cent – a figure chosen simply because it sounded good.
Likewise the new figure for permitted “structural deficits” doesn’t actually make sense. Karl Whelan has pointed out that if we all run deficits of 0.5 to 1 per cent, we will end up with debt to GDP ratios that are actually “well below levels that are moderate and sustainable”.
And in practice, public debt itself seems to be arbitrarily divided into stuff that’s okay and stuff that isn’t. If the EU thinks high levels of public debt are the single key problem, why did it insist that we load all private Irish bank debt on to the exchequer?
Why is the accumulation of public debt by spending on health and education completely irresponsible but the cost of the promissory notes for Anglo Irish and Nationwide (perhaps €80 billion over 20 years) perfectly sustainable?
We’re being asked, in other words, to vote for a badly thought-out ideological power grab that seeks to outlaw one side of the argument about fiscal policy. This is as paradoxical as the “war to end wars” – a democratic debate to outlaw democratic debate on one of the defining issues of politics, a vote to limit the meaning of voting.