It's only common sense... well... not necessarily...

Cormac Lucey has a piece in the Business Post this last weekend which I’ve already referenced in comments, but it’s well worth considering more broadly as an example of orthodoxy. It starts with an interview of Dr. Tom Healy of the Nevin Institute (referenced here) on RTÉ last week where Lucey says:

Healy argued that Ireland should be given an extra two years by the EU to bring its budget into balance.
Having allowed Healy to outline the benefits that would accrue to Ireland from this approach, Mac Coille repeatedly sought an outline of the costs. He had to try several times before Healy belatedly admitted that there might be any costs at all. And the fundamental question of whether there is anyone ready to lend us the additional money required to allow us those extra two years was not addressed at all.

Lucey argues that:

In many ways, Healy’s approach in that interview summed up much of what nowadays passes for political discourse: the benefits of proposed policies are readily outlined while their costs are admitted only belatedly, if at all. The question of the policy’s feasibility is simply ignored.

Lucey continues:

This phenomenon is neither restricted to the left nor to Ireland. It permeates democratic politics across the developed world in the application of Bastiat’s dictum that “everyone wants to live at the expense of the state. They forget that the state lives at the expense of everyone”.”

There’s some truth in his first sentence, but then of course to put it in such terms as he does in his second is immediately to shift the discussion onto right wing terrain. Because the nature of the state and what its functions should be is one of the central aspects of left/right discourse. And Lucey by suggesting that somehow that can sit above left/right discourse is offering us a perfect example of orthodoxy.

By the way, none of that is to disagree with the point that those on the left should have answers to such questions, at least if they expect to get a serious hearing from voters (whatever about commentators and centre and right economists).

Lucey then makes the not unsensible point that the Labour’s Way documentary concentrated to a remarkable degree on an FG figure, former finance minister, Gerard Sweetmen. But Lucey takes issue with the idea that Sweetman who demanded balanced budgets which blocked Labour expenditure when in government in the 1950s was in some ‘very extreme’ and ‘right wing’. Indeed he argues by contrast he argues:

Yet, for adhering to budgetary discipline in the 1950s, Sweetman still suffers political denunciation in a new millennium. That this can happen without any notable defence of Sweetman’s position shows how unfashionable notions of financial discipline have become in the intervening decades.

Except, except, that as with the point about the ‘state’ Lucey ignores the additional aspects of Sweetman’s position and to the reality that there is a solid and substantial body of economic opinion which disagrees that balanced budgets and ‘budgetary discipline’ are in and of themselves self-evidently beyond question.

It’s interesting, given that Lucey thinks criticism of Sweetman is modish and new century, that J.J. Lee in Ireland 1912-1985 considering the legacy of Sweetman who he more than once describes as a ‘vigorous conservative’ makes the following point, as well as some fairly strong criticism of Sweetman’s approach to the public finances which, according to Lee were inappropriate given the problems facing the economy at that point in time.

Lee writes that while:

…even the budgets of MacEntee and Sweetman could probably be justified in the short term [my italics], although the 1952 budget almost certainly erred on the side of excessive and damaging severity. The real problem was that Finance had no idea what to do with fiscal rectitude. It assumed that if it looked after the finances, the economy would look after itself. It wouldn’t, and it didn’t.

The problem is that this wasn’t just the view of Finance but also of Sweetman and his ilk. And in a way it’s remains the view of Lucey and whatever his position within the orthodoxy, whether critical or not, that of the orthodoxy (And on a tangent while Sweetman may well have ‘crafted Ireland’s use of corporation tax’, but one might wonder given its low rate (and the potential now for Europe to raise it, whatever progressives might wish) whether that’s an entirely unproblematic legacy).

But the idea that balanced budgets are an unalloyed good is so open to question that reading more of Lucey’s thoughts one keeps going ‘but… wait…hold on.’.

Across the western world since World War II, Keynesian and monetarist prescriptions have been applied to cure economic downturns. Thus finance ministries and central banks have engineered increases in public and private debt to combat economic downturns. But they have failed to insist that debt levels be reduced in the resulting economic upturns. The consequence of this asymmetric application of Keynesianism and monetarism is that debt levels – both public and private – have experienced strong underlying increases.

A study by Boston Consulting Group shows that, since 1980, debt levels have exploded in the world’s 16 largest developed countries. The real level of private debt has more than tripled, while the real level of public debt has more than quadrupled. The eurozone debt crisis may be only a precursor to more generalised debt crises across the developed world. Several large countries face debt levels similar to those of the most indebted eurozone countries. Britain and the US have national debt figures roughly equal to annual national output, while Japan has a national debt of about two times GDP.

But… one need only consider that right economics in its Thatcherite and Reagan incarnations were in operation since 1980, and in attenuated or accentuated form subsequently depending upon location. The tropes of that economic approach include but are not limited to reductions in income tax and increased deregulation of private enterprise and financial areas in particular. It takes but a moment to contemplate the negative outcomes of both policies in terms of public and private debt. Our own situation is in many respects a perfect storm resulting from the combination of both.

It is this which invests a certain bathos in his concluding remarks.

It is clear that after the western world’s debt crisis has eventually been resolved, we will need a new style of democratic discourse. It shouldn’t be acceptable to outline the benefits of a policy without admitting the costs. It shouldn’t be acceptable to incur government expense and not account for the costs. Politics must be about more than intermittent orgasms of electoral excitement built on a resentful rejection of financial reality. If politics is to be real, it must be based on financial reality, rather than exercises in its avoidance. That’s not a “very extreme” or “right-wing” position: it’s simple common sense.

On the issue of providing solid explanations and underpinning of policy he’s correct. But that doesn’t per definition prevent the use of deficits as an economic tool – and the work of Michael Taft across the past five years and more has demonstrated ways in which both within and somewhat outside the orthodoxy even this state in its straitened condition could do same. But to assert that it does, or that it is impossible to craft alternatives on the left that use such tools is in some respects very right-wing indeed. And given the retreat of social democracy across the past thirty years and more he might just make the effort to point more directly at those who are centrally responsible for the current situation.

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