It’s déjá vu all over again
I am bemused by the accepted wisdom of the establishment (politicians, bankers, economists, journalists et al.) that the current economic downturn was unpredictable and came upon us out of the blue. This is a load of nonsense. The Irish economy has been slowing down since mid 2006 and it is only now that it has finally run out of steam. To anyone willing to look and listen it has been well-signaled. It has not happened due to unforeseen circumstances beyond our control. It is a core part of the government’s economic policy. Charlie McCreevy admitted as much when he said “If I have it, I’ll spend it”. Dan O’ Brien sums it up nicely:
The most cursory glance at spending patterns over the past decade shows how big the impact of the electoral cycle is. While most governments loosen the purse strings as elections approach, pre-election spending growth in Ireland before the 2002 and 2007 contests was spectacular. The surge in spending before the last election explains a large part of how an unusually big surplus in 2006 had all but evaporated in just 12 months.
Even I - ignorant as I am of economic matters - figured this out. In 2003 I wrote:
We have to learn to take responsibility for ourselves as a nation. It’s all well and good having an open economy that is friendly to multi-national business but if it leaves our country in pieces at the end of every five-year economic cycle what good is it for the long-term future?
We have to recognise that we have basic needs as a country –a health service, an education system, and a proper communication and transport network among others– which must be given at least equal priority with the individuals’ right to choose how they spend their money. It is not just my altruistic ‘do-gooder’ instinct that tells me this. My pragmatic ‘count-the-pennies’ instinct tells me that it is also essential to our future economic success and long-term sustainability as a nation.
We elect the politicians. We have an obligation to vote responsibly and recognise that our interests as a nation and our interests as individuals are not mutually exclusive but are bound together.
Maybe the economic suffering that is already making itself felt will be worth it if we learn this lesson.
But will we?
Well, I’ve got my answer. We’re slow learners it seems, and I guess we got away with it for a while. Interest rates were kept too low, too long, and this inflated the housing bubble to bursting point. That was enough to distract us from the fact that the legendary “fundamentals” weren’t all that sound. Falling exports, falling competitiveness, rising inflation, wasteful public spending - all were hidden under the avalanche of tax receipts from the property market. We took Charlie McCreevy’s advice and “partied on”.
Somehow I don’t think we’ll be as lucky this time. Low interest rates will not save us (if we ever see them again). The gains have been pocketed and the policy of attempting to control the economy by messing around with interest rates has proved to be a busted flush, nothing more than a betting opportunity for stockbrokers and having no impact on the real economy.
There’s no easy way out of this one. We’re going to have to take some pain. I’ll check back again in another five years and see if we’ve learned anything this time. I’m not too optimistic.
Mark Waters marked time at 8:06 am on July 11th, 2008 .
Low interest rates could have been countered by regulatory tools. Instead, the Central Bank sat back and did nothing while the banks steadily diluted lending criteria to the extent where norms just didn’t appear to exist any more.
That being said, the Irish Times’ holier than thou attitude is somewhat negated by the fact that they are regularly calling the bottom of a property market which is only starting into freefall in their property pages.
In terms of learning stuff, human nature generally cannot get its head around the idea that there is no such thing as a free lunch. If we were the type to learn that lesson, the eircom flotation would have taught us all we need to know. Much of Ireland’s property related blues can be traced back to the conviction that it’s an easy way to make money.
[I deleted this entire post and the comment by accident and had to rebuild it so the dates are wrong].
@Treasa: There’s many things that could be done, the point is that it wasn’t in the government’s interest to do any of them. They rode the wave to its logical conclusion: smashed upon the rocks. For them to say that all this was unpredictable and based on factors outside their control is a lie.