Today, my wife and I are traveling to Ireland to visit the town where my grandfather grew up (and maybe have a beer or two–if we survive my driving!). The economy there presents a sad case study for the austerity programs being forced on economies around the world. Just days ago, it was reported that Ireland appears to be in recession once again (Ireland falls back into recession). How can this be given the rapid growth of the Celtic Tiger just a few years ago? Actually, this comes as no surprise to many economists because the so-called solutions being implemented are a function of the very same principles that caused the collapse in the first place. Unless a significant about-turn is executed, stagnation, emigration, and unemployment will continue for years to come.
That culprit is the philosophy of neoliberalism. It argues, among other things, that unregulated financial markets efficiently price assets, higher profits are good for everyone as they lead to increased employment and wages (the so-called trickle down effect), and governments represent a net drag on economic activity. Neoliberalism has been a powerful force driving world economic policy since the 1980s and as such laid the groundwork for many of the problems we are experiencing today. Ireland was not immune to these influences and, as a consequence, policy makers lowered corporate tax rates, made transfer pricing rules business-friendly, and adopted a largely hands-off approach to financial regulation (even when improprieties emerged). Dropping the punt in favor of the euro was also seen as a sign of economic responsibility because it linked Irish policy to that of the fiscally-prudent Germans.Forbes — Pragmatic Economics
Ireland: No More Austerity (and Dump the Euro)
John T. Harvey | Professor of Economics, Texas Christian University
6 comments:
Neoliberalism hasn’t got much to do with it.
Attributing austerity in the US to “neoliberalism” is fair enough. In contrast, Euro periphery austerity derives from an inherent problem with common currencies, namely that the only way of dealing with a country which has lost competitiveness is to impose a dose of deflation on it till its costs decline to the point where it regains competitiveness.
Of course in the case of Ireland and Spain that was overlaid with silly lending by banks to property development. But it’s the above competitiveness problem that is crucial.
ANY ENTITY which is competitive - a country or a corporation – will be able to borrow at a relatively low rate of interest without artificial assistance from a central bank like the ECB or other supplier of life support.
Yes it has Ralph, very much to do with it.
It's about denial of much any role for government, thru' denial of even basic macro economics such as paradox of thrift. The Orwellian termed 'Stability and Growth' pact, based on Maastricht, straightjacketing individual Euro states, is about neo liberal as it gets.
As is the whole 'competitiveness' nonsense. That is just an excuse to hammer down the returns to Labour everywhere. And again, denying the very existence of macro principles thru' what is blindingly obvious reduced aggregate spending & its inevitable result increasing unemployment.
The plan is denial of any counter cyclical role of government & thru' that denial of any welfare role of government.
Hi Mikehall,
“It's about denial of much any role for government..” So how come governments take a bigger share of GDP in the Eurozone than in the US?
“straightjacketing individual Euro states..” Loss of sovereignty and obeying common rules i.e. “straghtjacketing” is part and parcel of signing up an organisation like the EU or EZ. Countries that don’t want to be so “straightjacketed” e.g. Switzerland don’t join.
“As is the whole 'competitiveness' nonsense.” Are you saying that relative competitiveness has not changed? If so, I suggest you look up some actual figures on competitiveness, e.g. here:
http://epp.eurostat.ec.europa.eu/portal/page/portal/exchange_rates/data/main_tables
Moreover, if those wicked neoliberals are so keen to hammer down returns to labour, why weren’t they hard at the “hammering down” business before the crisis? Why were they happy to let the Irish economy boom and bring full employment, for example? And why are the wicked neoliberals happy to see relatively full employment in Germany?
“denying the very existence of macro principles thru' what is blindingly obvious reduced aggregate spending & its inevitable result increasing unemployment.” Yes: that’s taking place in the US. I.e. US politicians like politicians elsewhere don’t know the first thing about macroeconomics.
In Europe it’s different. But I realise that difference is too subtle and nuanced for many.
Ralph
The neo liberals have been at this game longer than 5 mins. We're looking at a decades old project. They know 'social Europe' could not easily be attacked directly. The aim remains to keep what gov does going down unless it is supports for the wealthy.
This kind of recession without end in the Euro zone was entirely inevitable after the first down turn, from any cause. Authorities were told that it would happen by heterodox economists & the logic was obvious.
Just because there was a few years of real estate casino/pyramid boom beforehand suggests to you some proof of no neo liberal scheming in Europe? I don't get that at all - the top few percent made billions - which they've got to keep. The workers now, not so much. And by the way the Hartz reforms in Germany, lowering wages etc., were off the blocks as soon as the Euro came in.
The whole 'competition' angle is nonsense, because it is the same race to the bottom as UK, US and the rest are engaged in.
And above all Ralph, it is all based on the same cr@ppy, but highly nurtured over decades, economics thinking, all over the world.
You narrow your definition to muddy the waters if you like, but we're only looking at different stages in different geographic locations of exactly the same intent.
I tend to think of it as 'Indianisation' of Europe. As in 'India' - an actual democracy in same laughable way we are, but seemingly no problem for elites to keep the lid on mass poverty.
Greg Palast, Robert Mundell, evil genius of the euro in the Guardian
For the architect of the euro, taking macroeconomics away from elected politicians and forcing deregulation were part of the plan
I'm with Ralph on this one... they're too f-ing dumb to figure this all out... you guys give these morons too much credit...
rsp,
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