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How About A Meanness Test?

The IMF has some helpful suggestions about how we might meet our loan repayments. To sum up: Make the poor poorer. Social welfare rates that are “too high” are a disincentive to work, apparently.

Ask yourself though, what level of unemployment assistance would be low enough for the IMF? Just one euro a day would be sufficient inducement to stay at home, if the job market was also only offering one euro.

And right now the job market is offering most people precisely no euro at all, because there are no jobs for them. To those, even a zero level of dole payment would still act as a disincentive.

To follow the IMF’s logic to its conclusion therefore, we need to fine people for not working.

It is orthodox nonsense of course. All lowering welfare can do is make more people desperate for work, so increasing the labour supply. It doesn’t magically create jobs. If viable employment just appeared because people wanted it badly enough we wouldn’t have a lot of famines in the world, would we? The only thing lower welfare can magically create is poverty, and poverty in turn increases despair, dissent, conflict and crime.

I don’t know if you’ve noticed, IMF, but we have already lowered the social welfare rates. Several times. Did it lead to an increase in jobs? No. Funnily enough, the number of unemployed actually rose.

Oddly, the proposal which seemed to get all the media attention is the idea that means-testing might be introduced for child benefit. I think I see why. We have come to expect that the poor will routinely be taken outside and kicked bloody at every budget. Means-testing child benefit though, that could hit middle class people. Controversial!

(Though I noticed that Radio 1 immediately hosted an argument about whether we need child benefit at all. “Why should I pay to bring up someone else’s children?” etc. RTÉ once again failing to distinguish between socially useful public debate and the entertainment value of terrible people shouting at each other. There is really not that big a step between Liveline and the Jeremy Kyle Show.)

Well, should families who don’t actually need child benefit still get it? It seems illogical on the face of it, but there are some good, idealistic reasons behind the payment. One is that a mother, especially of young children, usually doesn’t have much income she has real control over – and that can be true in rich homes as well as poor. This makes her hugely vulnerable, her children effectively hostage to whoever holds the purse strings. The children’s allowance makes here less dependent on her husband or other family members, less vulnerable to bullying and manipulation. It seems like a good thing to me.

Now we may ask is it any business of society to intervene in that way. And in these days of ascendant right-wing selfishness, I am sure there will be plenty willing to debate it. But you know what? That’s our debate. I don’t let the bank tell me what Christmas presents to buy or what food to eat, even if I’m buying them with money they lent me. They can dictate the interest rate and the repayment schedule, but not my values.

IMF, if you want a role in formulating social policy then stand for bloody election. Otherwise, butt out.

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So Where Do We Get The Money?

Cover of "Irish Gold (Nuala Anne McGrail ...They tell us we have to vote Yes to access ESM (European Stability Mechanism) funding, in case we ever find ourselves unable to meet current expenditure. But will it really be our only option? It had better not be – the ESM may never come into being after all. Would it be the best? Only in the sense that it might be cheapest. As I argued yesterday, in every other way it is probably the worst option conceivable, less a loan mechanism than a sort of national receivership. I do not believe we can meet its terms.

So what are the other, officially-denied options? You could categorise them in different ways, but I basically see five. I put them here in not my preferred order, but in what I think is roughly the order of likelihood that they’ll be resorted to (though likeliest of all I think is two or more in combination):

1) The EFSF (European Financial Stability Facility). This is the fund we’re currently availing of for the EU/IMF bailout, and though the ESM with its stricter and (it is hoped) more sustainable rules is meant to replace it, the EFSF will continue to exist for more than another year. Hopefully in that time it will become clear whether we need to borrow more.

2) The IMF (International Monetary Fund). The IMF may have a reputation for setting tough conditions on loans, but unlike the ESM it has no entrenched ideological opposition to countries investing in growth. Some argue that they would refuse to loan to countries that the EU had refused, but the organisation itself has not pronounced either way. And as a partner in our current bailout, the IMF has invested in us already. It is not known for letting its investments go bankrupt.

3) Leaving the Euro. Get out in some semi-ordered way, before we’re forced out precipitously like Greece could be any day now. Devaluing our currency rapidly would solve a lot of our problems, but it would not be painless; imports would leap up in price, effectively making us all poorer immediately. But it would be a huge boost for industry and jobs, sparking immediate actual growth. Indeed, much as I am in favour of the single currency in (broad) principle, it is virtually undeniable that we’d be better off now if we’d never joined. Its inertia has only served to exacerbate both boom and bust.

4) Debt Repudiation/Restructuring. The nuclear option to some, the obvious first step to others. In part this is because we have two main sources of debt, so morally different that they need to be taken separately:

(a) Bailout Debt. However pressured we may have been when we agreed to this, there is a strong moral imperative to, you know, do what we said we’d do. But that is not the highest of all values. Debt repayment does not trump such imperatives as, say, not letting people starve. You can always repay a debt later, but people die for good. No one claims it wouldn’t be a drastic step. It is bound to have negative consequences on other countries, and after we did it we’d be pretty much on our own. But remember the adage – if you owe the bank a million, they have a problem. We shouldn’t be afraid to contemplate default if it can win us better terms.

Most likely of course 3 and 4 would need to be done together, as debts denominated in Euros would be so much more painful if we’re paying in Irish Fairy Gold or whatever. (If we’re getting a new currency we may as well have some fun with it). And by the same token, if we aren’t repaying our debts I think the Eurozone would prefer if we got the hell out.

(b) Bank Bondholder Debt. This though we should have repudiated long ago. The taxpayer has no conceivable moral duty to repay this private debt. And if the European banking industry will collapse if they don’t, then quite frankly the European banking industry deserves to collapse. Let’s call their bluff on this one.

5) Taxing the rich. This is last on a list in order of likelihood because of course the rich have considerable influence over these decisions, though in a sensible democracy it would be first. It has been pointed out that with only a moderate tax on capital and/or a new upper tax bracket we could pay off our debts without making cuts at all. That may be unrealistic, but could very significant new revenue be raised without causing capital flight or discouraging investment? I think it could. There is money to be made here, all we’d be doing is raising the price of making it. I think the market can bear that.

And let’s not forget that the richest have been consistently increasing their share of the wealth, while simultaneously reducing their tax contribution, since the 1980s. If they don’t start paying their share again now when will they start?

~    &    ~

Well OK, the obvious next question is if all these alternatives exist, why does the government prefer the one that will wreak such havoc?

The answer has to be that they don’t really believe what they are asking us to sign. The draconian terms of the agreement are there to convince the money markets that they won’t profit by breaking up the Euro. In the real world exceptions will be made, just as they were made for Germany when they were in trouble. Right? Perhaps we can fudge what is and isn’t structural deficit; no one seems to know quite what that means so it’s a useful bit of ambiguity. Surely, when it comes down to it, we cannot be held to borrowing limits and repayment rates that would wreck our economy?

Perhaps they sincerely believe that, perhaps it’s even true. But to sign your name to a contract on the basis that you hope it will never be enforced is, to put it mildly, unwise.

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The 360° Revolution

360 CartoonIt is finally, officially, over. And no more damning political verdict has ever been rendered in the history of this or many another country. Even the pro-union vote in 1918 was larger. It’s shocking that they got seventeen percent, that thousands were still ready to put their party before their country. This kind of unthinking loyalty is like a set of shackles on Irish politics. But perhaps it is broken now.

So I am torn between expressing relief at having thrown off the worse government we have ever had, and lamenting the fact that we have given a mandate to a party whose ideology and economic approach are so similar that it takes at least an hour to explain to interested foreigners why they are separate parties at all. It is a hell of an anticlimax, and frankly I am a little depressed. (Though the fact that I got about one night’s worth of sleep during the whole count probably isn’t helping there.) Was all that anger just for this, all that upheaval to deliver no change? Have we had a 360 degree revolution?

There is only one real advantage. The new administration will not have been busy sharing the good times with the rich and the powerful – well, not for fourteen years anyway. This will make them somewhat more disinterested and honest. But it’s not as if they’re chosen from a whole other class of innocent outsiders. Their interests are not the interests of the average person, and certainly not the interests of the poorer person. For Christ’s sake, the chairman of Anglo Irish is a former leader of Fine Gael. Didn’t anybody think that might be a bit of a bad sign?

But Kenny must get his one hundred days or whatever is the suitably polite interval, his chance to come up with a brilliant solution to escape the chains the last government left us in. Can he?

No. Sure he’s going to renegotiate the bailout deal. But by that he means begging for a slightly lower interest rate. That is not a negotiating position. A slightly lower interest rate on a debt we will never be able to pay back anyway, that is going to crush our economy back to 1940s levels? That is not an improvement of the situation. It’s an avoidance of reality.

What would I say to a meeting of Eurozone heads of state? What would you say?

“We cannot afford to borrow money to pay debts unjustly created for us by a previous, corrupt government. Indeed we cannot afford to borrow enough money for even the minimum necessary level of public expenditure, at this or any interest rate. Therefore we will pay ourselves in our own currency. In other words, we’re leaving the euro. This will be painful for us, what with soaring import prices, but the euro will almost certainly collapse so it will be even more painful for you. Sorry, but it’s that or we sacrifice the health, future, lives of our people in order to reward the selfish and greedy actions of a ludicrously wealthy banking industry.”

That is a negotiating position.

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