- Jan 14, 2016
We already have a thread on Varadkar's supposedly new politics, which could encompass many areas of government, so I though we should have a thread to focus exclusively on his economics. Now, Leo is a medical doctor. No doubt he knows quite a lot about the human body and how it works. What he doesn't seem to know anything about is how an economy works.
So, here are three Leo ideas of the economy that are demonstrably WRONG and IN ERROR:
1/ The Euro is good for Ireland
In fact it was the cheap credit that the Euro made possible that brought the Irish economy to its knees in 2008, as Irish banks were able to borrow Euro at super low rates and then use them to push up land and property prices in Ireland. This disaster has put 240 billion of public debt around the necks of future generations of Irish people - and the régime continues to borrow from the European Central Bank (ECB) at a rate of over 600 million Euro per month. There is no end in sight for this borrowing spree. And that's not to even mention the 900 billion and more of private debt that Ireland owes.
Because Ireland is part of the Eurozone, it no longer has its own central banking powers. It can no longer increase or decrease the money supply according to the de facto conditions of the Irish economy, and it can no longer set interest rates according to Irish needs. The loss of Ireland's sovereign central banking powers has made Ireland's recovery from the 2008 crash far slower than Iceland's recovery. The Euro continues to push up property prices in Ireland, even though there is no sound economic reason for prices to be so high - and we are in severe danger of another property crash at any time. All that has to happen is the ECB to tighten the credit tap - which it must do eventually, as Germans are loosing their patience with paying for all of this insanity. Sky high home prices have also had a devastating effect on the fertility rate of the Irish population, which is now in collapse - largely due to young people no longer being able to set up home.
2/ Privatization is always better than Public Enterprise
Leo & Co. have been doing their best to privatize sections of Ireland's public transport system, and Leo even went so far as to suggest that letting Bus Éireann go bankrupt might be a good idea. What could be behind such madness? Why only the crazy Neo-Liberal superstition that the state makes a mess of everything, and that the private sector would do everything right - if only the state would keep out of it.
But, does this idea stand up to any scrutiny at all? Is it not the case that it was private banks, land speculators and developers who caused the Crash of 2008? Is it not the case that it was precisely the state keeping out of it - through massive deregulation of the financial sector - that allowed an unheard of orgy of corruption and criminality to go unchecked? And when the private banks did implode - who did they come running to to save them? Why yes, the state. And it was the state banks - the Fed and the ECB - who effectively took the entire debts of the banking sector onto their own balance sheets and then nursed these private banks back to some sort of health. Well, Leo is a doctor - should we say that it is the patient or the doctor who does the best job?
And let's look on a smaller scale here in Ireland. Look at your bin collection for example. Is there anyone who would suggest that privatization has improved the service we get? Of course not. And while we pay far more today than we paid the county councils for a better service - we don't even have the consolation that our money is creating good jobs for Irishmen to set up home and rear Irish children. The only ones collecting the bins today are desperate immigrants on minimum wage.
3/ Inflation is caused by Government deficit spending
This is a core idea of all Neo-Liberals. It is technically known as Monetarism. The European Central Bank is set up on this very idea. While the Fed has the duel mandate of price stability and maximum employment, the ECB has only one mandate, i.e. to maintain price stability, i.e. to curb inflation. This, the Monetarists claim, is done by controlling government deficits and thus making sure the growth of money in the system does not outpace the growth of goods and services. They claim that any time a central bank increases the money supply too fast, there will be uncontrollable inflation.
Now all of this is a bit technical, and probably Leo has never thought about it, but since he supports the Maastricht Treaty and the mandate of the ECB, he is supporting this Monetarist ideology whether he knows it or not. But the problem is that it is totally in error - totally wrong - and has been shown to be wrong by central bank practice since the 1990s.
When the Japanese economy went into crisis in the 1990s, the Central Bank of Japan flooded the financial system with trillions of Yen while the state increased its deficit by more than 500%. But there was no inflation. In fact, for most of the last 25 years Japan has suffered negative inflation, i.e. deflation - although it continues to pump money into the system though quantitative easing. The Fed and the ECB have been doing the same thing since 2010 - and yet inflation has been practically zero.
In short, the Japanese government and the Bank of Japan managed to avoid the disaster that we see in Greece today by rapidly expanding the government deficit to carry out major public works and keep the population employed. All through the worst of the Japanese financial crisis, Japanese GDP did not drop. And, despite what the likes of Milton Freedman claimed would happen, there was no out of control inflation - or any inflation at all.
And, irony of ironies - or hypocrisy of hypocrisies - while the Yanks imposed disastrous Austerity on Third World countries over the last 40 years, when it came to their own crisis in 2008, they did not impose Austerity on themselves, but rather pumped money into the system to keep it from collapsing - as the likes of Argentina had collapsed under the tyranny of Milton Freedman's poisonous ideology.
Today, the Fine Gael Régime uses borrowed money to prop up property prices - not to develop national industry and enterprise. Under EU rules, they couldn't even if they wanted to. Only the private sector is allowed to develop industry and enterprise - even when it has neither the inclination nor the ability to do so. This is the madness of Monetarism.
Ultimately, the ideology that Leo slavishly follows claims that the poor are poor because they are lazy, and they must be punished into working harder. We heard this when Leo proclaimed that he "supports the people who get up early in the morning," and that he wants to be a leader for the middle classes. Likewise, Angela Merkel tries to punish Greeks into becoming good middle class Germans - despite the fact that the Germans nearly bankrupted themselves in the late 1990s through speculation on the dot.com bubble, and despite the fact that the rest of the EU did not punish Germany for its delinquency, but rather helped the German middle class to get back on its feet - by increasing deficit spending.
So we see that the whole economic theory on which the Euro and the European Central Bank is based on is empirically WRONG and IN ERROR.
....and yet, Leo and his régime continue to blindly follow it - with disastrous results.