Month: August 2010
Economic policy making lacks credibility with the public at the moment because these three problems-credit shortage, ageing, and climate- are being tackled separately.
The public knows instinctively that a return to the pre crisis economic model of high levels of credit and wasteful consumption is unsustainable demographically and environmentally and this makes them sensibly reluctant to respond to Government directed “stimulus” by spending more. The public, unlike the experts who are working away in their separate cocoons marked economy, ageing and climate, know that the three problems interact with one another, and that an attempt to solve one must be designed in a way that helps solve the other two , or we will end up wasting scarce political and economic capital.
Policymaking on these three related topics cannot be left, as at present, to financial experts, to demographers or to climate scientists, each arguing in separate fora, independently of one another.
It is for political leaders to bring these three strands together and present a new model of society based on a new model of consumption of goods and services. That is the intellectual challenge of our times.
Ideologies devised in the nineteenth or twentieth century, when physical and human resources were virtually unlimited, are of little help to us in facing this twenty first century challenge. Keynes did not have to apply himself to the problem of climate change. Marx and Hayek did not have to concern themselves with ageing societies.
The German Bundesbank has criticised other countries for running large balance of payments deficits over the years. Apart from the fact that countries that are developing rapidly have a good reason to run a payments deficit, because they need to import machinery and capital to build a bigger productive infrastructure to support a bigger economy, but the Bundesbank should not criticise balance of payments deficits as such because, if Germany is to continue its policy of running balance of payments surpluses, someone else somewhere must run a deficit !
German commentators should recognise the inherent risks for a country with a consistently big surplus. Surpluses force it to buy foreign assets and it is easier to make mistake buying something abroad than it when one is buying things at home, with which on is necessarily more familiar. If Germany did not have balance of payments surpluses in recent years, its banks would not have found themselves buying quite so many of the bonds of the countries whose deficits the Bundesbank now criticises. Both lender and borrower have a responsibility if a foolish lending decision is made.
That said, I think the “Anglo Saxon” economists who are demanding that the German Government stimulate its economy by encouraging more private spending should ask themselves how they reconcile this proposed stimulus with the other two major concerns of the present time, the ageing of western societies and climate change
The cost of pensions and healthcare will rise as German society ages, so it makes complete sense for Germany to accumulate surplus cash to meet these costs. The German birth rate is very low and Germany must compensate for the inevitable decline in its taxpaying, working population, by saving putting money, and putting it aside for the time when these workers retire and are no longer paying as much tax. Those American and other Keynesian economists, who demand that Germans spend more and save less now, need to come up with a better answer to that dilemma. Does Paul Krugman really think it would be wise for Germany to blow all its savings on buying American exports today, when it has so many extra things it knows it will have to use those savings to pay for tomorrow?
Likewise, if Germans and Chinese save more and spend less, fewer consumer goods have to be flown across the globe to Germany and China, and there will be less carbon emissions caused by the manufacture and disposal of these goods. No matter how many initiatives are undertaken to increase the carbon efficiency of extra production, any extra production involves more carbon emissions than if the extra goods were not produced at all.
A sustainable and believable response to the global economic crisis must deal with the three problems we face-credit shortage, ageing societies, and global warming- by means of a single consistent policy.
That policy cannot be left to financial experts, to demographers or to climate scientists, each operating in separate sphere, independently of one another.
It is for national and global political leadership to bring the three strands together and present a new model of society and of consumption of goods and services. That is the intellectual challenge of our times, and ideologies devised in the nineteenth century when physical and human resources were virtually unlimited, are only of limited help to us in facing this twenty first century challenge. In a phrase beloved of Tony Blair, we need joined up thinking…not just joined up rhetoric!
In 1939, Belgium, Holland, Luxembourg, Denmark, Norway, Finland, Hungary, Yugoslavia, Romania. Bulgaria, the United States of America, Italy, Portugal, Spain, Sweden, Switzerland, and Ireland all remained neutral when Hitler invaded and occupied Poland.
Of these seventeen initially neutral countries , only the last five on the list managed to remain neutral throughout the war and they did so largely because of their geography and topography. The costs of attacking Switzerland, Spain, Sweden, Portugal and Ireland would have outweighed the benefits for either side in the war. That, rather than the fact that they had declared themselves neutral, is what saved each of them from attack.
Notwithstanding the fact that Poland was a country with which it had significant religious ties, there was no support at all in Ireland for the idea that Ireland should enter the hostilities in 1939 on Poland’s behalf.
Indeed, Irish neutrality did not come under much pressure at all, until after the fall of France and the intense U Boat attacks on shipping off the Irish coast. In the second half of 1940, over 200 bodies of allied seamen were washed up on the west coast of Ireland, and both Britain and America felt that the British Navy would have been able to minimise these losses if it again had use of Irish ports, like those in Lough Swilly and Castletownbeare, which had only been handed over to the Irish authorities in 1938. This feeling was intensified by the fact that some of the supplies being carried in these sunken ships were destined eventually for Ireland itself. At this stage neutrality was questioned in the Dail by James Dillon and in the Senate by Frank McDermott, but they got little support.
The author of the book is a Professor of Literature and she describes the cultural atmosphere of the country by drawing on the work of writers like Elizabeth Bowen, Sean O Faolain and Mairtin O Cadhain.
Neutrality, and the exigencies of the War, meant that Ireland was more cut off from the rest of the world from 1939 to 1945 than at any other time in the modern era. Irish independence from Britain became more pronounced in the political, cultural and economic sense. Self reliance was promoted and some the internal divisions, caused by the Civil War of 1922 to 1923, were reduced by a sense of common threat. But a high price was paid. Malnutrition, and diseases associated with it like typhus, increased a great deal. Internment without trial had to be introduced to choke off the IRA bombing campaign against Britain.
Censorship was used to promote and defend neutrality. Irish people were thus not well informed about the scale of Nazi atrocities, because the Irish censors felt it would be “un neutral” to allow them to see what was going on. Pictures of the emaciated survivors of Buchenwald and Belsen were not allowed to be shown in the Irish media until the war was fully over. While this sort of censorship may have been necessary to prevent indoctrination of the Irish people by allied propaganda, it left a negative legacy.
It bred indifference and insularity, and a smug sense that neutrality is almost always morally superior to participation in war. Neutrality was presented as something more than an arguably intelligent tactic to be adopted by a small country to protect its own interests, and elevated in the public mind into something that is right in principle on moral grounds in almost every conceivable situation.
This is a sentiment that endures in Ireland today to a degree that one will find in none of the other seventeen countries who tried to remain neutral when the war broke out in September 1939.
To a significant degree, the survival of this idea that neutrality is morally superior explains the initial rejection of both the Nice and the Lisbon Treaties in referenda in Ireland, something which other European countries, who actually experienced World War Two fought across their territory, found difficult to understand at the time.