Fintan O’Toole has long been one of the most prescient commentators on the Irish political scene. Here he is echoing what Krugman has been saying on the other side of the pond:
Who will be the last to suffer for the mistake of austerity?
In 1971, testifying before a US Senate hearing on the Vietnam war, John Kerry famously asked: “How do you ask a man to be the last man to die for a mistake?” We must ask a version of the same question: how do you ask a child or an elderly person to be the last one to suffer for a mistake?
First, the mistake. The Europe-wide obsession with so-called austerity is based on an admitted error. Our masters got their sums wrong. They believed the negative economic effects of cutting public spending would be very limited. They had faith in a magical notion called “expansionary fiscal contraction”, which is just as absurdly self-contradictory as it sounds. This faith-based approach is a construction of economic “reality” no less ideologically-driven, and no more based on evidence, than the glorious triumphs of five-year plans in the old Soviet Union.
At the heart of this belief was a mathematical calculation. It suggested a billion euro taken out of the economy in an austerity budget would not reduce economic activity by a billion euro. The damage would amount only to €500 million. The market would somehow absorb half the hit. But these sums were simply and wildly wrong. After four years of austerity, the International Monetary Fund’s economists flatly admitted the formula was rubbish. Instead of giving a €500 million hit to the economy, the billion euro in cuts causes €1.7 billion of damage. The sums were wrong by a factor of more than three.
This admission was made last September. In January, the two IMF economists who made the admission published a detailed paper showing why and how the calculations had been so wrong. And since then? Nothing. The official response has been to carry on cutting and to carry on telling the public the corner is just about to be turned. People must continue to suffer for a mistake.
Fintan then goes on to give a very concrete example of what this means:
Who will be the last to suffer for the mistake of austerity?
To take the most urgent example, Minister for Social Protection Joan Burton is under instructions from the troika to cut another €440 million from the social welfare budget in the autumn. The smart lads and lassies who know about these things would have calculated, when they set out the austerity programme, that this would create just €220 million of damage to the economy. But in reality, according to the IMF’s admission, it will cause something closer to €750 million of damage – an enormous hit to the local economies of every village, town and city in Ireland.
Magical thinking
It’s not hard to see why this would be so. In the magical thinking that underlies austerity, the private market will take up the slack caused by cuts in public spending. But vast numbers of people in Ireland are only marginally attached to the market economy. A paper just published by Micheál Collins of the Nevin Economic Research Institute highlights some striking findings from the most important research on living standards in Ireland, the Central Statistics Office’s Survey on Income and Living Conditions. Collins looks at the distribution of “market income”, which is the money people earn before taxes and benefits kick in. What’s startling is that half of Irish households have between them just 8 per cent of all of this market income. Without social welfare payments, the bottom 10 per cent of households would have an income of just €24 a week.
And that is where the social welfare cuts will hit hardest:
Who will be the last to suffer for the mistake of austerity?
Cutting the incomes of the poorest people is indecent. It is particularly stupid when children are overrepresented in poor households, meaning the long-term social and economic costs will be all the greater. But even leaving aside considerations of basic decency, it is an exercise in bone-headed futility, like generals throwing kids and the elderly on to the frontlines in a war that is already lost. It is not fiscal responsibility, but social and economic recklessness. We’ve had zombie banks and zombie politics and now we have a zombie idea, a policy based on calculations admitted to be wrong. Are we really telling people to go cold and go hungry because somebody couldn’t do the maths?
Presumably the idea behind austerity economics is to try to starve the poor off social welfare benefits and to force them to seek work. That might make sense if there were loads of unfilled jobs out there. But with 13% unemployment and vacancies only in the IT industry that is hardly an option for the vast majority of welfare recipients.
So why are the Troika still insisting on these further cuts to social welfare if they know they are economically and socially counter-productive, and will make it less likely that Ireland will be able to service the enormous debt burden it has taken on from the banks? Is this the revenge of the bankers on those whose leaders have been stupid enough to socialise the losses of bankrupt private banks? Does the Irish Government’s mistake of guaranteeing private banks against losses (later endorsed and reinforced by the ECB) have to be compounded by a European mistake in calculating the effects of pro-cyclical austerity policies? Does European solidarity imply some sort of suicide pact? Does anyone imagine that the mistake in calculating austerity multipliers was an innocent mistake?
