In the wake of the recent European elections, and the disturbance it caused within mainstream, status-quo politics, two prominent Irish commentators mobilised in support of sticking with austerity: the policy of choice for Governments across Europe that sees budgets cut and social programs ravaged. Both John Bruton and Chris Johns have publicly proclaimed that we have no choice but to stick with our austerity plan, and further, that this is only the beginning: we may have austerity at least another 10 to 15 years.
They both subscribe to a couple of fundamental points to support their view. The first is pragmatic: austerity is the only policy that will result in a recovery of the economy. Therefore, we must, by necessity, take this path or else we are doomed to further crises.
The second is a moral and philosophical point: we are morally obliged to continue with austerity since we signed up for the European Fiscal Compact in the referendum in 2012. We simply must start “living within our means”, as Bruton put it. It is “immoral” to do otherwise.
Both these points imply that austerity is necessary, unavoidable and inevitable. As Johns put it, it is a matter of a relentless “economic logic” and if “some voters don’t like this...that is simply tough: this is about arithmetic and nothing can get in the way of making sure the numbers add up”.
This is untrue. Austerity is not unavoidable and inevitable and it is not a matter of unbiased, objective logic and mathematics. It is a choice; more accurately, a political choice. And like all political choices, it is based one’s priorities and values.
It is a choice; more accurately, a political choice. And like all political choices, it is based on one’s priorities and values.
Therefore, we should approach arguments for the inevitability of austerity with caution and scepticism. The complex and technical nature of financial politics can seem intimidating at times. This can result in certain policies being accepted or certain referendums being passed because we are told that they are the only option we have. Yet, more often than not, choice exists.
There are countless alternatives to austerity, and support for such measures can be found across all sectors of our society. Most of them argue, more or less, that austerity is actually bad for the economy in the long run. It will lower the money taken in through tax, and increase the demands for unemployment benefits and social programs, and thus stifle and slow down recovery and growth. Not to mention the significant social damage it will inflict (and is inflicting) upon millions of people.
It is not only social justice movements and those who champion the less well-off that argue for such policies: credible, Nobel Prize-winning economists such as Paul Krugman and Joseph Stiglitz have lent their expertise to the anti-austerity side, along with countless other journalistsand commentators.
But my point here is not to argue for or against austerity. I merely want to make it clear that the decision to enforce austerity is not inevitable. Debate over the merits of austerity is ongoing and has a long history, going back to Keynes. See here for an overview.
Thus, the claim of Bruton and Johns – that austerity is necessary and our only option – is untrue. Austerity is a choice about what you think is the best option for recovery, and who should bear the brunt.
When trying to engage in discussion of economic policy, it is often worthwhile to cast at least a cursory glance at the backgrounds and interests of those who take strong and resolute positions. For in a discipline with notoriously poor predictive powers, certainty should be treated with a degree of scepticism.
**Interestingly, John Bruton is the Chairman of IFSC Ireland: a private sector body (don’t let the name fool you into thinking it’s a state body) set up to lobby for the financial services in Ireland. He is a lobbyist for the financial sector. His job is to speak and act in ways that influence government to pursue policies that make it easier for the financial sector to grow and make more money.
This, of course, is not to say that his opinion is wrong or purely motivated by this role, only that it is relevant information to those evaluating his opinions.
What about Chris Johns?
Well, Johns was most recently the Chief Investment Officer for global fundamental equities with State Street Global Advisers; before that he was CEO of Bank of Ireland Asset Management until it was sold to State Street Global Advisers. In short, he is a career investment banker.
One wonders whether such deep ties to the financial industry are reflected in both Bruton and John’s opinion when it comes to the necessity of austerity.
What’s more, it is shameful that when the media report anything Bruton says, they describe him first as a “Former Taoiseach” and only second as Chairman of the IFSC, which, as mentioned, sounds like it is a government body. This can lead to the impression that he is speaking on behalf of the state, or the people, when at least some of the time he is speaking for a private group.
If one needed further proof of the close connections between the political system and finance, here it is.**
Finally, the idea that we are somehow morally obligated to stick with austerity because we agreed to the Fiscal Compact in 2012 is questionable.
We may have agreed to the treaty, but we didn’t agree to the bank bailout, on which much of the treaty is premised. The main justification given for austerity is to balance our budgets and reduce our debt. Yet, a large part (at least 30%) of our debt is due to the massive amounts of money we put into the banks. Therefore, a large part of the debt is illegitimate and should be cancelled or least reduced. The narrative that we must live within our means assumes we are the sole causes of the debt. We are not.
Even so, by agreeing to the Fiscal Compact, are we thus consigned to stand by while the social fabric of the country gets torn apart? Homelessness, poverty, unemployment, health and education cuts, and emigration are real problems here and now.
At what point does the damage done to real people outweigh the results of a controversial referendum?
Choice exists, and those who say otherwise either know no better, or are being disingenuous.