David Barker
Staff Writer
Economics was the miserable science long before the world was plunged into a global financial crisis. The fact that we are currently in the midst of such a crisis does little to help the cause of economics as a topic of interest, especially when most of what is written about the subject is a dissection of disaster. Online and in-print financial publications are rife with special reports detailing the timeline of the recession or pullout features on how indicators from output to consumption have slowed down drastically. All the while these pieces are punctuated by further forecasts of decline and doom. This leaves me in the tender position of trying to be original and yet still relevant when writing about the current state of the financial world. I could attempt to be cheery and write about signs of recovery but these signs are not altogether existent. So how about instead of writing about how we got into the mess or why we’re still in it, I write about how we get out of it.
First off it is worth asking the initial question of what exactly is this global economic crisis. Simply put, economies are turning over less and less. Less is being produced and less is being consumed. Why? The world is experiencing a liquidity crunch. Money is tied up in worthless bonds, weak currencies and mountains of debt. There is little economies can do to rectify a shortage of money other than trying to increase the value of what money represents. Two schools of thought on how this can be done are quickly emerging from between differing political and economic ideologies; the corporate route and the social route. The disparity between these two potential paths out of gloomy recession lies in that the corporate route does not directly benefit society, that is to say it does not initially benefit society. The corporate route stems more from the ‘trickle-down’ economics school of the late ‘80s. This philosophy would have society endure tax cuts on the wealthy, massive trimmings to regulations as well as diminishments to minimum wage and social welfare for the greater good. The greater good being industry given a chance to get off its knees.
Socially conscious economists such as Robert Reich do not wholly endorse such corporate means out of decline but do comment on the hypocrisy of governments crippling industry with taxation and regulation while at the same time teaming with unions to beg for increased employment opportunities. This view point has been emphatically echoed in politics by US President Obama who recently pledged to ‘‘work together’’ with the US chamber of commerce in a series of bills that would cut back corporate taxes and regulations along with fiscal burdens such as Medicare and social welfare. Obama has seemingly reneged on some of his socially conscious promises in order to pursue more pro-corporate aims and instil his vision of America once again becoming the most competitive player on the global market. While some may welcome this drastic turnaround in policy it’s hard to take the politics out of the decision and still be left with an economically sound and socially conscious motive for becoming so industry friendly. In truth, it could take years before businesses feel comfortable enough to begin to hire at large again and Obama’s endorsement of the corporate route appears to be little more than a desperate appeal to his flagging following in the run up to an election. Even if this is not the case, jobs seekers who could potentially benefit from these policies can certainly not expect to be offered anything but competitively low wages. From an Irish perspective we have seen a massive amount of jobs lost since 2007 as a result of American firms downsizing and it is hard to imagine any of those jobs being offered back at the wage level they once were.
Yet again society faces itself trying to find the point where economics and societal welfare intersect. The corporate route would lead the world out of recession but it’s a long and not particularly scenic way forward. Years can pass before the benefits of fiscal easing trickle down to those who have sacrificed to allow it to take place. Nobel Prize winning economist Paul Krugman has blasted corporate appeasement and the idea of treating America itself as one giant company, “…isn’t it at least somewhat useful to think of our nation as if it were America Inc., competing in the global marketplace? No. Consider: A corporate leader who increases profits by slashing his work force is thought to be successful. Well, that’s more or less what has happened in America recently: employment is way down, but profits are hitting new records. Who, exactly, considers this economic success?” Yet Krugman also offers little alternative, he like many other economists is still reluctant to put the world’s economic faith in the hands of politicians. So what is the alternative? The exact opposite to the corporate route. Raising taxes on not only rich businesses but rich people, smothering industry with regulation and enlarging government provided societal welfare with the proceeds.
Would society benefit from the implementation of such policies? Yes. Arguments that such policies promote a sort of class warfare are entirely overblown and you could even make the case that the corporate route could lead to a greater class struggle with the less well off in society being entirely alienated. That is not to say that this ideology does not have its shortcomings, the social route in truth is not a cure it is a painkiller. Welfare economics is not about getting out of recession it is about getting through it, hunkering down and bearing the storm. While corporate appeasement may take years to yield job creation, bombarding industry with tax will actively discourage employment. The hallmark of this school in the past had been for states to provide employment through public funding of jobs programmes, unfortunately many countries including our own lack the infrastructure for this to become a reality. Ireland, like other small economies, relies on bigger states like the UK and US to provide employment. We simply do not have the innovation, infrastructure or money required to create adequate employment. If Ireland wants to see jobs return to our shores we must go the corporate route, if we don’t trust this route then we have to travel the social path and ease the hardship on those without jobs. The questions lies in whether we want to try to get out of recession or whether we want to get through it.
Economists now seem to agree on two things about this recession. There are only two clear ways out of it and you can only travel one way at a time. One way benefits corporations and the other benefits the people that work for corporations (or used to). So the choice is to put our future in the hands of bankers or politicians? No, let’s put their future in our hands. Like politicians need our votes, bankers need our deposits, our interest and our stocks. Society needs to regulate finance though fiscal vigilance not though government supervision. We may not get to choose the route we take but let’s at least learn a few lessons along the way.
“The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.” The Rothschild brothers,1863.
