Has anyone else noticed how economists and commentators in both Europe and Ireland use the term ‘recapitalisation‘ to describe giving public money to private banks, the same ones who created the financial mess we are in? But, giving public money to Greece, an interconnected state of the Eurozone is a ‘bailout‘. Also, who is this anonymous actor called the market? If someone came down from space, opened one of Ireland’s newspapers, they would quickly realise that this bond ‘market’ guy has a lot of power, so much that he can dictate the pace of how governments are formed.
This article by Colm Mc Carthy, whilst broadly accurate from an accountants perspective, is a classic example of how economic language can make ‘assumptions sound truthful and give the appearance of solidity to pure wind‘. This, of course, is taken from George Orwells classic ‘Politics and Language‘ essay. A paper that needs to be updated for 2010 to unpack the political language of economic newspeak.
The ‘recapitalisation‘ and ‘bailout’ difference is indicative of the normative and ideological preference of commentators. The good old neo-classical assumption of private market = good, public state = bad. It is the implicit normative assumption used by neo-classical economists that goes completely unnoticed in the public sphere. It seems, in Ireland, that we have lost recognition that economics, as a social science, is the most normative of all the human sciences. It is about the allocation of limited resources – the allocation of who gets what and when.
The Greek “bailout”, on a side, will not improve the Greek economy. Their GNP will drop when they implement cuts and their debt will increase. It is a short term bail out for European banks who are set to lose billions from a Greek default. A neccessary recapitalisation to buy time on how to really sort out the public and private debt problem of Europes’ economy.
As Richard Douthwaite (author of the Ecology of Money) argues in this article, the debt to GNP ratio will not improve until the latter – national income starts to improve. According to him printing more money (by the ECB) is the answer. The same problem exists in Ireland. Our debt and defecit problem will not improve until the economy starts to grow. Or, more precisely – capitalism is not a static system, by its very nature it has to expand, to grow, to develop a surplus value. Cutting wages and services will decrease expenditure and improve the public finance balance sheet. It is an accounting exercise. But, it will decrease economic activity. The government and economic accountants simply hope the private market will kick off by itself.
This is a risky assumption. In the 1980’s, wages were never cut. They increased by 2-3 percent from 1987-1990 and more again by 1993. 55,000 jobs were created during this period. Huge structural investment funds came from the EU and acted as mini stimulus, and we got lucky by landing on the crest of an international upturn in the global economy – led by the US. These variables are not in place in 2010. The EU needs to take serious fiscal measures to improve the overall economic performance of its peripheral eurozone economies. Austerity on its own is futile.
Another interesting observation from the McCarthy article is related to the concept of sovereignty. He concludes the piece by warning against any increase in public spending (which is reasonable). But, he then goes on to say “it would be unfortunate to celebrate the centenary of 1916 with macro-policy dictated from Brussels and Washington“. However, it is clearly obvious that our macro economic policy is dictated by the whims and preference of international bond markets. The UK were told last Friday to finalise a government coalition before the international markets open on Monday morning. What is sovereign about politics being dictated by anonymous international markets?
Furthermore, the use of the term ‘market‘ is misleading. The market is not some sort of exogenous network that acts as the causal ‘hidden’ hand of economic activity. It is not neutral. The market is a series of real actors with real interests, that are often at odds with the interests of the real economy and real citizens. They do not, as many media commentators assume, automatically equate with the general or common interest. The ‘market’ is an institution, with its own rules, and includes a series of actors such as large insurance firms, hedge fund managers, speculators, CEOs and financial economists.
Keynes once described investment management as a ‘beauty contest’. They discard who they perceive to be ugly. So, to rephrase McCarthy ‘it would be unfortunate to celebrate 1916 with macro-economic policy dictated by credit rating agencies and international investors‘.