Stiglitz pours cold water on Ireland’s ‘partly delusionary’ optimism

Nobel-prize winning economist blames failure of political leadership for reign of austerity

Joseph Stiglitz, Nobel prize-winning economist and professor of economics at Columbia University,. Photograph: Simon Dawson/Bloomberg

Joseph Stiglitz, Nobel prize-winning economist and professor of economics at Columbia University,. Photograph: Simon Dawson/Bloomberg

 

Joseph Stiglitz hankers after old heroes: Teddy Roosevelt, who broke up John D Rockefeller’s Standard Oil at the end of the Gilded Age in the United States in the early part of the last century; or his distant relation, Franklin, 30 years later.

Both came along at times of acute inequality – a state of affairs that has returned in the Western world with a vengeance, he argues in The Great Divide, a collection of his essays in the New York Times.

“[Teddy Roosevelt] was a Republican, but he brought in progressive reforms. Rockefeller, to put it into perspective, was much, much richer than Bill Gates is, if you compare gross domestic products of the times.

“FDR had the same kind of ability to rally the country in a crisis, where the people who had perpetrated the problems were very strongly opposed. It was a battle, but he was willing to fight the battle,” says Stiglitz, sitting in his publisher’s offices on The Strand in London.

Politicians today offer meagre fare to voters, he says, despondently: “Most government ministers (throughout the world) are middlemen in ideas. They are looking for packaging for simplistic ideas.”

For the last few years, the simplistic package, in Stiglitz’s view, has been austerity: “It said austerity works. I very strongly believe it doesn’t. And the IMF – which is not a left-wing organisation – says it doesn’t,” he tells The Irish Times.

However, the Nobel Prize winner believes the narrative is changing. “There is a growing recognition that it is a problem. In the US, even the Republicans are beginning to talk about inequality.

“Even they can’t shy away from it because it has become so serious. It has gone to the top of the global debate. The business people at Davos say it is one of the major threats to the global economy,” he says.

However, the drift is not all in Stiglitz’s direction: the United Kingdom general election saw the Conservatives win a majority pledging to continue with spending cuts, along with a sparsely-detailed plan to cut £12 billion (€16.9 billion) from the welfare budget.

Austerity-lite

The economist blames the man, not the argument. Labour under Ed Miliband “did not present a coherent alternative model, it was more austerity-lite – ‘We are going to be tough on the poor, but not quite as tough’.”

Voters in England were frightened by the Conservatives’ scare stories about the influence the Scottish National Party could wield: “A lot of the way people vote is based on fear: the known evil versus the unknown potential risk. People are risk-averse.”

Five years ago, Stiglitz was amongst the most pessimistic of forecasters about Ireland’s future, following the banking collapse.

Despite growth figures, rising employment and taxes, Stiglitz sees little reason to change his mind.

Time has strengthened his arguments about Ireland’s banking mistakes. “There have been disclosures that reinforce the view that this was not a good deal; that the European Central Bank was trying to protect European banks at the expense of the Irish people.

“So the outrage that I felt about what the ECB was doing I think now has stronger ammunition and support. The only revision that I would make is that my opinion now is even stronger that it was a mistake,” he declares.

Ireland’s current more optimistic air, where it exists, is partly delusionary, argues the Columbia Business School-based academic: “The Irish are a little bit like Americans in terms of optimism.”

Questioned about the impact of spending cuts, Stiglitz refuses to give ground: “Ireland being a small country had the ability to adjust a little bit more than some of the other countries have been able to do.

“They were willing to take some more pain. I don’t know whether this was some sort of Catholic guilt feelings that allowed them to take that that other societies would not have done,” he said.

Shaking his head with amazement, Stiglitz talks of Irish friends and acquaintances who quietly, even docilely, accepted 25 per cent pay cuts. “Even now, they are not back to the standard of living they had.”

He refuses to accept the Government’s upbeat prognostications. “I think [they are] not very solid.Part of the previous economic policy was based on tax competition. That is going to be more and more difficult in future. That is a zero-sum game.”

He accepts, when pressed, that he has not had time to delve into the innards of Ireland’s economic figures too frequently.

Nevertheless, he goes on: “I haven’t seen a convincing story that there is a strong underlying basis for sustainable growth.”

Delusions

So are Irish optimists deluding themselves? “Somewhat . . . Obviously, there is relief that things are worse [elsewhere] and that they have managed their way better than Greece. Greece makes you feel good. That is a source of optimism, you’re not at the brink.

“Oh, yes, things could always have been worse,” he goes on, but he quickly rejects the argument that any of the improvements can be laid at the door of austerity, “No, no, that question is not addressed by that.

“What would have happened if you had not had austerity? Every crisis comes to an end,” Stiglitz goes on, accepting no demur, “Do I revise my views about the efficacy of austerity, absolutely not.”

With less than 12 months to go to the next Irish general election, Stiglitz, however, argues, that there is little point in voters rerunning the arguments about whether austerity was right, or wrong.

“Yes, there is no point going back to the fork in the road. So the future? A development strategy based on tax avoidance, or evasion, is unlikely to be acceptable in the future globally. It was probably never morally correct. Ireland has to have another strategy.

“Do you want to be a society like the US with huge divides, where whole parts of the country get left behind? Or do you want to say that you care about the whole country. It’s not about debating the past, but debating the vision of what kind of society people want.”

However, Stiglitz seems unconvinced about voters’ ability to make the right choices, saying that people in the UK this month “knew in their hearts that things are worse, that austerity has not worked.

“If you had had appropriate leadership from Labour they might have been better able to explain. But if you don’t have a salesman for an idea,” he says, before pausing. “It is not just about the presentation but presentation can make a very big difference.

“That is both depressing and hopeful. Depressing because you can have a really bad idea sold for a very long time. It’s hopeful because you can always hope that somebody will come along and tell a different story, and win a better contest of ideas.”