Confidence and hope can trump counsel of despair
OPINION:Some comment on the Irish economic crisis is based more on populist rhetoric than analysis
THE NEAR hysteria that accompanies the debate on the economic and financial crisis at times is for many people disturbing, not least for those whose jobs and future incomes are in the balance. The flames are fanned when “leading experts” predict apocalyptic scenarios, thereby making such outcomes more likely to be self-fulfilling.
Why do some commentators on the crisis generate so much publicity and attention, while other very professional and balanced academic commentators receive so little? There are three ingredients to media “success” in this regard: first, these commentators often make extreme predictions, which are plausible in certain scenarios but have a very low risk of happening; second, some of these predictions have come spectacularly true (which they will on occasion given there is never a zero probability of such an event happening); and third they often have wonderful prose skills, and usually identify with certainty easy “scapegoats” for the crisis under discussion.
The first two factors apply to most “celebrity” predictions. I think of the World Cup octopus last summer who “predicted” correctly several match results in a row. I remember also some decades ago a farmer in the west of Ireland correctly predicting a record hot summer, contrary to all professional predictions.
All possible future scenarios should be taken into account as much as possible. The key issue is the probability or risk attaching to the scenario and the scale of the consequences.
For example, there could be a nuclear catastrophe (accidental or intentional) affecting a huge section of the Irish population, but is the risk high enough for us to start building bunkers and building up food supplies?
One of the problems is that people remember only the spectacularly correct predictions, but ignore the much higher number of spectacularly wrong forecasts. Thus late last year we had many predictions from arguably the most “celebrated” economics commentator, Morgan Kelly: for example that Ireland was “on the cusp of a social conflict on the scale of the [19th century] Land War”, or that in 2011 the “wave of foreclosures will cause house prices to collapse further”. These things were and some still are possible, but how high is the risk and on what evidence are the forecasts made?
On the future of the Irish economy, I would like to make a few general statements.
First, the economic and political world is complex . It is serving no good purpose to suggest that there are simple solutions. As Dan O’Brien stated recently in relation to the banking crisis, “restructuring could make economic and financial sense, if it were not for the unknowable effects of what it would trigger. Better to plough on, take the pain and hope for the best than risk everything”. This is the essence of the debate, the balancing of risks and unknowns, to which there is no easy or painless solution. The point of expert commentaries should be to throw light on this debate in an informed, balanced way.
The second issue is who pays for the banking crisis. As the Nyberg report made clear, the “culprits” are spread far and wide – a mass property mania gripped large sections of the population. There is also though a euro zone dimension to this and hence part of the burden has to be borne eventually by a wider grouping. This is because it is in the wider interests of others in the euro zone to do so. This message has to be made to other euro zone governments in a way that generates trust and helps them to convince sceptical electorates of the rights of the Irish case.
Third, there remains the public finances issue and the continuing huge borrowing required to fund day-to-day State expenditure. This has to be tackled now and with urgency, including probably cutting again public sector pay, pensions, and social welfare by up to 10 per cent on average.
Even if this were to happen, the levels in Ireland would be considerably higher than in some wealthier countries, and than comparable levels in the private sector here. Tackling the fiscal crisis more urgently and convincingly would also greatly enhance Ireland’s credibility in negotiations with euro zone governments over resolution of the financial crisis.
Last is the unemployment crisis, possibly the most intractable of all the problems. Its resolution will also be a key part of the solution to the banking and fiscal crises in that it will generate the growth to partly fund the deficits. Competitiveness is being restored but already we have had a build up of long-term unemployment that could be extremely difficult to address.
As John Bruton stated in these pages recently, trust and confidence underlie every strong economy. Predictions of a crisis can be self-fulfilling but of course well-founded predictions must be considered very carefully. But this does not mean we drain every ounce of energy and hope from the nation on the basis of very low-risk predictions, often grounded more on populist rhetoric than on sound analysis.
Recent events have shown Ireland can perform very well on many fronts. Hopefully they have also provided the confidence that this country has the capability to succeed again on the economic front and remain among the high-income nations of the world.
John O'Hagan is professor of economics at Trinity College Dublin