RESPONSE TO SUNDAY TIMES

Your correspondent, Justine McCarthy, in your edition of 17 August, gives a classic example of why it is  so difficult to find serious discussion of real choices in the Irish media.   Instead of dealing with the points I made she just wants me “remove the silver spoon and button my lip”.

Because of what she considers to be my personal financial circumstances, apparently I should not express any views at all about current economic choices facing Europe and the rest of the world.

  

I served as an elected representative for 35 years, much of that at a time when the country was poorer than it is today, so I fully understand the difficult circumstances many families face. I also care about this country.

If we want to preserve our welfare state, we must face facts. 

In the long run, the numbers do not stack up, unless we change things.

Arithmetic is not “right wing”. Burying one’s head in the sand is not ”progressive”.

By facing facts now, one can mitigate hardship, and generate confidence. By maintaining the “tactful silence” that your correspondent favours we do no service to anyone.

When I spoke in New York in 2013, I had in my mind the European Commission Report entitled “2012 Ageing Report...Economic and Budgetary projections for EU 27 (2012-2060)". 

It had been requested by the EU Summit of March 2011.

It covered the sustainability of pension, healthcare, long term care, education and unemployment transfer policies in the 27 EU countries up to 2060, based on current trends and unchanged policies.

It pointed out that the proportion of the population over 65 would rise from 17% to 30% by 2060. Life expectancy would increase from 76 years to 84. But  the working age population in the EU would peak in 2022, and decline thereafter.

In other words, fewer workers would be paying in to support health, long term care, and pension systems for an ever larger number, of increasingly elderly, retirees.

That growing gap could be bridged either by extra taxation, by reduced services, or by extra borrowing. Borrowing would be the best course. But the more one loads up with debt now, the less  one will be able to borrow later on, when this ageing gap will have to be bridged. 

That is why EU leaders focussed on this problem at their 2011 Summit. It is also why Keynesian stimulus is difficult when society is ageing. 

If EU states acknowledge the existence of these looming long term problems in good time, they  can adjust policies gradually. This is the best way to mitigate hardship would certainly come about if the problem is ignored, and then the financial markets suddenly wake up, as they often do, and do not want to lend  . This is partly is behind the need for prudent finance now. 

“Austerity” has become an all purpose term of abuse. Those who use it, should first define it.

I define austerity as spending less than one is earning. At the moment the reverse is still the case.

The government plans to spend more than it will take in next year, to run a (small) deficit. But, under the Fiscal Compact Treaty, negotiated by the Government and approved in a referendum, we are committed to running a surplus from 2018 on, until we halve Government debt as a percentage of our national income. This may well take 10 years, depending on the rate of economic growth.

When I referred to this Treaty based requirement to run surpluses, it seemed to shock some in the media, and even in the Dail, who seemed to be unaware of the contents of the Treaty approved by the Irish people. 

An ageing population, such as we have in most developed countries, means that there is an inbuilt tendency for government spending to rise, even without a policy decision. With no policy change since 2008, by 2013 the number of people of pensionable age increased by 13.5%, and people of that age use more health services. 

The same problem arises in the United States. 

Things have been difficult for many people since 2008. But life will be much harsher in the future, if we refuse to publicly about long term problems like these, because we are afraid, that when we do, we will attract the sort of personalised criticism that your correspondent and others have directed at me.

  

On the question of banks and bankers, if we do not diagnose our problems properly, we will simply repeat the mistakes again.

I do not believe in over simplifying issues, or in exclusively scapegoating individuals, or a class of people, for the economic downturn.  

Irish bankers are indeed to blame for bad lending decisions, and some for worse things than that. But that is not the whole story. 

The foreign banks, who lent recklessly, through the Irish banks, into the Irish property bubble share responsibility too.  They have not been called to account. So too do the bodies supervising all those banks, here and abroad, including the ECB, who failed to devise policies to detect and prevent bubbles.

Central Banks, like the Fed, who increased global money supply unnecessarily to finance the US trade deficit share blame as well. So does the then Irish Government, which increased spending levels permanently, on the strength of revenues from construction  that they knew were temporary.

Only about a third of the increase in our debt since 2008 is due to bailing out banks, and two thirds of it is due to having maintained spending levels, despite the fact that tax revenue had fallen. 

The remarkable thing about the article last week, and others like it, is that the author takes no stand on any issue. She prefers just to sneer, and leave it at that.

For the record, much of the criticism is directed at comments I made for which I was not seeking any particular publicity at all, without a script being issued to the media to get coverage. In New York , I was speaking at a purely private event, and had no notice that my remarks were to be recorded or disseminated. 

But I am happy to take responsibility for what I said.