Reagan-Thatcher Supply-Sided (American) Capitalism and Ireland's Fall

You would think that Ireland should have seen its economic disaster coming early. There were plenty of prophetic examples from other parts of the world by the time Ireland adopted American style capitalism. New Zealand may have been one of the earliest examples. It adopted the Reagan-Thatcher conservative economic ideology in the early 1980s, ideology that is cited as the primary cause for New Zealand's economic collapse in this report(pdf). If you read this report, you'll see that New Zealand followed the typical GOP conservative, libertarian approach to economic and fiscal governing. And, it did New Zealand in. Even Britain, just across the Irish Sea, had experienced an economic meltdown in the 1980s because of Thatcher's follow-Reagan economic plan; small government, privatization of government services, low corporate tax, anything-goes market, voodoo economics. And, of course, there is Japan's 1990s economic collapse because it followed American style capitalism, although it didn't adopt the whole hog, but only the hindquarters, such as deep corporate tax cuts. That was enough to do its economy in. It turns out that in every country, including our own, where the American style GOP, libertarian capitalism is adopted, it fails. Here is when I stick my tongue firmly in my cheek and facetiously say, "Imagine that!" Poppy "read my lips - no tax increase" Bush was right. It is voodoo economics.

So, what's happening to Ireland. For one thing, Ireland's workforce is on the move again. I guess we can go all the way back to the Potato Famine to see that when things get to a point where people can't live, they leave where they're living for another, and hopefully, better place. Ireland seems to have that particular situation recur in its history over and over. And, it's a damn shame. It was only a few years ago that everyone, even Thomas Friedman, thought Ireland was the poster-country of prosperity, as in this column. Friedman said Ireland's booming economy in 2005 proved that Germany's more moderate and labor-favoring approach was wrong. In fact, Friedman says that Ireland's Irish-British model is "the way of the future." Some future! Now, in 2010, i.e., "the future," Ireland is nearly bankrupt while Germany is healthy and is one of the countries bailing Ireland out.

My Irish immigrant friend also passed this little blogger gem, "Ireland Then and Now," by Jonathan Chait, which suggests that Ireland's economic and fiscal policies caused the mess, which is true, except the article contradicts itself so much that's it boggles the mind. Chait starts his article saying, "It was not long ago that Ireland was every American conservative's beau ideal of a European state. Low taxes, low regulation, it was the perfect case study in the success of free market policies..." and "How has Ireland become a "Celtic tiger" (a la Hong Kong, Taiwan and Singapore, the earlier "tiger" economies in Asia)? Simple: By clinging for dear life to the coattails of the American economy. The Irish have basically set themselves up as a free enterprise zone for U.S. companies wanting a base in Europe, rolling out a business-friendly red carpet." Yep. That's what Ireland did.

What's really ironic is the references Mr. Chait uses to document "why" Ireland is falling. From 2003 through 2007, Chait cites Cato Institute and The Heritage Foundation reports, both conservative organizations, that gloat about Ireland deregulating and lowering corporate taxes (from 50% to 12.5%), attracting American companies and the "greenback," privatizing government services, and generally releasing the free-market dogs. Ireland, Cato and Heritage said, "was the model free-market state." It all was going along gloriously until Ireland hit the Great Recession wall, and then everything went to hell.

So, what did Ireland do? It did the opposite of what President Obama encouraged at the G-20 Conference in 2009. Obama encouraged "stimulus," but Ireland chose deficit reduction, following the Reagan-Supply-Side economic model of free markets, deregulation, let 'em fail, policies of the GOP Republicans in America. It tightened its belt, laid people off, eliminated government jobs and services. Even then, as late as June 2010, the Cato Institute was bragging about Ireland's 2009-2010 policies at the same time as it was deriding Obama's "stimulus" policies. But, the belt tightening didn't work. It created a worse condition, as most economists predicted when they said that the economy "needed stimulus" to get the economy moving before deficit reduction.

Ireland is now accepting bailouts from its European Union members so it can survive. And, Cato and Heritage are now turning on themselves, since reading on in Chait's blog shows that now that Ireland is deeply in trouble, Cato and Heritage are blaming Ireland's government big-government and big-spending for the problem even when its government followed the fiscal and economic policies that Cato and Heritage were bragging about only a few years before.

But, the EU bailout is not helping Ireland's people NOW. They need work NOW, not next year. They're leaving Ireland, as this Washington Post article notes. So, Ireland, following the grand Republican scheme is broken and broke and evacuating the sinking ship.

After our November 2nd Republican Coup d'etat, we're next. Stand by for heavy rolls. Perhaps Barney Frank's take on the the Republican's perspective on unemployment says it best. Thanks to my Irish buddy, I have this quote:

“The Republicans are joining the Central Bank of China in criticizing [Fed Chairman] Ben Bernanke ” Mr. Frank said Monday during an interview on Bloomberg Television. “This is really distressing to me.” ... Mr. Frank said complaints about currency manipulation from Chinese central bankers “is like being called silly by the Three Stooges. And then to have Republican leaders in Congress agree with those complaints is bizarre,” Mr. Frank said. “The Republicans are arguing that the Fed should not even be concerned about unemployment.”

Dave

The Economic Delusion Rut - Page 1

I heard that strong emotions, anger, fear, euphoria, etc., are usually preceded by distorted thinking and the results of these emotions are usually unintended. We do things that we wouldn't ordinarily do if we knew the facts. I think that strong, unbending beliefs are based on distorted thinking too. Recent events prove my point.



I received a letter from Congresswoman Barbara Lee, my representative to Congress from California's 9th District. It was a nice letter thanking me for contacting her, in anger, with a strong suggestion that she get her "stuff" together after she voted "no" to the first $700 billion bailout package. What was she thinking, I told her. She should have supported the bill! The letter, prepared two weeks after the second bailout bill passed and with lots of hind-sight, is very well written and very respectful and gives the rationale for her first "no" vote and her second "yes" vote. The second bill, she says, contained the language, "...many critical improvements that will protect the economic security of all individuals, not just corporations on Wall Street...," in her words, that she could support. Not true.



The facts, I believe, are that she was shocked by the enormity of Paulson's proposal, as was much of the nation, including me, and she was afraid. She didn't know anything about the proposed bill, didn't know its impact or even how the money would be used (neither did Paulson). According to the Contra Costa Times newspaper, her "no" vote was based on the many phone calls she received objecting to bailing out Wall Street and her belief that it did not contain language that protected the specific homeowners who faced foreclosure. Paulson had done a poor job explaining the bill and she had done a poor job getting to the truth and severity of the situation. She voted a populist vote to keep her job. She is up for reelection this year.



The days following her "no" vote, Congresswoman Lee received just as many if not more angrier phone calls asking her what the hell she thought she was doing. In her effort to save those few foreclosures, she was in fact jeopardizing the entire economy. She changed her mind and voted for the second bill, which contained much more money, $150 billion more, and less restrictions on corporations to satisfy (read this as bribes) to get Republican votes. Maybe California State Treasurer, Bill Lockyear, did explain to her the importance of the bill, as she claims, or maybe he didn't. By that time it was known throughout California that Governor Arnold Schwarzenegger had alerted Secretary Paulson of California's dire credit crisis of not being able to get money for payroll and critical state services. Maybe Lee got a copy of Arny's urgent email? In any event, she changed her tune and her letter is full of rationale that makes her look like an economic hero to her constituents. More delusion.



Then, two weeks passed before Paulson and Bernanke did anything with the authority provided in the bill, now called a "rescue." Finally, they followed Britain's lead by injecting money in banks, but only half-hearted. Britain's action was a bank takeover that is forcing the banks to loan money that gets the credit market going again. Paulson's action was to hand over the money to selected banks and soft-sell the idea that banks need to start lending, at their convenience. So now, two weeks later, U. S. banks are still freezing credit by holding on to the money. They are still afraid to loan money and they have chosen to watch out for their own skins (company survival) instead of the survival of the U. S. economy. The downward spiral gets more complicated and more dangerous as each day passes. Even the "D" word, Depression with a capital "D," is being mentioned. Fear! Paul Krugman, Professor of Economics and New York Times Op-Ed columnist, reports that even the most knowledgeable market managers, the hedge fund managers, are bailing out because of fear.



As the 20-20 vision of hind-sight gets better, I'm thinking that Bush, Paulson and Bernanke are still hanging on to the delusional thinking of the old free market ideology; that companies, and banks specifically, can still self-regulate. They are just as afraid as everyone else is and they are sticking to their distorted, unbending beliefs. Even when Greenspan admits to Congress that he is "shocked" and "was mistaken" in his belief that the market would self-regulate, they are still hanging back on forceful action. Maybe what's unfolding points to the greatest illusion we've been sold that built the delusional rut we dropped into years ago; that markets should be free of government controls, that market forces would provide the self control - the supply-side economics (Reaganomics) sold to President Reagan by the Corporate Libertarian ideologues. The same economics that McCain believes in.



One thing for sure, 20-20 hindsight confirms that we are just chickens running around with our heads off. As for me, being completely in the dark on these complicated matters way beyond my knowledge, I just hope and pray that Warren Buffet, George Soros and T. Boone Pickens are right; that the market will come back with a vengeance in my life time. So, and since I bought at what I thought was a low point when the DOW was around 8,500, I'm holding on in the stock market and trying not to let my fears get to me. My wish, whether I gain anything or not, is that someone goes to jail over this. One or more of those big executives who made billions from proliferating those Credit Default Swaps would be a good place to start. Those executives who make billions from the bailout (rescue?) are next. But, lets put them in jail with just as much calmness, thoughtfulness and detachment as they used when they ripped us off. We should be determined, not emotional.