Dublin Opinion

Alan Ahearne, Central Bank of Ireland & NUIG, writing in 2006 that Ireland’s property bubble was caused by condoms.

Slides from presentation given at the summer school.

Thanks to Mick Healy for the link.

This is the story of veteran Republican Liam Sutcliffe who joined the IRA in 1954. Within a few months he was an IRA agent in Gough barracks Armagh during `operation Harvest’. Sutcliffe later left the IRA and operated with the breakaway Joe Christle group during the 1950s Border campaign.
In 1966, on the 50th anniversary of the 1916 Easter rising he was involved in an operation to blow up Nelson’s Pillar in O’Connell Street Dublin.

In 1970 Sutcliffe joined Saor Eire. He was instrumental in organising the funeral in Mount Jerome Cemetery of Saor Eire member Liam Walsh, who was killed in a premature explosion at the rear of McKee army base in Dublin.

Laughed my ass off at this from the EU Commission, signed by Michael Noonan. The issue is NOT tax evasion. The issue is tax avoidance, and Noonan knows that.

The full letter is here.

And this is from the Guardian earlier this month:

…many of such structures were simply legal devices designed to conceal. The real beneficial owners proved often to be the so-called “settlors” or “protectors” of offshore trusts, and those holding legal powers of attorney which enable them to exert secret control over the bank accounts.

And for a small insight into the world of tax avoidance in Ireland, there’s Al-Jazeera:

My note board in the office.

And on 14 January, first day of the research.

Just got word from the publisher of Sins of the Father. They want to go with a second edition. Updated and with a new chapter. Hopefully out by the end of the year.

Ireland is one of the country’s that’s been hardest hit by Europe’s debt crisis.But amid the austerity, billions of dollars are still flowing in and out of the economy.The problem for Ireland is that it is not collecting much of a share of the money.Laurence Lee reports from Dublin.

Includes footage of the Anarchist bookfair walking tour of the IFSC.

Michael Roberts, Marxist economist has an interesting post on Keynesian economics and where it has got to of late. Like many I am still trying to piece these things together, but there is something in it that I find hard to reconcile. There is a very fast way to disparage the view of some one on the left talking about economics and that is to refer to them as a Keynesian, which in the eyes of some is the same as not only accusing someone of being a loyal Labour Party member, but as someone who also still wears a Gilmore for Taoiseach T-shirt while putting the hoover around the house.

In order to try and piece these things together I recently read Geoffrey Ingham’s Capitalism after Conor mentioned a very good review/essay of it by Ann Pettifor which was published on the 1^st of January this year. Perversely, perhaps, I chose to read Ingham’s book first before finishing the review (perverse because with limited time to read these days if I’d finished the review first I probably wouldn’t have bothered with the book). That said, I was impressed with Capitalism - the book- but it was only while reading the review last week that I realised its shortcomings. That is, although Ingham follows a broadly Marxist, that is structural, analysis of capitalism he still falls in the error of repeating neo-liberal nostrums.

One is about credit creation – that banks create credit based on a fractional reserve of deposits. This is a misunderstanding that peppers much mainstream commentary, even those who are widely seen as having a graw for social democracy.

The other is his understanding of Keynesianism and it’s failure in the 1970s. The following quotes from Ingham, which I’ve indented, are taken from the Pettifor review, along with her comment:

“Ingham effectively endorses the overwhelming neoliberal consensus on the causes of inflation: namely that,

“increases in commodity prices, especially oil, added impetus to the underlying structural causes of increased government expenditure and the power of monopoly capital and their labour forces to mark up their respective prices.”(ibid p. 86)

Along with most economists, he confuses cause with effect. Like many, many others, he effectively blames Keynes for the inflation of the 1970s, arguing that

“the commitment to full employment meant that….corporations and their labour forces, empowered by the absence of the ‘reserve army of the unemployed’ used their leverage continuously to mark up prices and wages.”

Ingham’s view is replicated in Roberts’ post:

“Keynes’ theory would suggest that if there is high unemployment, aggregate demand would be low and there would be over-supply, so inflation would be low or non-existent. Thus boosting demand by tax cuts and/or government spending could restore aggregate demand and reduce unemployment without generating inflation in prices of commodities. Once full employment was reached, however, further stimulus could start to drive up inflation. So there was a trade-off between inflation and employment. This led to famous Phillips Curve that attempted to confirm this trade-off empirically. Unfortunately, the experience of the 1970s demolished this theory, when the major economies had high unemployment and high inflation, or ‘stagflation’.”

In her review Pettifor criticises Ingham for limiting his understanding of Keynes’ critique of the creation of credit:

“Ingham, who clearly rates Schumpeter, fails to point out that his understanding of bank credit-money owes a great deal to Keynes’s body of monetary theory. Indeed Ingham, while including Keynes in his list of heterodox analysts of capitalism, skates over Keynes’s contribution to our understanding of the inner workings of capitalism. He is (to my mind) a little disdainful of the great economist, describing him as simply ‘making capitalism work better’ (ibid. p. 43).

By so doing Ingham underestimates Keynes’s attack on the ‘hallmark’ of capitalism’s systemic failings – the ‘elastic production’ of credit.”

Roberts’ post concentrates on current Keynesian analysis, but the quote above refers specifically to an understanding of the General Theory that informs it.

What is omitted, or (going out on a limb here) poorly understood, is important for getting to grips with what is going on at the moment. Namely: the role of financialisation and rentier capitalism in maintaining low interest rates in the real economy to keep inflation of commodity prices low and further deflating the economy while ignoring rising inflation in asset prices, which in turn is creating a stock market bubble financed by low interest rates and quantitative easing. This activity is fueling massive debt build up in emerging markets. Whether this behaviour is driven by the ‘falling rate of profit’ in production is another day’s work, and in fairness Roberts in his previous post does highlight this financialisation when discussing the rising stock market.

“And as I have argued in previous posts, companies are using these record profits not to invest much into the ‘real economy’ but instead to buy back their shares, increase dividends and purchase financial assets. No wonder there is a rally in the stock market.

The other reason for the stock market high is less ‘fundamental’ i.e. caused by the process of capitalist accumulation. It is the artificially low interest for borrowing funds sustained by central banks around the world. So the gap between what earnings you can get from buying a share compared to the cost of borrowing money to do so ….is very high.

That is the result of monetary policy of easing interest rates and so-called quantitative easing boosting the quantity of money and thus helping to drive up stock prices (but not real GDP growth). Stock prices have risen way more than is justified by increases in real GDP or corporate profits, as in previous cycles like the dot.com bubble of the 1990s or the property credit bubble of the 2000s.”

And this is a point echoed of course by Pettifor

“…central bank support for the private banking system has led to the phenomenon that President Dilma Rousseff of Brazil called a “liquidity tsunami”31: a large pool of speculative capital that originated within the western banking system, and is now aimed at countries like Brazil. The owners of this capital have used low central bank rates of interest (available only to banks and financial institutions) and government guarantees to borrow and seek out high returns in markets beyond their home market. They have done this by speculation in food and commodities, in property and other emerging market assets. This has caused inflation, overheating and asset bubbles in those economies.32 These are new and possibly bigger asset bubbles and Ponzi schemes than those that emerged before the 2007-9 crisis.”

Interestingly, from an Irish perspective, this effect can be seen in the level of indebtedness of Non-financial corporations operating in Ireland the tax haven. According to the most recent Central Bank of Ireland Quarterly Report, which received so much attention because it outlined rising mortgage arrears there is an interesting article on Irish NFC levels of indebtedness.

“Irish non-financial corporation (NFC) indebtedness has increased significantly in recent years despite reduced consumer demand, the bursting of the property bubble and the financial crisis. Between Q3 2008 and Q2 2012, Irish NFC debt in terms of GDP increased by 58 per cent of GDP. As a result of the rapid increase in NFC debt in the years preceding the crisis and the continued increase in debt since the crisis began, Ireland now has one of the most highly indebted NFC sectors relative to GDP in the EU. By Q2 2012, Ireland had a NFC debt-to-GDP ratio of 204.5 per cent, the second highest in the EU, after Luxembourg.”

However, the report says, part of the increase in this ratio is attributable to a decline in GDP and is higher because of the significant increase in the presence of foreign MNCs in that period, and MNCs use Ireland’s Treasury services to launder profit through inter-company loans. This has significance for the Irish economy:

“Finally, when NFCs with high debt burdens seek to deleverage, this can act as a drag on economic growth. Buiter and Rahbeir (2012) find that the ‘GDP loss’ relative to trend in the aftermath of financial crises is almost twice as large in countries which had a large pre-crisis increase in debt compared with countries that did not. In the case of Japan, Koo (2008) found that the corporate demand lost, as a result of NFC debt reduction between 1990 and 2003, equated to 20 per cent of GDP. Consequently, when debt ratios rise above a certain level, financial crises tend to become more likely and more severe (Tang and Upper, 2010).”

And its clear that this level of indebtedness comes from foreign MNCs:

“The growth in loan liabilities for NFCs in Ireland appears to conflict with recent evidence that the Irish SME sector is having difficulties obtaining credit, compared with SMEs in other countries (Holton & McCann, 2012). However, the difficulties faced by small domestically-owned companies in accessing credit would again highlight the predominant role of MNCs in explaining the increased indebtedness of the NFC sector.”

But to return the main point, Roberts’ understanding of Stagflation in the 1970s.

This is important not because we have be on one side, highlighting the fundamental contradictions of capitalism and why it is incapable of provisioning for a society’s needs, or on the other, whether such needs can be provided once capitalism is probably regulated with sufficient state involvement providing safeguards against its worst excesses. For what it’s worth I still remain in the former. It is important because if we are to understand what is wrong with capitalism we have to highlight the structural flaws accurately and one of the fundamental problems that Keynes tried to address (it seems from my reading of the above) is the ability of a particular class to use its power to control resources through the creation and selling of credit and the ease with which they could move money through different jurisdictions (through currency speculation). He was aware that because banks had too much power in the early part of the 20^th century that it led to the Great Depression and the attempt in Bretton Woods was to try and control the movement of money. It failed ultimately, because of the concessions given to the bank lobby. In a sense the problems in the 70s were the final working out of that battle that continued between financial and productive capital.

This is a point that Pettifor highlights when taking Ingram to task for accepting neoliberal nostrums about the stagflation of the 70s:

“However, as Geoff Tily argued in Keynes Betrayed, this analysis skates over the substantial financial de-regulation that began in the 1960s and climaxed first with President Nixon’s unilateral dismantling of the regulated Bretton Woods system in 1971; and in the same year (in Britain) with the Conservative government’s introduction of Competition and Credit Control (dubbed ‘all competition and no control’ by many economists.)

As we have argued above, the Bank of England’s tacit agreement to the introduction of Competition and Credit Control removed restraints on the power of private bankers to create credit – and enhanced their powers to fix and increase the ‘price’ of credit, i.e. the rate of interest.

De-regulation led inevitably to a massive expansion of credit at effectively higher real rates of interest than had prevailed during the regulated Keynesian ‘Golden Age’. This ‘easy money’ led in turn to inflation, first to price followed by wage inflation, and then by asset price inflation.

Moreover, high borrowing costs constrained investment. These together eventually led to the implosion of unpayable debts and economic failure that we have witnessed in recent years.

Competition and Credit Control was amplified by the ‘Big Bang’ of 1986; but there can be no question that the origins of today’s financial crisis lies, not with the ‘Big Bang’, but with 1960s and 70s de-regulation or liberalisation – by both the US authorities, the Bank of England and the British Treasury.”

The attempt to keep piecing all this stuff together continues so. Perhaps I should get Tily’s book to fill in the gaps left out by Marxist bloggers and sociologists. It’ll give me something to think about when I’m doing the hoovering, while sporting my new Karl Marx T-Shirt.