Ireland’s economy will need another global credit wave
You could see where the money is. When the Republican won the Massachusetts Senate seat, shares in big pharmaceutical companies rose sharply.
When US President Barack Obama announced his intention to put tough new rules on banks, Wall Street plunged 4%.
It is therefore tempting to think Mr Obama is on to something in healthcare and banking regulation. But the reactions also suggest that the American public are on the side of big business when it comes to healthcare, but hostile to it when it comes to banking.
One of the great truisms of politics is that people regard the status quo as normal and resist change. I came across a surprising claim in a report about the car industry, which will have to try again to sell small cars to Americans to meet new emissions standards. The problem, though, is not the size of the cars, but the price. Ford, for instance, is launching its European Focus as its US small car.
The surprise was that the Focus is more sophisticated than anything Americans drive, and therefore will be more expensive — perhaps too expensive for the customers.
American healthcare, on the other hand, is the most expensive in the world. It helps that employers usually pay, but it is what they are used to — dear healthcare and cheap cars.
Change is difficult. Not, however, in the case of the banks, where the public is baying for radical action.
In a best-selling book a few years ago, the left-wing writer Naomi Klein suggested that government and big business have been engineering crises as a way of imposing right-wing systems on a reluctant public. Neo-liberal conspirators certainly did not organise this mother of all crises. It was caused by the kind of structures established in the 1980s: in the mistaken belief that, if everyone looked out for their own financial interest, the system would be stable.
Mr Obama’s plans for change caused consternation because they would mean changes to the system itself. The arguments rumbled all round the annual gathering of Masters of the Universe at Davos last week.
It is worth remembering what Obama is trying to do.
It is clear that, as things stand, it could happen again: it may indeed be happening again, only this time in China.
In the interests of stability, governments and regulators may have to keep lending and economic growth at lower levels than the system could deliver. Bankers at Davos who warned of this danger have missed the fact that, far from being a danger, it might be desirable. In Ireland, the problem is exactly the opposite. There is no danger of Irish banks going on a foolish lending spree again. As a report from the Standard & Poors ratings agency showed, they have virtually no capacity to lend at all. Their capacity to borrow is so constrained that they will have to charge us all more for our mortgages.
From a purely selfish point of view, what we need is another global credit spree, on which the Irish economy can ride, and the revenues from which would help restore the balance sheets of both government and banks, before the next bust.
It might be the lesser of two evils for us because, this time, the bubble and burst would be somewhere else. If Mr Obama and President Hu Jintao of China manage to organise a more stable recovery, we will have to manage with our own, now meagre, banking resources.
When the time is ripe, there will be a commercial demand for more loans. But for such credit to ‘flow’, government and households will have to get by with less. This is one change that is always unpopular.