Let’s begin 2022 on a positive, even outrageously optimistic, note.
Yes, there’s inflation, pandemic disrepair, geo-political instability, low wages, precarious work, social deficits and increasing demands on under-funded public services. But there will be time to depress ourselves over these. Let’s start with a hopeful analysis. And who better to go to than John Maynard Keynes, who said,
‘Anything we can actually do, we can afford’.
All the dire predictions of the fiscal pessimists are swept aside like so many budget begrudgeries. Finance is an instrument, not a master. Policy is determined by our own capacities, not by our pockets.
‘Anything we can actually do, we can afford’ is the watchword(s) of the new political economy.
Keynes made this statement in a 1942 lecture on BBC radio. Here is the context.
‘Let us not submit to the vile doctrine of the nineteenth century that every enterprise must justify itself in pounds, shillings and pence of cash income … Why should we not add in every substantial city the dignity of an ancient university or a European capital … an ample theater, a concert hall, a dance hall, a gallery, cafes, and so forth. Assuredly we can afford this and so much more. Anything we can actually do, we can afford . . . Yet these must be only the trimmings on the more solid, urgent and necessary outgoings on housing the people, on reconstructing industry and transport and on replanning the environment of our daily life. Not only shall we come to possess these excellent things. With a big programme carried out at a regulated pace we can hope to keep employment good for many years to come. We shall, in fact, have built our New Jerusalem . . .’
Keynes’ dictum has gained new currency during the pandemic. Who would have thought in 2019 that we would be able to spend billions on subsidising people in work and out of work? Who would have thought that billions spent on business subsidies would not only be possible but desirable? Who would have predicted essentially free health services and the takeover of private hospitals?
Had you predicted any of this in 2019 you would have been laughed out of the media studios.
‘How could we afford this?’ would have been the refrain. And, yet, we did.
Of course, there are caveats and conditions. Inflation is a key constraint. Keynes wrote:
‘The . . . task is to prevent a demand in excess of the physical possibilities of supply, which is the proper meaning of inflation. For the physical possibilities of supply are very far from unlimited . . . Having prepared our blue-prints, covering the whole field of our requirements and not building alone—and these can be as ambitious and glorious as the minds of our engineers and architects and social planners can conceive—those in charge must then concentrate on the vital task of central management, the pace at which the programme is put into operation, neither so slow as to cause unemployment nor so rapid as to cause inflation.‘
This has lessons for our housing programme. The first issue is not the money but the capacity. Do we have the labour, the supply chains, efficient public procurement rules, the land? How does this balance with other demands for retro-fitting and other building and infrastructural projects? And at what point does the programme start ‘over-heating’, with investment chasing prices rather than completing housing? This should lead us to emphasise quality and long-term sustainability over setting tenuous targets.
This is about changing the debate from ‘can we afford it’ (yes, we can) to ‘can we actually do it’? Most days I walk past St. Mary’s Mansions, a social housing estate in Dublin’s North Inner City. It underwent a massive regeneration which resulted in the highest energy rating, new communal spaces (play areas, etc.) and new units, housing more – all for the price of €23 million; essentially pennies behind the sofa which will be recouped in the years ahead. This could serve not only as a template for social housing, but all housing. Dr. Rory Hearne highlights the challenges and benefits of bringing the vast number of empty and derelict housing units back into use.
The real driver of doing and affording, however, is somewhat out of our control. The EU Commission is currently reviewing the Fiscal Rules. A return to the old normal or a withdrawal of the ECB backstop to sovereign debt would undermine attempts to finance what is necessary. That’s why it is imperative the Irish government support the arguments that investment – especially green investment – be exempt from deficit and debt calculations; that productive investment be central bank-financed. It is imperative that opposition parties hold the government to account on this. Sensible fiscal rules and central bank support for investment would help ensure that what we can do, we can afford.
Even without this, the Irish government can still increase resources under the current rules (always remembering inflationary pressures), investing billions more by 2025 than what is currently projected. Keeping growth ahead of borrowing still reduces debt, but more importantly can reduce economic inefficiency and social need. The only limitation is capacity.
This requires a different dialogue. It requires – again, relying on Keynes – a managed 'quasi-boom', a macro-economic policy that the current Government would find difficult given their ideological blinkers (and given the main coalition parties’ track record, I’m not sure I’d like to see them try). To meet the challenges – from post-pandemic repair, to climate chaos, automation and a low-growth future – we will need to do things differently.
And the good news is that what we can actually do, we can afford.
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