Saturday, November 18, 2006

Deaths of Milton Friedman & Ireland's Progressive Democrats: PDs become One Issue Party as Pre-1997 Radicalism is Abandoned

Milton Friedman, who ranks with John Maynard Keynes as the most influential economists of the twentieth century, died this week at the age of 94. Friedman began his career as a believer in both Keynesian economics and in the liberals' vision of the world with which it was so compatible.

The Keynesians' belief that benign government policy could wisely make trade-offs between rates of inflation and rates of unemployment was epitomized in the Phillips Curve, which appeared to lend empirical support to that belief. However, Friedman who admired Keynes, showed that it was not the rate of inflation which reduced unemployment but the fact that inflation exceeded expectations. In other words, even a high rate of inflation would not reduce unemployment if inflationary policies became so common as to be expected. The "stagflation" of the 1970s -- with simultaneous double-digit inflation and double-digit unemployment -- validated what Friedman had said, in a way that no one could ignore.

As Friedman's ideas on monetarism and the reduction of the role of government in western economies, were moving into the mainstream through the force of events, one of my economics lecturers at University College Cork, disclosed to me that he'd given up on economics a long time before. Some of his colleagues were in their element at postgraduate seminars, gas bagging about people like Karl Popper. They were a depressing lot, which chimed with the times.

Before reviewing how the high hopes that the Progressive Democrats once gave to an Ireland without hope, have been replaced with bartering in the souq for retention of the privileges of political office, the following is the conclusion of Milton Friedman's Nobel Prize in Economic Science address to the Nobel Foundation in 1976, the high point of his academic career.

Government policy about inflation and unemployment has been at the center of political controversy. Ideological war has raged over these matters. Yet the drastic change that has occurred in economic theory has not been a result of ideological warfare. It has not resulted from divergent political beliefs or aims. It has responded almost entirely to the force of events: brute experience proved far more potent than the strongest of political or ideological preferences.

The importance for humanity of a correct understanding of positive economic science is vividly brought out by a statement made nearly two hundred years ago by Pierre S. du Pont, a Deputy from Nemours to the French National Assembly, speaking, appropriately enough, on a proposal to issue additional assignats - the fiat money of the French Revolution:

“Gentlemen, it is a disagreeable custom to which one is too easily led by the harshness of the discussions, to assume evil intentions. It is necessary to be gracious as to intentions; one should believe them good, and apparently they are; but we do not have to be gracious at all to inconsistent logic or to absurd reasoning. Bad logicians have committed more involuntary crimes than bad men have done intentionally” (25 September 1790).

Ireland eventually embraces Thatcherism

In the first half of the 1980's, despite turmoil resulting from serious mismanagement of the Irish economy, with the exception of Charlie McCreevy, who is currently European Commissioner for the Internal Market and Services, it was taboo to publicly express admiration for what were viewed as the slash-and-burn economic policies of British Prime Minister Margaret Thatcher.
Michael McDowell, PD Leader and Minister for Justice once made the bold claim in relation to his party that it's credited with major responsibility for Ireland's economic boom by pioneering tax reform, deregulation and competition to end mass unemployment and emigration. In nine years, the reality is that the record in tax reform deregulation and competition is lamentable and while personal income tax levels have fallen, the overall tax burden is still as high as the UK's.

McDowell claiming credit on his website: "Michael In What Turned Out To Be A Defining Moment Of The Election."

However, the takeoff of the UK privatisation programme, the re-election of President Ronald Reagan, first stirrings of reform in the Soviet Union, under the leadership of Mikhael Gorbachev and continued high emigration of young Irish workers to the US and UK, combined with the formation of the Progressive Democrats Party , gave some Irish people hope after ten years of economic drift.

In the 1987 general election, the Progressive Democrats (PDs) won 15 seats and the new minority Fianna Fáil Government's programme to set the economy on track, were supported by the main Opposition party Fine Gael.

The PDs promoted economic and institutional reform, including lower taxes.

Following a controversy in the 1997 General Election campaign about a PD policy on public sector reform and a trade union backlash about possible job losses, the PDs during its subsequent nine years in government has lost its appetite for reform and is left playing the role of the one-club golfer.

In an Ireland with an illusion of a permanent prosperity but one where over 30% of tax revenues come directly and indirectly from the booming property sector; where venture capital investment at less than €200 million in 2006 - equivalent to 5% of investment in commercial property; One eighth of workforce employed in construction and 1 in 5 of private sector workforce depending on construction, the PDs have NOTHING to say about serious reform to prepare for challenging times.

Reform to the PDs is sham benchmarking and shambolic decentralisation.

So what's left is tax cutting.

Abolition of stamp duty but no reform of the corrupt land rezoning system that makes multimillionaires of farmers on public welfare at the expense of first time house buyers.

The Irish Times reports today that negotiations between the Progressive Democrats and Fianna Fáil on a cut in the top tax rate of 42 per cent are expected to intensify in advance of the Budget on December 6th.

The newspaper says that while Minister for Finance Brian Cowen has firmly signalled that he favours increasing personal tax credits and tax bands rather than tax cuts, the PDs are determined to push for a reduction of 2 per cent in the top rate as outlined in the Programme for Government.

Senior PD sources said yesterday, however, that even a 1 per cent cut in the top tax rate to 41 per cent would be seen as an achievement and may be something they would be prepared to compromise on.

"Any cut in the top tax rate would be clearly identifiable with us. The collective view in the party is that we must get something on tax for our constituency."

(SEE - SEPTEMBER POST: McDowell offers update of Fianna Fáil 1977 manifesto )

Taoiseach Bertie Ahern will chair a special pre-Budget Cabinet meeting in Dublin tomorrow during which Ministers will have an opportunity to outline their final Budget "wish list".

Tax changes are not expected to be discussed at tomorrow's meeting, however, but will be thrashed out in the next few weeks between the PD leader, Tánaiste Michael McDowell, Ahern and Cowen.

In recent weeks McDowell and PD deputy leader Liz O'Donnell have publicly stated that they will be looking for a cut in the top tax rate.

McDowell called for "significant middle-class tax cuts" earlier last month, while last Sunday O'Donnell said in a TV3 interview that she was "hopeful" of a cut in the top rate in the Budget.

She pointed out that the Programme for Government contained a commitment to cut the top rate from 42 to 40 per cent.

O'Donnell said tax cuts were "always on the agenda with the Progressive Democrats in government". She said she would "be very hopeful" that there would be tax cuts in this Budget because it is in the Programme for Government.

Progressive Democrats' inevitable Dénouement

The inevitable dénouement of the PDs will take place with the retirements of Michael McDowell and Mary Harney.

The PDs have surrendered to vested interests and the short-term allure of tax cuts is its only hope of survival.

If anyone argues otherwise, ask them, where does the buck stop today in our system of public governance and is it any different to 1997?

Instead of public service reform, the PDs supported sham benchmarking and even its ministers accepted two benchmarking payments.

So a cut in the higher rate of tax would be seen as an achievement....and that is the desperate position of the PDs, running on empty, out of ideas, after almost a decade in office.

Michael McDowell claimed in the past that his party was "credited with major responsibility for Ireland's economic boom by pioneering tax reform, deregulation and competition to end mass unemployment and emigration."

The reality is zero public service reform and little done in the area of deregulation other than what has been mandated by the European Union.

Don't take my word for it!

Take it from the horse's mouth...and as recently as last month.

Taoiseach Bertie Ahern said change and modernisation in the public service could be achieved only if staff extended their working day.

Ahern said it would not be possible to face challenges in the future if public sector workers wanted to work only six hours a day and take a half-day on a Friday.

Irish politics is generally a radical ideas free zone but the PDs misleadingly still claim that it is a party of reform and change.

This month is the ninth anniversary of the establishment of the corruption planning tribunal.

Why has ZERO been done in the interval to change the system that spawned the corruption?

Are votes still for sale? ABSOLUTELY but PD President Tom Parlon, who is a huge beneficiary of European socialism, views any tampering with the land bonanza system to the "left of Stalin."

Parlon holds a veto on any measures that would impact farmers. Party Chairman Senator John Minihan and Junior Minister Tim O'Malley, who are pharmacists, are members of a sector that is still not open to full competition.

The OECD said the following in its May 2006 Economic Survey of Ireland: There are several barriers to competition in the pharmacy industry. The worst is the restriction on foreign-trained pharmacists. Even Irish citizens who train abroad are not permitted to open or run a new pharmacy – the best they can do is buy one that has been operating for three years.

This does nothing to promote healthcare; it is purely an anti-competitive restriction that protects incumbents.

William Prasifka, the chairman of Ireland's Competition Authority, said last June that “in too many areas, Ireland has not willingly embraced competition. European Directives forced the introduction of minimum levels of competition in the telecommunications and energy sectors. In other areas, such as taxis and pharmacies, legal advice or court actions precipitated change.”

Should anyone be surprised that the default issue for the PDs is cutting taxes?

Playing Santa Claus is the easy option when the record on much else is pathetic.

The epitaph can be short:

Party leader Michael McDowell onetime said that the party has to be "radical or redundant."

It's a simple choice: REDUNDANT

If there's space for a byeline:

Flunked the test of Political Leadership at a Time of Unprecedented but Temporary Prosperity