Why it will only lead to a “peasants” revolt to give doctorate economic philosophers the power over our coffers

It was the 18th-century Prussian king, Frederick the Great, who once joked that if he really wanted to punish his subjects, he would put philosophers at their head.

The joke was that, apart from the realities of everyday life, the philosophers imposed impracticable regulations and punitive taxes on the poor peasants. He himself was practical and efficient. It had to be him.

Hemmed in on three sides by more powerful empires – Russia, Austria and France – he had to constantly fight and save to keep his kingdom alive. As a philosopher, Frederick was also practical and quick to respond to crises.

To those of us in the private sector, his dilemmas sound familiar. We are also constrained from three sides: banks are raising mortgage rates in line with European Central Bank (ECB) rate hikes; Powerful monopolies or oligopolies are raising operating costs, and the burden of austerity taxes levied — but never eased — during the previous recession is marginalizing many of us in the domestic (as opposed to multinational) sector.

Two weekends ago, philosophers in Wexford held a food for thought at the Dublin Economic Workshop (DEW).

Among them were Danny McCoy, current CEO of Ibec and formerly ESRI, Philip Lane, ECB Chief Economist, and Sebastian Barnes of the Irish Fiscal Advisory Council (IFAC).

Some good points were made: Danny McCoy’s call for a stronger role for the Irish state – as far as investment in housing is concerned – was well done and on the money: State investment – which has to keep pace with economic growth and private investment – needs to be left out altogether , to do that.

But on another level, the lack of confidence at these events is staggering.

The idea that current government spending should also increase – often promoted by NGOs and government-funded research institutes – is incredible given how the government itself is pushing the rest of us to save.

That Ibec’s new president is a semi-state CEO (we wish her well), coupled with his call for a “bigger state,” suggests that Ibec is now less representative of the private sector and more “sector fluid,” representing both powerful multinational and powerful parastatal and university sectors.

Both benefit from higher taxes for the rest of us: multinationals prop up our low corporate tax regime and the state sector secures more funding.

DEW’s philosopher-king consensus can also be seen in the recent findings of the Commission on Taxation and Welfare. That this commission is unbalanced by the lack of a spending control or reform commission is itself a major problem: it implies that the government expects the private sector to save while relying on the Irish taxpayer to do it to prevent him from having to take the same medication.

That among the already sparse representatives of this commission – one person has already resigned and another has resigned (from signing its recommendation on PRSI increases for the self-employed) is of great concern.

Maybe someone like old Friedrich wants to punish us by letting philosophers rule over us.

A chronic and recurring problem in government policy has been the over-emphasizing of the “philosophical” PhD economist as opposed to real-world practical economists.

In this regard, Philip Lane’s intellectual abilities as an economist are well known and respected in academia. But the central bank and ECB’s failure to spot inflation early has given the government an avoidable headache this week.

The failure of his predecessor at the ECB – and the US Federal Reserve – to act when times are good also belies his over-reliance on PhD philosophers like the now-discredited modern monetary theory that has severely shaken the world economy.

In contrast, during the Covid-19 crisis, the government took advice from the SME Recovery Group and from my own publication, An economic response to Covid-19and this resulted in quick and effective action.

In contrast, the ECB still seems unsure what the problem is: the failure of Philip Lane’s speech to DEW to even acknowledge how the ECB abandoned its monetary growth rule was striking. Like his more practical predecessor, Dr. Otmar Issing repeatedly warned that this break would lead to inflation.

Perhaps the biggest problem facing politicians right now is this: We, the “farmers”, till the private sector fields and are not immune to this crisis. But we pay our taxes and tithes to philosopher-kings that are.

This is economically dangerous. And because we are not in Friedrich’s autocratic Prussia, but in a democracy, it is politically unsustainable.

Marc Coleman is Chief Executive of Octavian Economics, author of five books on the Irish economy, former ECB and Treasury Economist and former Economics Editor of The Irish Times

https://www.independent.ie/business/budget/why-giving-phd-philosopher-economists-power-over-our-coffers-will-only-lead-to-a-peasants-revolt-42015994.html Why it will only lead to a “peasants” revolt to give doctorate economic philosophers the power over our coffers

Fry Electronics Team

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