Stimulating the Irish economy

Michael Taft has an interesting post on the cost of unemployment. Ireland is idealogically hamstrung in dealing with this problem, constrained as we are in terms of borrowing to invest by the banking crisis, the fiscal crisis and our Euro membership. Although there may be an alternative available to us – straddling the line between capitalism and socialism (but not insipid third-wayism).

The state could raise cash by selling off state assets. Funds raised should only then be used for investment in new infrastructure or state-run companies (one advantage of doing this now is that if – later – we are forced to default, we may be forced then to sell off assets to make unproductive debt payments). At one stroke this is both a statist solution to our problem of high unemployment – new state industries can provide jobs, and a classical liberal economic approach privatising existing state companies.

I posted a comment at the end of Michael Taft’s article detailing some of the percieved issues with statism and how this approach might deal with them, at least in terms of signalling to classical liberals that the state is not wedded to ownership of newly created companies by selling off existing nationalised companies.

I think the core problem with (and hence objection to) statist solutions is that the state tends to behave differently than private corporations in certain key ways, that then differentiate the state from all other economic agents. If we could deal with those behaviours then perhaps objections to statist solutions may be reduced.

#1 The state rarely sells up. The sale of statist industries tends only to occur when those idealogically commited to privatisation take power.

#2 The state continues to subsidise failing entities (i.e. holds onto once successful entities for too long) and the expense of private enterprise and taxpayers generally.

#3 Failures of state projects are regarded as a scandal (e.g. e-voting etc). By way of comparison if you take a look at Techcrunch or any similar site, you’ll find details of dozens of startups trying to create similar companies. Most will fail. Failure shouldn’t be a scandal, but a learning experience.

There is an opportunity cost to the state holding on to state companies. If the state could achieve a fair price, representative of future cash flows – where is the problem in selling state assets to invest in new state companies now? (i.e. Could statism become more like private enterprise, just at the point we need public investment to take up the slack?).

E.g. If we need a next generation broadband infrasctructure – could we sell some of our semi-states and create a new semi-state to provide that infrastructure (which itself could be sold off in future)? Wouldn’t this create jobs?

Is it possible for people on both sides to move out of the idealogical trenches to produce rational solutions (even if this one is a non-runner?)

No bio, some books worth reading – The Rational Optimist: How Prosperity Evolves – Matt Ridley .

Crisis Economics: A Crash Course in the Future of Finance -Nouriel Roubini, Stephen Mihm

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