One of the problems of a small country like Ireland is that the intelligentsia’s level of economic literacy tends to be pretty low. This “column”:http://www.irishtimes.com/newspaper/opinion/2010/1129/1224284371607.html by Stephen Collins (the Irish Times’ political correspondent, and an astute judge of electoral politics) is a good example of the problem.

bq. TAOISEACH BRIAN Cowen insisted last night that the debt burden on Ireland under the terms of the EU/International Monetary Fund bailout would not cripple the country as his political opponents are claiming but would instead put it on the road to recovery.

bq. He pointed out that the assumptions underlying the plan mean that, at its height, the burden of debt will be 102 per cent of gross national product, roughly where it was in 1992/1993 when Ireland was on the cusp of the Celtic Tiger period. Cowen recalled that, back in 1985, the debt burden on the shoulders of the Irish taxpayer was considerably worse than it would be under the EU-IMF programme for Ireland announced last night. Of course, his confident predictions are based on the assumption that the programme will work and that the targets set out in it will be met both in relation to the public finances and to the banks. Ultimately, it will all depend on whether the doom merchants are proved right and the European Union lurches into a crisis from which it will never recover or whether normal economic and political conditions are gradually restored.

bq. Back in 1987, few people believed the Bruton/MacSharry budget introduced at one of the lowest points in Irish history would within a few years have led to the Celtic Tiger economy. Good luck as well as courageous political decision-making underpinned that transformation and both elements will be required if the programme is to work as planned.

bq. … Another issue that did not get serious traction in the talks was the simplistic call to “burn the bondholders” for which German chancellor Angela Merkel has to take a lot of responsibility. The European Central Bank was adamantly opposed to the notion as any such move would threaten the financial stability of Europe. It is ironic that the zealots of the US Tea Party movement and many of those on the left in Ireland share a common belief in “burning bondholders” and damn the consequences. The lesson of the Great Depression of the 1930s was that taking that kind of approach leads to widespread bank failures and national economic collapse which, in turn, threatens the democratic foundations on which our society is built.

The problem is that this argument is based on soothing but quite nonsensical assumptions. It takes as a given that Ireland’s growth rate from the mid 1990’s through 2008 or so reflected “normal economic and political conditions.” They didn’t. Ireland was playing catch-up with the developed industrial democracies – and during catch-up, one can hope for very high growth rates thanks to under-utilized resources. Even if the world’s economic system were magically to restabilize overnight, one could not expect to see a return of the conditions under which Ireland was able to eliminate its earlier debt overhang. And anyone with a smattering of understanding of the basics of economic growth would know this.

Unfortunately, the more plausible outcome is the one presented by “Kevin O’Rourke”:http://www.irisheconomy.ie/index.php/2010/11/28/migration-the-limits-of-internal-devaluation-and-the-bailout/ in which emigration and fiscal burden lead to a vicious cycle.

bq. In the long run, migration sets a floor to Irish wages. It has been thus ever since the Famine of the 1840s, and I don’t believe that the Irish have become less mobile in the last 20 years. Now, a lot of Irish wages are still high by international standards, but eventually as ‘internal devaluation’ proceeds, and as peoples’ living standards are lowered as a result of tax hikes and cuts to public services, it seems inevitable that the ‘migration constraint’ will start to bind again. … If the left hand side of this equation falls too far below the right hand side, people will leave until equilibrium is re-established. … There are fixed costs to running a state, and the debts we are now being saddled with are not population-dependent. You don’t have to be Paul Krugman to see the potential for some pretty nasty feedback loops here.

Update: “More on Collins”:http://www.irisheconomy.ie/index.php/2010/11/29/beware-of-journalists-bearing-history-lessons/ from Kevin O’Rourke.

Via @leninology

Following up Henry’s post, let me do my part to not add much to the Wikileaks story. A while back I had an idea for a Wikileaks-extrapolated SF story … [click to continue…]

My small addition to the piles of verbiage on the newest Wikileaks revelations is to suggest that Saki’s classic short story “Tobermory”:http://www.sff.net/people/doylemacdonald/l_tober.htm tells you most of what you need to know. Tobermory – the story of a cat that learns to talk, is really about how a small group of people deal with the collapse of the polite fictions through which they paper over individual self-interest and mutual dislike. No-one guards what they say in front of a cat, leading to consternation when Tobermory suddenly learns the English language.

“What do you think of human intelligence?” asked Mavis Pellington lamely.

“Of whose intelligence in particular?” asked Tobermory coldly.

“Oh, well, mine for instance,” said Mavis with a feeble laugh.

“You put me in an embarrassing position,” said Tobermory, whose tone and attitude certainly did not suggest a shred of embarrassment. “When your inclusion in this house-party was suggested Sir Wilfrid protested that you were the most brainless woman of his acquaintance, and that there was a wide distinction between hospitality and the care of the feeble-minded. Lady Blemley replied that your lack of brain-power was the precise quality which had earned you your invitation, as you were the only person she could think of who might be idiotic enough to buy their old car. You know, the one they call ‘The Envy of Sisyphus,’ because it goes quite nicely up-hill if you push it.”

Lady Blemley’s protestations would have had greater effect if she had not casually suggested to Mavis only that morning that the car in question would be just the thing for her down at her Devonshire home.

Diplomacy, even more than early twentieth century English house-parties, requires hypocrisy. Both diplomats and leaders pretend respect and even affection for regimes that they dislike and leaders whom they despise. When a source can definitively give the lie to these public remonstrations, it is obviously likely to lead to considerable friction (not necessarily because the target did not know he, she or it was detested – but because _public expression_ of this detestation becomes an insult that cannot easily be discounted or ignored. If a number of prominent states had been hit by these revelations, there might be sufficient collective incentive to sweep the embarrassing bits under the Axminster. But that’s not the case here. I imagine that there are some very interesting conversations happening in State (a few blocks from my regular office) right about now.