Treaty Obligations

Keynesians and Austrians Agree, the Irish Should Vote "No"

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It is not often that the most famous living Keynesian agrees with some of the most committed libertarians. However, the Irish referendum today on the Fiscal Stability Treaty is one such occasion. The Irish are the only Europeans who have been granted a chance by their government to hold a referendum on the treaty. With the exception of the UK and the Czech Republic the treaty has been signed by all EU member states. The treaty introduces measures that would punish governments that did not practice fiscal responsibility and opens access to assistance funds. In Ireland, the ratification of the treaty would also introduce a ban on structural deficits. The treaty has been so poorly thought through, and so poorly motivated, that whether you are against bailouts and for limited government or for increased stimulus, a "Yes" vote would be a disappointing outcome.

Paul Krugman has said an Irish "No" vote would "send a helpful message" because it would be a rejection of the so-called austerity the treaty would impose. Krugman went on to say that the euro was a mistake, as the currency union did not come with a political union, thus dooming it to failure. Milton Friedman made similar predictions, claiming that the single currency would not survive Europe's next financial crisis.

While the left might object to the treaty because of the entailed austerity measures, libertarians have their own objections. Sam Bowman, Irishman and Head of Research at the London-based Adam Smith Institute, has nicely summarized the libertarian case for a "No" vote. One of the most important points made by Sam is that bailouts and welfare spending, both of which have already contributed massively to Irelands debt, are excluded from the structural deficit calculations. Perhaps more importantly, Ireland will still be able to access loans without ratifying the treaty at rates that might encourage good behavior.

Polling suggests that the Irish will vote "Yes", but not by a huge margin. Indeed, the unusual good weather in Ireland today makes predicting the outcome of the vote even more difficult as more people are likely to head out to vote. It is unlikely that we will know the results of the vote until tomorrow. One only hopes that the EU accepts this Irish vote, unlike the referendum on the Lisbon Treaty. Only the EU could have come up with a piece of diplomacy that would unite Keynesians and Austrians, a testament to its own contradictory nature.

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  1. Amazing.

    The Irish used to have a serious bug up their ass about their sovereignty and independence, but it looks like they are willing to give that up for a low, low rate on a refi loan.

    1. Somebody needs to spread a rumor that the English want the Irish to vote Yes, that should get a overwhelming No vote.

  2. “The Irish are the only Europeans who have been granted a chance by their government to hold a referendum on the treaty.”

    They were not granted a chance by their government, its in the Irish Constitution and the Irish politicians and courts have yet to figure out a way to get around it. I am sure however that they are getting plenty of expert advice from politicians and courts around the world on how to do just that.

  3. the ratification of the treaty would also introduce a ban on structural deficits.

    I am confused as to why this is a bad thing.

    I am further confused as to why Austrian economists would oppose it.

    1. I am confused as to why this is a bad thing.

      Automatic tax increases to close the deficit.

      1. In other words, The Simpson-Bowles plan.

    2. RTFA:

      One of the most important points made by Sam is that bailouts and welfare spending, both of which have already contributed massively to Irelands debt, are excluded from the structural deficit calculations.

      Just as worthless as the balance budget proposals we had here that excluded entitlements and military spending.

  4. It looks like Friedman predicted something and Krugman (who really is not a macro-economist he really is more of a Keynesian fanboy rather then a Keynesian economist) wants something.

    For example I predict Romney will win in 2012…many republicans want Romney to win in 2012.

    Republicans and I do not agree.

    See how that works?

  5. Odd. I seem to recall the Irish already had a plan for this.

  6. I support it, as I supported Simpson-Bowles as a short term plan. If governments are going to continue to spend ridiculous amounts, they should raise taxes and pay the political price for their spending today.

    Putting it on the credit card should not be an option for any nation with a debt over 50% of GDP. I’d support a constitutional amendment mandating a “budget surplus every year national debt stays above 25% of GDP”, with all the surplus going to pay down the principal.

    And just because bailouts and welfare are excluded from mandatory structural reforms doesn’t necessarily mean they HAVE to exclude them. Still, the proposal is better than no constraints at all.

    1. What if the government continued to borrow, but distributed the debt to current taxpayers, proportionate to their share of taxes? It would reduce the risk of 100% default (though lesser defaults would likely happen more often), it would make the issue of debt more personal to ordinary citizens, but most importantly, it would end the problem of taxation without representation — of one generation getting stuff, and sticking the next generation with the bill though they had no choice in the matter.

      1. That would certainly get people’s attention. The trouble is that the taxes are too progressive for the hoped for revolution (which has to be the reason to suggest such a plundering.)It is much easier to plunder future generations.

  7. Is Friedman an Austrian?

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