Writing in today’s Irish Times, Stephen Collins takes the following from the Nyberg report:
It is probably no accident that some of the cheerleaders of the boom have now turned into leading prophets of doom. The same reckless, gambling instinct that fuelled admiration for Seán Fitzpatrick also underpins the “burn the bondholders and damn the consequences” philosophy.
If there is one lesson from Nyberg it is the need for prudent economic management in the years ahead, with careful weight being given to the views of the European Commission and our EU partners.
I think it’s worth echoing Kevin O’Rourke’s previous warning about Mr. Collins and his history lessons. Mr. Collins thinks the lesson we should learn from the crisis is “Don’t be reckless. Be prudent.” However, this isn’t a very useful lesson. I’m sure that Bertie Ahern, Charlie McCreevy and Brian Cowen all believed that their policies were prudent. They were running budget surpluses and their “prudential regulator” told them they had some of the best capitalised banks in the world.
For me, the real message of Nyberg’s report is that Ireland’s economic and political establishment exhibited an extreme form of groupthink during the housing boom. Nyberg’s report brings up groupthink time and again. He describes the phenomenon as follows
Groupthink occurs when people adapt to the beliefs and views of others without real intellectual conviction. A consensus forms without serious consideration of consequences or alternatives, often under overt or imaginary social pressure.
And the report is very clear about the role played by groupthink. For example
The generally held belief in a soft landing outcome, which was quite common even as late as 2008, can also be seen as a consequence of groupthink.
Now let’s take a step back from current economic events and try to ask whether there has been a groupthink element to policy making in the period since the bubble burst. Mr. Collins lashes out at those who wish to “burn the bondholders”. However, these people have had no influence whatsoever on the conduct of economic policy.
Instead, economic policy of recent years has been dictated by the idea that, however difficult things may seem, our situation is “manageable” and that all Irish bank and sovereign debt can and must be paid back.
Those who espouse this vision, including many with weekly opinion columns, backed the September 2008 bank guarantee and also supported whatever incremental measures the government produced as “the final solution” to our banking problems, for example via their backing for the NAMA plan. They have also regularly warned us not to “scare the horses” by suggesting debt burdens might not be manageable.
If anything, it has been this viewpoint, backed by Mr. Collins and many others, that has become the new groupthink. It is not at all impossible to imagine a future Nyberg-style report into the reasons for an Irish sovereign default focusing on the “manageability doctrine” as perhaps the key reason why Ireland failed to avoid default.
What we need now is more respect for dissenting voices, not weekly smackdowns of those who dare to disagree with the prevailing orthodoxy about what constitutes prudent economic management.