Moritz Schularick and Alan Taylor have written a working paper looking at long run trends in money, credit and financial crises. They summarize the paper here. Several of the papers referenced at the end are worth checking out as well.
That’s how Buttonwood describes the relationship between the banks and government in Britain and America in his/her latest column in The Economist.
The piece goes on to predict:
. . . this leads to an odd symbiotic relationship in which governments have stepped in to rescue the banks, only for the banks in turn to finance the government. In the long run the danger is that this cosy relationship means lending is diverted away from productive private-sector projects and into government spending. Economic growth will be slower as a result.
It seems very relevant to the debate on the Irish banking crisis.
Donogh O’Malley caused consternation in government when he announced his free education scheme in September 1966 without having brought the matter to Cabinet. The enthusiasm of the public response forced the government’s hand. Whether or not Lemass had prior knowledge has been the subject of heated debate among historians. Lemass denied it, but five members of the cabinet told Brian Farrell, while writing Chairman or Chief?, of their belief that not only had he seen the text in advance but he had actually amended it.
The journalist John Healy was a great friend of O’Malley’s. Later in life he told Michael O’Regan, who is now the Irish Times parliamentary correspondent, that the paper trail had been designed as a smokescreen and could not be relied upon. Healy published his recollections in Magill magazine in March 1988, on the 20th anniversary of O’Malley’s death. At the behest of Michael O’Regan, I’ve dug it out. The hidden history is here.
One of the points which smart economy boosters often miss, but which is obvious to economists, is that technology is internationally mobile. It follows that productivity growth in a small open economy like Ireland depends much more on the domestic adoption of foreign inventions than on domestic inventions. This in turn has implications for the sorts of arguments that can be made in favour of government R&D expenditure in Ireland.
Cormac provides a nice historical example here.
I would be interested in Cormac’s considered opinion on this.