Ethelred the Recycled

After the 2007 Budget last December, Brian Cowen was called Santa Claus by those quick witted subeditors eager to fill a snappy headline. After all, the surprisingly large tax returns, mainly provided by the rampantly inflated housing market allowed him to provide a bumper ‘giveaway’ budget.

This year of course, with credit crunches and a collapsing housing market the economic forecast is much bleaker. So we have, while not a ‘hairshirt’ budget, one that offers little of real gain to anyone, with one startling exception.

David McWilliams isn’t a lowly subeditor of course, but he is often first of the blocks when it comes to tagging a clever buzzword to whatever it is that falls under his scrutiny. So it’s hardly surprising that he called Brian Cowen Ethelred the Unready in his Irish Independent column yesterday.

The reason behind this dubbing comes from a story about Ethelred and how he used his tax of Danegeld to persuade the invading Danes not to go about England a rapin’ and a pillagin’, as was the style at the time.

“IN 989 AD, Ethelred the Unready, the Anglo-Saxon King of England, introduced a deeply unpopular tax called Dangeld (Danish gold). These were coins that Ethelred minted from the tax. Then, he waded into the Wash off the Norfolk coast and proceeded to throw the money into the sea.

This bizarre ritual was an effort to persuade the tides not to come in. If he could somehow bribe the sea, the impending Norse invasion might not happen. He would then live in peace and prosperity, safe from the ferocious Danish longships. Ultimately, of course, the tides came in, the Vikings raped and pillaged, and the Anglo-Saxons were routed.”

Please pay careful attention to the above quote. It’ll be needed later on.

What is striking about McWilliams’ analysis of the budget is how he is so forthright about how this government is in hock to a ‘cabal of property owners’ as he called them yesterday on Morning Ireland. This ‘land cabal’ is not only dictating economic policy, it’s more worryingly, controlling economic debate.

“The “land cabal” has been rumbled and their golden age of flogging second rate apartments at premium rate prices is over.”

So why does McWilliams liken Cowen to Ethelred. Well it seems that he has failed to show leadership when it’s needed. Rather than follow his political instinct, McWilliams argues, he has decided follow the advice of those ‘mandarins’ in the Dept of Finance who are still stuck in their 80s economic world view, comparing everything to the time when Irelands indebtedness went spiraling out of control. Instead of restraining the amount he borrowed he should be borrowing more to pay for infrastructure.

“The State should not be beholden to the [cabal] (they have done enough damage) but should seize the opportunity now to fix the infrastructural deficit. As the construction industry stalls, taxpayers will get a better deal in road building, railways and the like. For the first time in 10 years, there is an opportunity.”

Here, as elsewhere, we do not get any detail on the National Development Plan, that holy grail of economic development. Clearly there is a case that infrastructure needs to be improved, but the concern is that with a government acting so much in the interests of the construction and banking sector there seems to be no mechanism to oversee how their money is being spent. In fact, there’s absolutely no debate about the National Development Plan at all.

McWilliams is good at pointing out the economic forces that are behind the changes we see in our society everyday. His argument against the changes in stamp duty is based on a sound principle. If you offer a small change in a tax those with an interest in such things will not rush to avail of it, but will prefer to wait. They’ll do this because they know that if at first the changes don’t have an effect the Government will have no choice but to reduce the tax further, until eventually it’s done away with completely. It’s just a matter of time.

However, McWilliams claims that he was endorsing a dropping of Stamp Duty last year, but fails to mention that such changes are only ever going to benefit a small, though significant section of the economy: estate agents, property speculators and banks and will make absolutely no difference to the majority of home buyers.

To be fair though, I think McWilliams has at least grabbed the nettle in a way that most economic commentators don’t. And this analogy of Brian Cowen as Ethelred the Unready seems to suit Biffo perfectly in the current circumstances.

After all, here is a man borrowing money in order to cut a tax that has been decreasing, not because the tax was depressing the market but because that market itself was over-inflated. Decreases in stamp duty in the last month are a reflection of a long predicted market slow down, a slow down that that is reflected in trends in the property markets in Britain, American and Spain where similar bubbles exist. Objective observers of these property markets have said that this slow down is welcome – in fact it’s necessary. Well not in Ireland, of course; in Ireland it causes panic.

Yes, Ethelred indeed. He must be a very original thinker to have come up with that analogy. You would certainly think that if there was not evidence to suggest that he’s rather fond of using it….again and again and again, often using the exact same phrases. In fact, he pretty much cuts and pastes his opening paragraphs from articles down through the years.

In The Sunday Business Post on July 25th 2004 about the recently retired Charlie McCreevy, he started off the article with the following:

“In 989 AD, Ethelred the Unready, the Anglo-Saxon King of England, introduced a deeply unpopular tax called Dangeld (`Danish gold’). These were coins that Ethelred minted from the tax. Then, he waded into the Wash off the Norfolk coast and proceeded to throw the money into the sea.

This bizarre ritual was an effort to persuade the tides not to come in. If he could somehow bribe the sea, the impending Norse invasion might not happen. He would then live in peace and prosperity, safe from the ferocious Danish longships. Ultimately, of course, the tides came in, the Vikings raped and pillaged, and the Anglo-Saxons were routed.”

In another SBP article dated Nov 12th 2006, he uses the analogy again, this time talking about the Central Banks cautioning on the Irish economy:

“In the 10th century, the King of England, Ethelred the Unready, faced a crisis. Danish longships threatened rape and pillage all along the east coast of England. Sensing that his armies would be routed, Ethelred conjured up a scheme: instead of facing the enemy head on, he would persuade the tide not to come in, thereby stopping the invaders before they even set foot on land.

He raised a tax, melted down the proceeds into gold coins called Danegeld (Danish money) and flung the coins into the sea in an effort to buy off the waves. Needless to say, this unique and innovative solution didn’t do the trick. The Danes arrived and had a field day.”

This initial paragraph, however, appeared before, in 2000.

“In the 10th century, Ethelred the Unready, King of England faced a crisis. Danish long ships threatened rape and pillage all along the east coast of England. Sensing that his armies would be routed, Ethelred conjured up a scheme: instead of facing the enemy head on, he would persuade the tide not to come in, thereby stopping the invaders before they even set foot on land.

He raised a tax, melted down the proceeds into gold coins called Danegeld (Danish money) and flung the coins into the sea in an effort to buy off the waves. Needless to say, this rather unique and innovative solution didn’t do the trick.”

However, now that we have a Green-tinged Government, this type of recycling from a prominent economic commentator is entirely appropriate.

Postscript: Incidentally, the 2000 article is rather good and talks about how the government should try and control credit that banks offer in order to stem the astronomical rise in house prices.

“It is standard practice for a bank to value a house at today’s price, to assume the asset will rise in value and on this basis lend some fraction of the value for ten or 20 years. This approach clearly fuels further price rises. Instead, the government might force banks to construct a backward looking moving average, taking the average price of the house for, say, the past five years and lending against this. We would still have the same process enabling people to use their assets as collateral, but the values would be much less.

This approach, if applied evenly, would cause house prices to stabilise almost overnight because the in-built mechanism that reinforces asset booms with too much credit, would no longer work. It would also leave the financial system in much better shape because in upswings less credit would be injected into the economy, while in downturns less credit would be withdrawn.”

Pity the government was even slightly interested in this idea. Might have made things better in the long run.