State’s economic compass has always been swayed by force of politics

In 1939, Trinity College Dublin established a chair of applied economics for Joseph Johnston. A prolific author, one of Johnston’s best known books was The Nemesis of Economic Nationalism, published in 1934, two years after Fianna Fáil came to power on the back of a policy platform that championed such nationalism. Highly regarded, Johnston regularly served on State-appointed bodies, including the prices commission in the 1920s and later, after the second World War, the agricultural commission.

Speaking to the Statistical and Social Inquiry Society of Ireland in 1935, Johnston elaborated on the theme of his 1934 book: “Unless we wish to go onward to a complete regimentation of all our economic lives on Bolshevik lines, we must remove our economic compass from the field of political magnetism and get back to a regime in which prices reflect, not political ideals, but economic realities.”

Historian Ronan Fanning has observed how Johnston was far from alone; similar scepticism was expressed by George O’Brien, professor of national economics in UCD. He served on the commission on banking, currency and credit (1934-8), and was scathing about public expenditure and monetary management as instruments to restore prosperity.

In Cork, John Busteed, professor of economics from 1924, regularly sparred with the Department of Finance and in 1939 sent a memorandum to its secretary, JJ McElligott, on the issue of a possible break with sterling, insisting it was “no answer to say that in the public interest, discussion on such a subject must be confined to anonymous bureaucrats”.

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Charlie McCreevy, Minister for Finance from 1997-2004, was dismissive of academic economists and knowledge; by 2010, there were 39 economists in the Irish Department of Finance, 7.2 per cent of its total staff compared to 40 per cent in the Dutch department of finance

For all these tensions, given the challenges of state building, and international currents and instability, most Irish economists were not proponents of radical new departures in the early decades of the State; the impression given by their roles on the various committees and commissions, suggests Fanning, was that it was “less to initiate impartial investigations than to endorse existing government policy”. Also relevant was that “the achievement of independence was not preceded by any real debate among economists about the economic policies most appropriate in an independent Ireland”. These economists, he suggests, did not “command the intellectual deference” of senior civil servants.

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More rigorous economic analysis belonged to the future; in the 1930s economics was more descriptive than prescriptive “I have always discussed economic problems in literary rather than mathematical language,” observed George O’Brien. The state also drafted in conservative outsiders, including Swedish economist Per Jacobsson, who served on the banking commission. He observed in 1936 that there was little co-ordinated annual review of the State’s financial position and “very little real public information... it should be somebody’s position to review the whole situation”. The Central Statistics Office (CSO) was not created until 1949 and resentment about ivory tower economists continued, Roy Geary of the CSO suggesting in 1964 that “there is a gap to be bridged between university discipline and the needs of the community”.

For all the changes since then, some of these themes endured and are reflected in the current spat between the Department of Finance and the Irish Fiscal Advisory Council (IFAC) over the accusations of the government engaging in “fiscal gimmickry” to massage or flatter figures. We have been repeatedly told IFAC exists to “institutionalise” the memory of the economic crash but that aim repeatedly clashes with the politics of managing the Irish economy. Ciaran Casey’s book, The Irish Department of Finance 1959-99, underlines the endurance of battles to control inflation, borrowing, spending and disagreement about the role of stimulus, alongside voters looking for quick solutions.

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Casey points out that a wariness of economists endured: Charlie McCreevy, minister for finance from 1997-2004, was dismissive of academic economists and knowledge; by 2010, there were 39 economists in the Irish Department of Finance, 7.2 per cent of its total staff, compared to 40 per cent in the Dutch department of finance. McCreevy initially committed to keep nominal current spending growth to 4 per cent annually. In the peak year of 2001, current spending increased by 17 per cent. Casey is blunt in asserting that economic thinking of senior politicians during this era was “built largely on misinterpreted economic theory, probably absorbed second or third hand”, and that it was electoral cycles that ultimately guided them.

McCreevy appeared to admit this when appearing at the Oireachtas banking inquiry in 2015: “If we had spent less, it would have meant larger budget surpluses and some have gone on to say we should have built up further rainy day funds, apart from the pension reserve. Are these people for real? In a political democracy, it is especially difficult to run any kind of a budget surplus.” The refusal or inability to stick to self-imposed spending rules – most recently broken every year since 2021 – will inevitably, as economic history suggests, have consequences, but it is doubtful any appetite will emerge to remove “the economic compass from the field of political magnetism”.