As readers of this blog should be aware, not only Mr. Cowen, but every member of Oireachtas Éireann (the Irish legislature), the Seanad (Upper House) and the Dáil (Lower House), was sent material two years ago — December of 2008 — just as this ongoing crisis was gathering momentum. One member, Charlie O'Connor of Dublin South West, (firstname.lastname@example.org) acknowledged receipt, evidently did his homework and put forth an effort, but was unable to accomplish much working alone and without a show of public support. If he managed actually to get the material to the desk of Mr. Brian Lenihan, Finance Minister (email@example.com), it was ignored. True, Mr. Lenihan was having one or two problems of his own at the time, but he really should not have missed the potential that Capital Homesteading has to solve those of his country.
Be that as it may, we present it here again for consideration as an alternative to the usual Keynesian "solution." We don't even mind if Mr. Cowen uses it to save his career and keep himself in office in the early election for which he is calling. As the late Senator Russell Long of Louisiana told Dr. Norman Kurland back in 1973 during a dinner at the Madison when presented with these ideas, "I don't care who's right. I care what's right — and this is right."
Capital Homesteading for Ireland
The key to implementing the Just Third Way as applied in Capital Homesteading to Ireland is found in the subtitle of the "Illustrated Guide for Statesmen": "A Two-Pronged Strategy for Implementing ESOP Privatizations in a Developing or Transforming Economy." Ireland is not really a "developing" or "transforming" economy, but it might as well be. The situation is similar enough that the same techniques can be applied, even if the ESOP per se is not used.
A developing or transforming economy typically has an economy that relies heavily on centralized State ownership and control over productive capital assets. Just as typically, these so-called "assets" are, as a result of putting political interests ahead of economic interests, in the loss-leader or non-performing category. Ireland recently nationalized its three largest banks, and these banks have in their portfolios a huge amount of "toxic" mortgages, "non-performing assets" any way you look at it. Under the principle that the State should not own anything that can be owned by private citizens, the immediate task of the government is to write-down the value or divest itself of these assets, then privatize the banks.
Problem: acting counter to the common sense embodied in the laws of supply and demand as well as financial responsibility, when the housing market in Ireland went belly-up, the government bailed out the banks that were trying to keep prices up to maintain their balance sheet ratios. Consequently, the inventories of houses for foreclosure sales started to rise. Rather than let prices drop to meet demand (which ran the risk of forcing the banks into the Irish equivalent of Chapter 11 reorganization), the government imposed a moratorium on new home construction until current inventories dropped to an acceptable level. At the same time, willing buyers became impossible to find at the inflated prices. Consequently, the banks were forced into the Irish equivalent of Chapter 11 reorganization anyway, with the new owner being the government instead of private individuals.
Solution: use the Homeowners Equity Corporation ("HEC") or something similar to turn excess inventories of overpriced homes into usable living space at market prices, and generate some cash that can be used to pay down debt. Yes, the banks (and thus the government) would take a hit, but it's all on paper — and it's sound financial and accounting practice as well as good politics to divest a company or a State of non-performing or toxic assets. Non-sales at artificially high prices benefit no one, and cause more problems than they solve. Sales at real market prices recognize reality, and reduce outstanding obligations by the amounts realized.
That, of course, is only the first step. Divestiture of toxic assets and transforming them into productive assets through HECs should kick-start the Irish economy, particularly in that the building trades are seen as a core industry in Ireland. To maintain the momentum, however, it is essential to follow the "Two-Prong Strategy" as closely as possible. One adaptation that would need to be made in the strategy, however, is to apply the techniques to rebuilding the private sector's productive capacity, rather than to privatize the State's uneconomical capital holdings and making non-competitive State-owned enterprises productive; the goal remains the same, and the techniques are virtually identical.
The key is to ensure that all new private sector investment is financed in ways that creates new owners, rather than continues to concentrate ownership of the means of production in a shrinking wealthy elite. The only justification for keeping ownership of capital concentrated is the belief that existing accumulations of savings are essential to finance new capital formation. Under the monetary and tax reforms of the Just Third Way, this is not the case, and concentrated ownership of capital actually works against the maintenance of a stable economy, as Dr. Moulton demonstrated in The Formation of Capital.
In this way, the possibility of establishing and maintaining a Just Third Way economy in Ireland is optimized, and the "four pillars" of an economically just society implemented as a solid foundation for future economic and social development:
- A limited economic role for the State,
- Free and open markets within a strict juridical order as the best means of determining just wages, just prices, and just profits,
- Restoration of the rights of private property in access to money and credit and in corporate equity, and
- Widespread direct ownership of the means of production. (The "fatal omission" from the mainstream schools of economics and finance.)
We declare the right of the people of Ireland to the ownership of Ireland, and to the unfettered control of Irish destinies, to be sovereign and indefeasible. The long usurpation of that right by a foreign people and government has not extinguished the right, nor can it ever be extinguished except by the destruction of the Irish people.We would have no objection if anyone would send a brief note of encouragement to Mr. Cowen (and be sure to spell "Taoiseach" correctly . . .), urging him to give serious consideration to Mr. Mpofu's letter and to Capital Homesteading as a politically and financially viable solution to the ongoing economic crisis. Nor would it hurt to show support from the international community for Capital Homesteading in Ireland. E-mails from, say, Japan or Brazil, Russia or Zambia (where a candidate for president has declared he is running on the Just Third Way ticket) might pique the Prime Minister's curiosity to the point where he will take a look at the concept.
Well, Mr. Cowen?