The 'Rock Star' Economist
An interview with David McWilliams
An edited version of this interview appears in the June - July issue of Village magazine.
I recently met up with David McWilliams in his Volvo Estate in a church car park in Dalkey. In case that sounds more intriguing than it actually was, the purpose of our meeting was to conduct an interview on recording equipment that does not cope with background noise in public spaces like restaurants or coffee-shops. So, somewhat surreally, in his car it had to be.
McWilliams has a strong personal presence and is possibly one of the most cheerful people you are likely to meet. He is greeted warmly in his locality where he appears to know many people in person, if the sample of people we saw while having a cup of coffee is anything to go by. His work rate is extraordinary – during the last year alone he has traveled the world on a punishing schedule while making the documentary ‘Addicted to Money’, chaired a series of the comedy show ‘The Panel’, finished writing his book ‘Follow the Money’ and organized the controversial Global Irish Economic Forum at Farmleigh, among many other things.
He is currently appearng in his one-man show, ‘OUTSIDERS’, on the Peacock stage at The Abbey of which more below. As an early and unwelcome predictor of the economic crash, McWilliams had a rough ride in media and political circles, though as he says below, everybody is now claiming to have been wise to what was happening at the time. David McWilliams is one of a relatively small band of right-wing economists which includes Constantin Gurdgiev who have the distinction of being honest about how capitalism is supposed to work. They say the rules are being broken and that further disasters will result as a consequence of the expensive protectionism that is being implemented by what McWilliams calls the ‘kleptocracy’.
From the media through NAMA and capitalism to Israel (where he has lived and worked), the interview is a profile of Ireland’s best-known economic commentator.
(DMcW – David McWilliams, MC – Miriam Cotton, MediaBite)
MC: I want to ask your opinion about the economic crisis and Irish media coverage of it. Morgan Kelly has referred to what he called ‘group-think’ by which he means how during the bubble there was a collective consensus that everything was fine and there wasn’t much criticism of what was going on. In the aftermath, we now have the ‘there-is-no-alternative’ to NAMA version of group-think with most political and economic commentators apparently unable to comprehend the many viable and better alternatives that have been put forward. Who or what makes you angry about the way the media is behaving both during the boom and afterwards?
DMcW: I think it’s quite obvious what I thought during the Celtic Tiger because I was almost completely on my own in saying this is a huge bubble – and not only that but it’s an extortionate bubble whereby ordinary people, through the land bubble, transferred wealth to a small coterie of very rich people. I’ve always thought that. I was vilified – well maybe not vilified – but slagged off. Anybody who breaks with conventional wisdom – Ireland is constantly terrorized by conventional wisdom – probably more so than most countries – and anybody who breaks with it can expect to go through a three-phase process: the first phase is ridicule; the second is violent opposition and the third phase is what I would call the universal truth phase when everyone starts saying ‘sure we all knew it was a bubble at the time'. And that’s what happened to me. It’s no big deal. I think Morgan Kelly is absolutely spot on when he talks about group-think and I think the economics profession is very culpable.
For example, I was looking at a very good website called IrishEconomy.ie a couple of years ago for my book ‘The Generation Game’. I made the point that the Euro probably wasn’t the best currency arrangement for Ireland- and then I went on to make this very explicit last year in another book [‘Follow the Money’] – that the euro would probably be seen as a problem, that it wasn’t appropriate for Greece and Ireland. Now when I wrote that the mainstream economic reaction was to laugh. But then about a couple of weeks ago they were given permission to discuss this in an article by Paul Krugman. You see they wait for the permission of external validators in order for themselves to be pointed in a certain direction. So it is like a herd and a shepherd.
MC: You are talking about the media as well as the economists?
DMcW: Yes, What I’m saying is that in Ireland we ask for permission in order to ask the obvious. And that I suppose is something that doesn’t really make me angry – but it makes me sad. You know, you’re a citizen of this place – my family is all from here, my wife, my kids – it just makes me sad.
MC: With regard to the 2008 bank guarantee, people have accused you of inconsistency about this in that at first you appeared to claim that the Minister for Finance, Brian Lenihan, was acting on your advice. Since then you seem to have distanced yourself from the guarantee to some extent.
DMcW: That’s not true!
MC: Did you change your mind or was there some material difference between what you recommended and what Brian Lenihan has done?
DMcW: Well, first of all, I don’t think changing your mind is the end of the world. The bank guarantee that I discussed with Brian Lenihan involved a guarantee that would be rescinded after two years specifically. In a way it was a bluff, not a policy. Once this guarantee started to be regarded as a blanket underpinning for all sorts of loans – then it changed materially from what I was discussing with the Minister for Finance. The first thing is, if Brian Lenihan lets the guarantee lapse after two years, which it is legally supposed to, then it has worked completely. Then we’re back to square one whereby we are in a position where we can simply get the creditors into the room and say ‘listen lads, we’ve no money’.
The whole idea was supposed to stop a run on the banks which I think is an important thing to do. It’s like being a fireman in a forest fire where you have to ask yourself whether you stop it or let it blaze on.
And the second thing is, the guarantee has given two years to figure out how bad things are at the banks – and it’s not just Anglo, it’s across the board. Once you’ve figured it out, you simply withdraw the credit and say to creditors ‘sorry guys you simply backed the wrong horse and let’s do a deal’. And that’s capitalism. But what’s happened in the last while is that the banks and the Minister for Finance seem to have become one and the same thing and it’s being said that what is good for the banks is automatically good for us. And that’s not actually the case. Arguably what is good for the Irish banks now is bad for us. So that’s where you let it lapse and you go back to a purer system where the state has no involvement.
MC: But didn’t you depart from your capitalist principles by recommending a guarantee in the first place?
DMcW: I’m not a pure capitalist. I think that what you’ve got to do if you believe you can stop something traumatic from happening is that you should do it. I don’t believe in this Austrian School idea which says that all recessions are the seeds of the next recovery – or that humans are infinitely able to react to unemployment. They’re not. My father was laid off many years ago and I know exactly what it’s all about. Humans are not machines. One of the reasons a run on the bank is disastrous is that the big guys get out first. The little guys are shafted. So there is nothing inconsistent in what I’ve been saying.
MC: You made a distinction between Lenihan’s version of the guarantee and your own on ‘Tonight with Vincent Browne’ [TV3] – I think you said that you hadn’t envisaged that the guarantee would extend to certain types of debt.
DMcW: I hadn’t expected that the guarantee would extend to sub-prime debt. I thought we’d do what Sweden and Switzerland did – which was a selective guarantee. The idea for the guarantee came from a bank I had worked at – the Swiss bank UBS, back in the early 90s. The Swedes did something similar a few months later in 1993. I remembered that that they’d done it and that it seemed to work.
At the time [September 2008] very few people in Ireland had any idea what we could do, so that was the genesis of the recommendation. I went on Prime Time and was faced with the Head of the Bankers Federation who was still saying that the banks were well capitalised. They were spoofing and they were telling me that I was talking ‘dangerous talk’. But I was saying the situation was by then desperate and it demanded desperate measures.
If we let the guarantee lapse this coming September as it is supposed to, it will have achieved its aims. It will not have been a flawless policy but the best we could have done in the circumstances.
MC: The least worst thing?
DMcW: The least worst thing as long as it doesn’t end up taking money out of our pockets and putting it into their pockets.
MC: But the guarantee was very different in the event so it’s resulted in a very different outcome?
DMcW: I don’t want to be wise after the event. I was very vocal both privately and publicly in saying we had to do something quite radical and different – something that takes the markets by surprise. Having worked in the markets I know what they are like. In many ways this is just a bluffing mechanism. You’ve got to hit them where it hurts – do something that is so outlandish that they back off – show them you are in control.
MC: It surprised more than just the markets, though.
DMcW: But what was the alternative? To let the banks go bust?
MC: And yet the other European countries were furious.
DMcW: But what the Europeans have just done with Greece and the Euro crisis is exactly the same thing – it’s effectively a blanket guarantee.
MC: A lot of people suspect that NAMA at its core, particularly the Special Purpose Vehicle (SPV), is essentially corrupt – that the secrecy about exactly who, what and how much is involved may be designed to cover up and compensate for a multitude of sins. What do you think about the SPV and how it will work? Would you agree it is a scandal that something so profoundly undemocratic and lacking in transparency has been allowed?
DMcW: Yes. The Ombudsman was on the other day talking about the fact that the Freedom of Information Act has not been extended to cover NAMA which is always very worrying. I think the FoI legislation has created both good and bad consequences. Nonetheless, it’s not the SPV that is the problem, it’s the logic of NAMA that is the problem - that this is a deeply cynical move.
MC: But what about the fact that the Minister for Finance alone is the only person who is privy to what may be gong on within a private group of vested interests that he has delegated all authority and decision-making to?
DMcW: What do you expect!
MC: The entire political and media class seem to be like rabbits in headlights about this. It’s really very bad.
DMcW: You’re back to the group-think you spoke about earlier. If in a small country you’re spending 2.8bn on professional fees, which is what NAMA will do, it buys a lot of silence. The man who writes the cheque calls the tune.
MC: Although it is used a lot in a general context about Ireland, it is amazing how little the word corruption is used by political and economic commentators in this specific context. You’ve put your neck out by a long way in certain respects but I don’t think I’ve ever seen you use the word corrupt about NAMA.
DMcW: Look, Ireland is a deeply corrupt country – the whole boom was corrupt. You don’t have to use the word corrupt to know that. The county councils were corrupt, the bankers were corrupt, the landlords. The developers – I’m not sure if they were actually corrupt but the Galway Tent was a deep corruption of our system of government. Look at the golf classics that Brian Cowen organized for himself. It’s all legal but there is a difference between being legally right and morally right. I wouldn’t go overboard on the moral stuff, but it’s important to have some sort of moral compass for people to say to themselves ‘I shouldn’t be engaged in entirely legal but questionable funding from people in the construction industry’. You don’t give money to people for nothing.
MC: There was a time when people would resign over just an appearance of impropriety – at least in the UK there used to be.
DMcW: Well England is a different culture. My wife is from East Belfast. East Belfast voted out Peter Robinson last week. So you have deeply dyed-in-the-wool loyalist East Belfast people vote for a non-sectarian party over and above the king of the DUP because not only was his wife regarded as being off-side but there was a flashiness about the Robinsons which came under the spotlight – they were a sort of Prince and Princess of East Belfast – but the electorate said ‘off you go’.
MC: Whereas people like Michael Lowry are elected with increased majorities when caught out in wrong-doing here. To move on to another subject. People on the left are bemused to put it mildly to see all the capitalists apparently unaware they are running around with their theoretical trousers round their ankles yet still sneering at more egalitarian theories of economics.
DMcW: Who is sneering?
MC: I’m not talking about you personally. I’m just saying that the left can’t but know that this collapse has evolved pretty much exactly as Marx, for example, said it would and despite the terrible consequences of it there is still little or no fundamental questioning of the capitalist system in mainstream politics or economics. No admission that capitalism has essentially cannibalized itself – that it has led us where it could only go with all its talk of endless growth in a finite world where there has only ever been so much to go around. You were speaking with John Gibbons in the Irish Times recently and you referred to what you called ‘peak everything’ and said that we are not just facing into ‘peak oil’. I think you had been visiting a smog-saturated city in China…
DMcW: Yes, I was making the documentary ‘Addicted to Money’ and it was not supposed to end with the environment – the script I had written had a totally different ending. I am asthmatic and I was in an environment where I started to realize that in actual fact the big issue is ‘peak everything’. It’s an iteration of something that we humans have got to come to terms with that there are a lot of us around that there are only finite resources.
MC: And yet in another context you would say that we need to return to growth if we are to have recovery.
DMcW: Not necessarily. I’ve never been a growth fetishist at all – ever. I thin the idea of steady economics with a zero growth rate is a very interesting one – and you don’t necessarily need to keep pumping the machine all the time. The reason I think capitalism works is because I actually think it is fair. If you can create an environment where people can maximise their own potential – that’s the ideal world.
MC: But that doesn’t incorporate any concomitant sense of responsibility and duty.
DMcW: It does!
MC: But where is that happening? There is massive inequality. We’re engaged in horrific wars which are really just resource grabs – all in the name of capitalism.
DMcW: Who is the worst polluter in the world? China and Russia are right up there.
MC: The US is the worst polluter.
DMcW: Pollution is not an ideology. East Germany was in a terrible state after the collapse of the Soviet Union. The vandalism in the mind of the polluter isn’t associated with any particular ideology.
MC: I agree that the left is often weak on environmental issues but the thing about China’s and Russia’s pollution is that it is only since they embraced western capitalist economics that their pollution has grown exponentially.
DMcW: You can have a go at me all you want!
MC: I’m not having a go, I’m just exploring different subjects with you. [Laughs]
DMcW: I’m only a journalist you know.
MC: You are a lot of things besides being a journalist!
DMcW: Well, I like doing different things.
MC: Would you agree that media coverage of the left is a) virtually non-existent and b) extraordinarily biased in a hostile and rather superficial way? The crimes of 20th century Stalinist socialism are held up as an inevitable outcome of trying to create a fairer society. Yet the crimes of capitalists over several centuries go virtually unremarked in many instances. Genocidal land and resource grabs have been going on all the way down the line but they’re sanitized and sold in the name of God and democracy.
DMcW: Do you think so?
MC: Yes Absolutely.
DMcW: I don’t see the world that way. Take the war in Iraq for example – there was almost uniform condemnation in the media.
MC: Not at all!
DMcW: I’d have said that was a logical position – that the United States was simply fighting an unjust war. However appalling Saddam was and I’m not sure he was much more appalling than people in other places who have been propped up. But my point is that if you look here for example, partnership is a great example of the social democratic left of centre that has had almost uniform media support.
This is a Catholic country, this is not a left wing country. There is a lot of corporatism in Ireland – so that partnership fell into that sort of area. It’s a sort of soft left. I think you always feel hard done by if you’re really involved in one thing. I think you can feel you see a bias.
When I came back to Ireland I was doing this programme called Agenda and I was always intrigued by how much the journalists seemed to hate each other. I’d be saying that person seems very good, let’s get him in with so and so. And then you’d find that one of them would be saying ‘Oh I can’t stand him’. You realize that there is the narcism of small differences in many countries. I think in Ireland the differences between the left and right, particularly in the partnership,were non-existent. So there was a narcism on both sides. But in actual fact they both sat down and implemented the same policies.
MC: The Labour Party?
DMcW: The Labour Party, the trade union movement…
MC: The Labour Party has almost completely abandoned its socialist principles.
DMcW: I think you’re probably right.
MC: They’re really Fianna Fail Lite.
DMcW: These groups were sitting down in rooms and hammering out deals with IBEC. Really, the left gave up on the left!
MC: There’s truth in that and certainly some of the mutual antagonism between those with narcissistic differences, as you put it, is very stupid. But it’s still incontrovertible that our media is dominated by a centre and centre right perspective.
DMcW: Do you really think so.
MC: Again, absolutely. Fintan O’Toole must be worn out from being held up as the media’s discharge of its duty to the left.
DMcW: He’s a good writer.
MC: Absolutely. But he is seen by many as being way off to the left when actually he is not at all – he’s actually quite centrist. But that tells you something about the media – that there is that same group-think thing again. Nobody’s seriously questioning this in the mainstream media.
DMcW: I suppose the difference is that I don’t think of the world in that way. I think there are a lot of good people in it and bad people too. There are lots of biases. I’m not sure if its worse anywhere else.
MC: Take our three national newspapers: there’s the Irish Examiner whose editor Tim Vaughan nominated the severely right-wing - economically speaking at least - Colm McCarthy as his politician of the year in 2009; then you have Geraldine Kennedy, the former PD who is editor of the Irish Times and whose editorials are written exclusively from that perspective and then there is The Independent which is staunchly pro-Fianna Fail. Where is the left getting a look-in?
DMcW: The Irish Times wouldn’t strike me as a particularly anti-left paper.
MC: Even Fintan O’Toole, its Deputy Editor, thinks the paper’s reputation for being left wing is over-stated if not an outright myth.
DMcW: I don’t see the ideological issue as being the most crucial issue facing us. The most urgent issue the country is facing is that we have a kleptocracy. We are allowing the banking system to suck all of the resources out of the country. It’s actually cronyism. It’s a gombeen form of capitalism. If you read Synge, he describes a person who on the one hand is agitating the local farmers to go against some of the land acts but on the other hand is aggressively throwing those farmers off their land. The gombeen man is putting the land back up for sale and giving the people the fare to America. It’s the same thing now. The gombeen man is central to the whole thing.
Michael D, who is a man of the left and who writes wonderfully on things, in his most recent book ‘Causes for Concern’ writes about the gombeen man and it’s a thing I’m going to include in my show for The Abbey – because I think it’s crucial to understanding this society.
MC: I’ve heard it said that you are one of the so-called ‘Friends of Israel’?
DMcW: That’s absolute rubbish!
MC: Fair enough! You said during a debate with Kieran Allen of the SWP at the Marxism conference in 2007 that you thought that Israel should attack Iran.
DMcW: I don’t think that what I said is that Israel should attack Iran but that I thought it was likely that Israel will attack Iran. This must have changed with the Obama administration’s quite obvious hostility to Israel or at least with its change of policy towards Israel.
MC: Hostility? Obama – even during his election campaign – and since has gone much further than George Bush in his support for Israel!
DMcW: But I mean, even in his body language. And in this spat between Netenyahu and Biden. But I’ve never said that they should attack Iran. I think that the Israelis will try to goad the United States into attacking Iran and if they can’t achieve that outcome they will try to do it themselves. That’s a statement of what I believe is likely to happen rather than a bias of mine.
MC: You are perceived as being very pro-Israel and not that sympathetic towards the Palestinian side of the situation or what they have been through over the last 60 years.
DMcW: Look, nobody who’s got any level of humanity can go to the West Bank like I have done – and this is quite interesting because there are a lot of people that talk about these things who have never been there. I was quite shocked. I was staying in a place called the American Colony Hotel – a very swanky hotel in East Jerusalem – so in Arab Jerusalem. The hotel is beloved of journalists and I was staying there as an investment banker. But I was very shocked by what I saw. I’d been living in the Israeli bubble for some time. I took the bus into the West Bank and was just appalled by what Israel was doing there.
I don’t believe that because you have a lot of respect for what the Israelis have done, for how they have turned the economy around and the way they have dealt with being in a pretty hostile neck of the woods to live in. The Israelis didn’t create Israel, the United Nations did. Israel, if you think about it, is a monster of our creation. People think that Jewish people came to Palestine and created a state. They didn’t. The state was created and policed by the UN. So you can’t have it both ways.
MC: Well you’re talking about a United Nations who at the time were a very small group of the wealthiest nations who had no business creating countries in territory that they didn’t own. And of course oil was very much in their minds back then too.
DMcW: The Israelis have never had oil.
MC: No, but by creating Israel, those countries as a quid pro quo have a base in a wider territory that does have oil.
DMcW: I think Western countries have been much more active in their support of the family businesses known as the Gulf States – the Wahabi insanity of Saudi Arabia for instance. So they didn’t just play the Israeli card.
MC: There has been that too. But Israel is now effectively an American military base.
DMcW: The Israelis were much more logically going to be a the friend of Europe first and then Russia. If you look at the ideological underpinning of Israel, it was much more likely to go left than right up until at least the middle of the 1990s. So, if you look at what happened to the biggest friends of Israel – the founders of the Israeli state were France and Britain as evidenced by the crisis in the Suez. America only became involved later in the day.
MC: And they have more than caught up.
DMcW: I think for many Israelis the big disappointment has been that inability to deal with the Russians given that most of them come from Russia – even before the collapse of the USSR. So I think there are a lot of things in the mix that are nuanced. I don’t profess to be an expert on them but I do think the Palestinians are in the worst position because they are the victims of victims.
This was something I interviewed Edward Said about. It was something he said to me – he said ‘you guys in Ireland were the victims of a proper bully race – the victims of the top dog’. Sometimes you can do a deal with the top dog. Said said if you are the victim of someone who is also a victim, there is a blind spot and there is a cultural spot to Israel’s own aggression towards the Palestinians.
And that is an awful dilemma to be in because the victim will always over react. But if you’re the victim of the victim you will be attacked and vilified and terrorized. And Israel terrorizes the Palestinians. I’ve seen it with my own two eyes. I’ve walked through check-points without hassle and seen Palestinian women left behind me in the sun – because I have a Western passport. I’ve seen the dual standard.
MC: What do you think Palestinians should do at this point?
DMcW: I can’t speak for the Palestinians.
MC: But as someone who has lived there and seen it for yourself you must have a view.
DMcW: I’ve no idea. I think their situation is so desperate and lamentable. No amount of provocation can justify going into what is in effect a large prison – as Gaza is – a sealed off prison – from the air and then from the ground, with a full, properly equipped army. So when you ask if I am ‘A Friend of Israel’, this is wrong. I’m just somebody who is prepared to see an Israeli point of view. Maybe that’s because I’ve lived there and I have many friends there.
MC: What is the Abbey production about?
DMcW: It’s very simple really. The idea is that in the crisis Ireland splits not so much between rich and poor, or urban and rural or young and old – but between insiders and outsiders. For instance just looking around here [Dalkey] – my father used to tell me about this church. My grandparents were Scottish and they were very much outsiders. There were lots of them – the Nicholson’s and others for example.
MC: They weren’t Catholic when they came?
DMcW: No they weren’t. There used to be this incessant Fianna Fail propaganda against the Brits and yet a lot of the money collected on the plates at mass would be earned by lads working for the RAF in Wolverhampton. So we had the Dagenham Yanks thing! The people who caused the mess in the 50s got stronger. And the 1980s the people who caused the mess got stronger and the outsiders emigrated. It’s the same thing happening again now. But the show is more humorous than it might seem from this!
MC: Is it a characterisation of these people?
DMcW: It’s a combination of both – hopefully it’s humorous. It’s gentle – I suppose a bit like a stand-up economist – it’s never been done!
MC: The ‘rock star economist’ as one Canadian TV chat show called you! Well it sounds very interesting and appropriate at a time when we’re all having to be our own amateur economists just to be able to have some chance of following the plot. You make economics a bit more accessible than other economists who could be mentioned!
'Outsiders' is currently showing at the Peacock stage at the Abbey Theatre until July 3rd.