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What we need now is another Jonathan Swift.

Most people know
Swift as the author of “Gulliver’s Travels.” But recent events have me
thinking of his 1729 essay “A Modest Proposal,” in which he observed
the dire poverty of the Irish and offered a solution: Sell the children
as food. “I grant this food will be somewhat dear,” he admitted, but
this would make it “very proper for landlords, who, as they have
already devoured most of the parents, seem to have the best title to
the children.”

OK, these days it’s
not the landlords, it’s the bankers – and they’re just impoverishing
the populace, not eating it. But only a satirist – and one with a very
savage pen – could do justice to what’s happening to Ireland now.

The Irish story
began with a genuine economic miracle. Eventually, though, this gave
way to a speculative frenzy driven by runaway banks and real estate
developers, all in a cozy relationship with leading politicians. The
frenzy was financed with huge borrowing on the part of Irish banks,
largely from banks in other European nations.

Then the bubble
burst, and those banks faced huge losses. You might have expected those
who lent money to the banks to share in the losses. After all, they
were consenting adults, and if they failed to understand the risks they
were taking that was nobody’s fault but their own. But, no, the Irish
government stepped in to guarantee the banks’ debt, turning private
losses into public obligations.

Before the bank
bust, Ireland had little public debt. However, with taxpayers suddenly
on the hook for gigantic bank losses, even as revenues plunged, the
nation’s creditworthiness was put in doubt. So Ireland tried to
reassure the markets with a harsh programme of spending cuts.

Step back for a
minute and think about that. These debts were incurred, not to pay for
public programmes, but by private wheeler-dealers seeking nothing but
their own profit. Ordinary Irish citizens are now bearing the burden of
those debts.

Or to be more
accurate, they’re bearing a burden much larger than the debt – because
those spending cuts have caused a severe recession so that in addition
to taking on the banks’ debts, the Irish are suffering from plunging
incomes and high unemployment.

There is no alternative, though, say the serious people: all of this is necessary to restore confidence.

Strange to say,
however, confidence is not improving. On the contrary, investors have
noticed that all those austerity measures are depressing the Irish
economy – and are fleeing Irish debt because of that economic weakness.

Now what? Last
weekend Ireland and its neighbors put together what has widely been
described as a “bailout.” What really happened, though, was that the
Irish government promised to impose even more pain, in return for a
credit line that would presumably give Ireland more time to, um,
restore confidence. Markets, understandably, were not impressed as
interest rates on Irish bonds have risen even further.

Does it really have to be this way?

In early 2009, a
joke was making the rounds: “What’s the difference between Iceland and
Ireland? Answer: One letter and about six months.” This was supposed to
be gallows humor. No matter how bad the Irish situation, it couldn’t be
compared with the utter disaster that was Iceland.

At this point,
however, Iceland seems, if anything, to be doing better than its
near-namesake. Its economic slump was no deeper than Ireland’s, its job
losses were less severe and it seems better positioned for recovery. In
fact, investors now appear to consider Iceland’s debt safer than
Ireland’s. How is that possible?

Part of the answer
is that Iceland let foreign lenders to its runaway banks pay the price
of their poor judgment, rather than putting its own taxpayers on the
line to guarantee bad private debts. As the International Monetary Fund
notes – approvingly! “Private sector bankruptcies have led to a marked
decline in external debt.” Meanwhile, Iceland helped avoid a financial
panic in part by imposing temporary capital controls – that is, by
limiting the ability of residents to pull funds out of the country.

Iceland has also
benefited from the fact that, unlike Ireland, it still has its own
currency; devaluation of the krona, which has made Iceland’s exports
more competitive, has been an important factor in limiting the depth of
Iceland’s slump.

None of these
heterodox options are available to Ireland, say the wise heads.
Ireland, they say, must continue to inflict pain on its citizens –
because to do anything else would fatally undermine confidence.

But Ireland is now
in its third year of austerity, and confidence just keeps draining
away. And you have to wonder what it will take for serious people to
realise that punishing the populace for the bankers’ sins is worse than
a crime; it’s a mistake.

© 2010 New York Times News Service