To Sum It All Up

Jim O’ Brien talks the past, present, and future of the Irish economy, concluding that we’re pretty much screwed.

The economic and financial crisis that erupted in 2008 exposed the irrational assumptions of the free market system. However, it is such practices that continue to dominate the Irish political landscape. The incumbent of the day believed fiscal austerity was the necessary strategy to overcome Ireland’s growing debt burden that was supposed to steady the ship and appease the money markets. However, this did not happen. Why? In response to economic downturns, economists, well most of them, argue governments should intervene by increasing public investment and consumption to counterattack declining private investment. The Obama administration and many European governments followed such policies in a limited fashion unfortunately. But, in comparing the US with Europe, the Federal government has not changed course, that much, unlike the governments in France, Germany, Italy, Spain and Britain. Their economic argument, more political really, is that by cutting debt now, will instil ‘confidence’ within their economies, and therefore businesses and households will not assume future tax increases to pay off the debt burden they would have accumulated if they continued further fiscal stimulus. The result, France’s AAA credit rating has been cut, along with Italy and Spain’s going further than their geographical positions in Europe, with the latter being nearly forced in needing financial assistance from the EU. In Britain and Germany, who have the lowest long-term interest rates on sovereign bond yields; have now experienced a decline in economic output, with news coming shortly of both Britain and the Eurozone experiencing a double dip recession.

So, what does this mean for the citizens of Ireland? Well, we were told we needed to change strategy and move away from consumption led growth to an export one. However, that meant deep cuts in living standards, such as tax increases, welfare cuts and reductions in real purchasing power. This together with record public, household and non-financial debt, which impacts negatively on the real economy alone, has added fuel to the fire. Therefore, unemployment will rise and will flat line at around 14%, taking even longer than usual to reach pre-crisis levels, which is generally associated with post-financial crises. (L-Shaped recovery)

The Fine Gael and Labour incumbent have decided to continue such policies to satisfy our ‘paymasters’. I am not going to write about the alternative and reverse to the argument of mass public investment in construction, tax cuts, wage subsidies etc., Joe Higgins and the likes do this quite regularly. Unfortunately, I sort of agree with the debt reduction plan, but not the pace or ways in doing so. Labour during the election proposed a third rate of tax for high income earners but through political pressure from Fine Gael labelling them a ‘tax and spend party’, whatever that means, they bottled it in an effort to become the largest political party. (Trying to keep a straight face) The myths that a raft of ‘wealth creators’ would leave Ireland if such a policy was implemented or that they would hire smart tax lawyers and accountants to reduce this higher tax burden is somewhat weak and argued only on ideological terms. In his first budget, Michael Noonan announced his party’s election manifesto of not increasing income tax or changing tax credit and bands with great applaud and triumph. But what does this mean for the Irish people? This means the government had to cut public services such as health and education more severely, areas that have been underfunded and whose budgets have been misallocated disgracefully for the last decade. Where are the savings from public sector reform, which Fine Gael argued in opposition that would be their main parameters in achieving the targeted 6 billion euro in budgetary adjustment? Enda Kenny, James Reilly and the likes argue that we cannot afford to fund the health service like before, yet they refuse to increase their revenue capacity to do so. This was also the policy which got Bertie Ahern elected and re-elected three times. Change, really?

By taxing equitably and redistributing accordingly, any government can invest in areas that yield long-term economic and social returns, even political, such as in education, infrastructure and indigenous enterprise. What matters is a countries debt-GDP ratio. That is a nation’s total debt burden, past and present. Keynes argued that budgets deficits, if targeted properly as discussed, will look after themselves, because economic growth will occur, creating jobs and tax revenues, and reducing social welfare expenditure. (Arguing about Ireland’s debt-GDP is debatable and for another day and article) America found a new vision in President Obama, where is Ireland’s??? We continue to prolong our conservatism, which is no surprise, considering our independence was one of the most conservative one’s in world history. Is it such lack of change or inaction propelling Sinn Fein’s poll ratings or is the Irish electorate realising we made a mistake and that we demand radical change urgently?

I will allow you to decide……..

Jim ‘Danger’ O’Brien

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