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Deflation’s End - A Reaction to the Emergency Budget

category national | worker & community struggles and protests | feature author Thursday April 09, 2009 08:43author by Michael Taft - The Recession Diaries Report this post to the editors

An article written especially for

featured image
"If I say, 'it's fair, it's fair'"

I want to argue that Fianna Fail has essentially cooked (and I mean boil rapidly) the books - insofar as their strategy to bring the deficit under control by 2013 rests on numbers that cannot work in the material world.

This might seem a bit academic but this will show in a way that no one else has done that deflation cannot work at any level - not at the level of arresting economic decline, job losses, living standards; and not even the deficit. This is the real debate - can deflation work? Fianna Fail's own bookeeping shows it can't.

I don't intend to list the outrages that Fianna Fail has perpetrated in yesterday's budget.   We all have scars to show each other.   And let's leave the bank bailout for the moment (but everything about it is one more argument for immediate nationalisation).  

Let's get to the heart of the matter.   What was this budget all about?   Closing the deficit this year by a couple of percentage points?   Proving our machismo to the international markets (if wiping 8 percent off the gross income of an average-income couple with two small children or abolishing the Christmas bonus isn't macho enough, I don't what will satisfy foreign hedge funds)?

The whole point of this budget is that, whatever happens (mass unemployment, increasing poverty, a hollowing out of our enterprise base, degrading an already degraded infrastructure), we must ensure, at all costs, that by 2013 the number that appears in the line item ‘General Government Deficit as a % of GDP' is -3 percent or less.   It's that simple.   Nothing else matters.   -3 is the magic number.   People can eat stale cake.

The fiscal reactionaries and budget fundamentalists tell us there is no alternative to the current deflationary strategy (though the different camps debate whether the emphasis should be on tax increases or spending cuts).

Here is the battleground.   What I'd like to show, going through the Government's Macroeconomic and Fiscal Framework, is that even on their own terms - the deflationists fail.   The strategy of deflating the economy will not achieve its stated goal of ‘balancing the books'.   In fact, the only way it works on paper is by ignoring reality and cooking the books – which is exactly what Fianna Fail has done. If this can be shown, then the one and only ground the deflationists stand on will have been pulled out from under them.

This will leave the door wide open to progressives – if we have the nerve to walk through it.  

It Will Get Worse Before it Gets Better Before it Gets Worse

The Government has been busy, producing three set of projections in the last six months:   the October budget, the January Addendum and the April Emergency Budget.   Let's compare the last two to see how Fianna Fail is whipping up its soufflé.

In both the January and April projections, the Government insists they will reach the magical -3 percent figure by 2013.   But, because of the economic collapse, they have had to shift around the numbers to make this. In truth, they are making up the numbers as they go along.

In January, the Government projected the economy would decline over the two-year period by -4.9%.   By April this has more than doubled to 10.6%.

The Government had no choice but to come clean on these short-term forecasts.   In the last few days, a number of commentators, including the Central Bank, had forecast similar dramatic declines.  

The real kicker is what the Government produced for 2011 to 2013.   In January, they projected growth over this period at 8%.   In April, they increased this projection to 10.8%.  

So, the economy will collapse further but rebound higher.   How does the Government justify these projections?

‘The projections over the period 2011-2013 are broadly similar to those contained in the Addendum . . . published in January, with one modification: because the current downturn is deeper than initially assumed, the amount of spare capacity is consequently greater. Therefore, once the recovery begins, growth is projected to be somewhat stronger than originally assumed as this additional spare capacity is brought into productive use.'

What the Government is banking on is a V shape to this recession – sharp fall, followed by sharp recovery.   They provide no evidence for this, beyond a quaint belief in the power of markets to self-correct.   The fact is the shape could be more like L – sharp fall, followed by flat-lining: high unemployment, sluggish consumer spending and investment, and marginal growth, if any.   Let's turn to the elements that make up these projections to see if we can uncover what might really happen.

Whatever You Do, Do Nothing

If there is a rebound, it won't have anything to do with Government consumption expenditure – creating more jobs, issuing more procurement contracts, buying more staples and pens.   In January, the Government factored in a mild stimulus – 1.3% up to 2010 and 0.4% in 2011.   Even that mild balm has been removed.   Now, the Government will contract it's expenditure by 0.4% this year and remove any increase in future years.   If there's going to be a sharp rebound, it will have to occur despite reduced government activity.   The mountain just got steeper.

Do the Spend Thing

We are being hit by a double whammy.   More unemployment means a lot more people have a lot less to spend.   At the same time, the Government is radically reducing people's disposable income (in particular, the key low to average income households who tend to spend almost all their income).    Without people spending money, business declines, jobs are lost or short-timed, wages are frozen or cut – which sets off another round of deflation.   And down and down we go.

The Government, however, is upbeat.   In January, they projected personal expenditure to fall by -3.6 percent over the two years, followed by an increase of 5.4 percent.   But, while accepting that personal expenditure will now fall by 11.5 percent over the two years, the Government projects spending to pick up even faster - by 6.1 percent in the following period.   But hold on a minute:  

  • The Government accepts that unemployment is skyrocketing.   It projects it to be 15.5 percent by next year (in January they said it would be a third less.   Even by 2013, these ratios will remain the same – with over 11 percent unemployed (by the way, this can only work if there is substantial and prolonged emigration).  
  • The Government has just slammed low and average income groups – radically reducing their spending income.   In addition, they have signalled further taxes spending cuts (taxing Child Benefit) in the years ahead.   This will reduce people's disposable income further.  

So, there will be more people without a job and the rest of us with even less disposable income than was projected in January.   But even so, the Government is confident we will actually increase our spending.   They must be the only ones assuming this.  

Export to Nowhere

Ultimately, long-term growth will depend on our ability to make and sell things abroad, whether goods or services.   Again, the Government is upbeat.  

They accept exports will take a hammering over the next two years (-9.2 percent) but afterwards insist it will pick up even more than their previous estimates in January.   Hmmm.

Our export sector is taking an incredible hammering.   There's the Dells, the Waterford Crystals, SR Technics'.   Our food sector is bending under pressure with the sterling exchange rate.   Multi-nationals, the bedrock of our manufacturing exports, are leaving, downsizing, weakening.   And we have yet to get the full blast of the drop in financial service exports.   When the recession has hollowed us out, we will be in a weaker position to earn a living off exports.

The Government has even accepted that, since January, our trading partners' economies have deteriorated.   In January, they projected growth in all the countries in 2010.   Now, they project growth in only one country – Germany; and that only marginally.   Indeed, our main market for indigenous enterprises, the UK, is really heading south.

In other words, we will have a weaker export base with reduced international demand.   So the question is – what and where will export at the level the Government is projecting.

The Bottom Line

Let's bring all this together.   Some would argue that percentage increases cloud the picture because it depends on what your base-line is.   Okay, let's move to the headline figures.   And remember, the Fianna Fail deflationists couldn't muck about too much with this and next year's numbers.   Too many commentators have passed judgement.   But few venture beyond this two-year span – too many variables, too many unverifiable assumptions.   This is the space where the Government is employing its dark arts.

In January, the Government projected nominal   GDP to grow (at current market prices) by €21.4 billion between 2011 and 2013.  

What are the new growth projections?   What are they now projecting taking into account the deterioration since the January projections?

  • Lack of government consumption actually detracting from GDP growth
  • Consumer spending being hit harder due to rising unemployment, tax increases and growing fears over the future
  • An export being whittled away with our trading partners doing worse than previously anticipated

[I won't even get into the investment sub-category; when you have a category collapsing by over 40 percent you're more in the realm of a Kilkenny hurling score than you are in economics].

So after all that, the Government is projecting GDP growth between 2011 and 2013 to be:   €21.2 billion.   That's right.   They've readjusted their calculations by less than 1 percent. It's as if today and tomorrow has no effect on the next day.   Easter comes early with Fianna Fail.

This is what the Government actually did:   they started with that magical number -3 percent and worked backwards, putting the economy on a procrustean bed to make everything fit.   They didn't start from the here and now and proceed onwards.   They started in make-believe land and just stayed there.

There's a good reason they did this.   First, the Government has resorted to fiscal chicanery to make the next two years better than it would otherwise be by absorbing the pension funds of universities and certain state agencies.   This gives an initial boost to the Government's balance sheet.   However, pensions will have to be paid out of these funds and these will be counted as expenditure.   There is no evidence that the Government has accounted for this sleight-of-hand.

Secondly, the budget has already caused one commentator to downgrade their projections for this year alone.   Ulster Bank is now projecting a decline of -9.5 percent (compare that with the Government's -7.7 percent).   If anything, given that the Government has taken €5 billion out of the economy in a full year, this might be a bit optimistic.  

So already, the Government's deficit target has been blown off-course driving it back up to nearly -11 percent this year.   Wait for this year's and next year's and the following year's budgets to kick in.   GDP growth will weaken further and, so, the deficit will remain stubbornly high.

The Tasks Ahead

Even on their own terms, the deflationists cannot reach their goal of bringing the deficit below the magic -3 percent by 2013.   That's because we are going up a down escalator – and the escalator is gaining speed.

We desperately need an alternative – one based on creating jobs, maintaining incomes, saving enterprises – especially in our critical export sectors.   This means radical intervention by the state – creating jobs, boosting incomes, creating new public enterprises to invest, to expand and even save failing firms that would otherwise be profitable were it not for the recession.  

We must dare to spend, dare to borrow, dare to invest and dare to intervene.   There is no other option – unless decline, stagnation, unemployment, emigration and poverty are acceptable while we wait for the market to correct itself.

The problem is we don't have a stimulus framework.   This is a major gap in the progressive critique.   We must challenge the Government's framework with one of our own.   Until then, our demands for stimulus will be aspirational and easily dismissed.   Who's up for this hard graft?

Further, we must ensure the trade union movement remains independent of this government and not give Fianna Fail political cover.   ICTU is scheduled to recommence talks with its ‘partners' after Easter.   This must now become a matter of   urgent debate.

And finally, progressive political activists must do everything possible to ensure their respective parties don't get ensnared by either Fianna Fail or Fine Gael.   Fianna Fail may be toxic, but Fine Gael has no fundamental disagreement on the macroeconomic or fiscal targets, they merely dispute budgetary tactics. Rather than increase levies by 3 percent, they would increase them by less, fire 15,000 public sector workers and generally take a torch to the public realm.   The game remains the same.

The deflationist orthodoxy controls the debate.   So far, they even control the alternatives.   Unless we have a clearly worked economic alternative, mobilising trade unionists and progressive political parties behind a political alternative, we'll be back here again, showing each other our growing scars.

Related Link:
author by Ronocpublication date Thu Apr 09, 2009 17:04Report this post to the editors

The boys in the Governments are only puppets. Their master are the Bankers and captains of industry. The Government have pledged there allegance to them and not the people of Ireland. We now see that they will make the irish people pay for the greedy mischevous deeds of a wealthy few. Ireland is now falling into a recession that will only get worse, people will loose everything and businesses will be sold by the bucket load only to be wiped up for pennys by the captians at the controls. Trilateral Commision, bilberberg group. All the info is there to be found. The whole world is going the same direction and we will be told the only solution is a new financial world order. The wealth and resources of the world are in the hands of few. Its getting worse and will not change until you wake up and see through all the lies and corruption.

author by Paulpublication date Thu Apr 09, 2009 17:57Report this post to the editors

"None are so hopelessly enslaved as those who falsely believe they are free" Goethe

author by Thomaspublication date Thu Apr 09, 2009 18:53Report this post to the editors

"If you remove the English army to-morrow and hoist the green flag over Dublin Castle, unless you set about the organisation of the Socialist Republic your efforts would be in vain.

England would still rule you. She would rule you through her capitalists, through her landlords, through her financiers, through the whole array of commercial and individualist institutions she has planted in this country and watered with the tears of our mothers and the blood of our martyrs."

Whats happening but not neccesarily in the same context....

author by Mick Butlerpublication date Thu Apr 09, 2009 22:08Report this post to the editors

Thanks for your latest contribution Michael. Have you any thoughts on the National Assests Management Agency 'NAMA' God bless them ?

Peter Bacon seemed to be confident of this latest Knight in Shining Armour, (his baby ?) which will in theory free up the banks from toxic loans in order to get credit moving through the economy.

Sounds to my humble mind that it could turn into another highway to hell as oppossed to a stairway to heaven that Mr Bacon believes it will be.

author by BoringAccountantpublication date Fri Apr 10, 2009 16:24Report this post to the editors

(and 90 billion euro of the taxpayers)

author by pucapublication date Fri Apr 10, 2009 20:20Report this post to the editors

NAMA - National Asset Management Agency. Interestingly its designed by Peter Bacon, he of the Bacon report and, surprise surprise, board member of Ballymore Homes. This is one of the biggest home builders in ireland and the UK and of course very tight with FF. We are in good hands lads, nothing to see here, move along.

It would be nice if the state would or could intervene in the economy to invest in job creation and to sustain those companies who might return to profitability in the future. Unfortunately this is unlikely to happen in Ireland. FFs strategy is to force young people to emigrate while insisting that nothing is wrong except for 'international factors'. This is ludicrous but I'm beginning to think that the Irish establishment might really believe it. if there is nothing inherently wrong with the economy then we can just wait it out, sort out the banks and our friends in the construction industry and obama will solve the problems. FF actually have created 35 000 jobs during the credit bubble, unfortunately they are in the public sector so instead of being an engine to get us out of recession they are an enormous cost that can't be gotten rid of. Benchmarking etc simply compounds the problem. The bank guarantee and the various other fixes/strokes that FF have pulled in the last 6 months mean that there is no way Ireland could fund a stimulus plan, even if FF preferred it to their traditional emigration solution. We are getting closer and closer to not being able to borrow any money and while FF and the resident economists of the ruling class dissemble the money markets know what time it is in Ireland. If it were not for our euro membership Ireland inc. would already be bankrupt. So while the above argument about stimulus is theoretically appealing the facts on the ground make that route inaccessable for the near future. If you want a stimulus plan then it will need to start by firing 30 or 40 thousand civil servants, or find another way of cutting govt spending by 20-30%. FF would never do it but the IMF might.

The article makes a good point about export oriented industry being key to prosperity in Ireland. But the cost base right now is way too high in Ireland mainly because the people who've been running the places have completely fucked the economy. Buying and selling houses and imported tellys is not the kind of economic activity that creates real growth or wealth. It is funded by credit and not by adding value. Irelands cost base means it is not an attractive place for exporters to base operations, It might have been 15 years ago but the credit bubble and gross mismanagement have destroyed that. These are the base issues confronting the Irish economy.

author by LOCpublication date Fri Apr 10, 2009 23:49Report this post to the editors

Through all these forecasts away. No one knows how long this downturn will last.
We do know at least since John Maynard Keynes that a budget deficit is a fiscal stimulus. It doesn't matter what caused the deficit, whether it was deliberately introduced, or it happened due to incompetence or greed. It doesn't matter that is to say, from the point of view of its effect on the economy.
Even with the Lenihan austerity budget Ireland is running a massive fiscal deficit, somewhere around 11 per cent of GDP. Mr. Taft continues to call for a 'fiscal stimulus' ignoring the massive fiscal deficit that already exists. He seems to think that calling for a fiscal stimulus is somehow progressive, and that such a so-called stimulus would get us out of the difficulty. If it would F.F would seize on it in a minute.
Mr. Taft should answer the question: why with a massive fiscal deficit equal to 10 or 12 percent of GDP does the Irish economy continue to collapse, with unemployment at depression era levels and rising, and with prices falling at a rate not seen since 1933? It doesn't seem to have occurred to Mr. Taft to even ask this question. But without asking it and answering it calling for a 'fiscal stimulus' reveals not his progressive credentials but his ignorance of economics. How much extra deficit, and the associated borrowing at a rate more than 2 per cent higher than Germany does Mr. Taft suppose it would take: a deficit at 30 per cent of GDP, 50 per cent?
Calling for a fiscal stimulus when we are already running one that's probably the highest in the world, is like riding in a taxi, and sticking one's head out the window and shouting 'taxi'. Its ridiculous.
Back to the key question that Mr. Taft ignores. The reason the massive fiscal deficit/stimulus is having no effect is because of a grossly overvalued exchange rate and the zombie banking conditions. Ignoring this is again ignorance rather than analysis. And the Bacon plan, NAMA, to solve this problem will cause the fiscal deficit to balloon in 2010 to an amount greater than GDP. How much does Mr. Taft propose to add to this with his 'stimulus plan' and how much extra will it cost from the international money lenders?
There is no doubt that the neo-liberal system of capitalism has received a telling blow from the world-wide Great Recession. This has led to a revival of Keynesianism in most countries, especially in the U.S. and in the U.K.
There is also no doubt that Irish political economy is in severe crisis. But to call for a fiscal 'stimulus' to solve this debacle while ignoring Irish material reality, especially the massive fiscal stimulus which already exists, and the failure of this deficit/stimulus to curtail the economic collapse, is to substitute shibboleths for thought and slogans for analysis. To claim that this is somehow progressive economics is farcical and does a grave disservice to efforts to forge a solution that benefits working people.

author by Michael Taftpublication date Sun Apr 12, 2009 19:52Report this post to the editors

Thanks for the comment, Mick. I hope to get into the NAMA issue soon on my own blog. At this point, I would just draw attention to Karl Whelan’s defence of nationalisation of the banks (as opposed to the NAMA route) on though I part company when he argues that such nationalisation should be temporary, returning it to private investors as soon as possible. It certainly would be as cheap, arguably cheaper, to bring banks into public ownership in order to cleanse them of toxic assets and recapitalise them. Further, the taxpayers would own the down-the-line benefit while the state could reconfigure the banking architecture to make it fit for purpose; that is, to fully contribute to economic recovery. Besides, BoringAccountant has put it more succinctly than I could.

LOC, Keynesianism is concerned with stabilising economic output over the business cycle. In times of slump, it advocates increasing demand through various means – cutting taxes in order to raise consumption, additional public expenditure measures to create employment and various other, including monetary, measures. However, in times of inflation and unsustainable growth (e.g. a bubble) it advocates increasing taxes or cutting government outlays. In that way, it seeks to stabilise the economy through state-managed capitalism.

The key thing, in times of recession, is to increase demand. A fiscal deficit may or may not do that and, so, is instrumental. For instance, a government that runs a balanced budget may seek to stimulate activity by slashing corporate and capital taxes. If the recipients of that tax cut jus pocket it or, in the case of Ireland, invest it in property abroad, there is little benefit accruing to the economy. The state falls into deficit but has failed to ‘stimulate’ the economy. Conversely, a state with a balanced budget and a large sovereign wealth fund may successfully stimulate the economy through extra expenditure – but never run a fiscal deficit because it draws down the investment from the fund. Thus, a fiscal deficit cannot be equated with a stimulus, nor can we automatically assume that a stimulus requires a deficit. The issue is increasing demand.

Did the budget do that? No. It contracted it. You accept that when you say that the budget was austere. Therefore, I can only ask – how can a policy that contracts demand also stimulate demand?

As to why I didn’t mention an over-valued exchange rate or the banking system, the simple reason is that I wasn’t writing about that. I was just taking the narrow issue of whether deflationist policies, the type of which the Government is pursuing, can resolve the fiscal deficit by 2013. If you’d like to read what I have to say on issues like real devaluation, the banking crisis and why the economy is collapsing, I would refer you to my blog. At least three or four times a week I survey these and other related issues – wages, poverty, regulation, etc.

Your question regarding how much stimulus is valid because I haven’t put an exact number on it – though I have in the past ventured anything up to 3% of GDP per year for a number of years. With such an investment – whether on or off the books – we can create jobs and raise incomes while protecting our export-platforms, upgrade our physical and social infrastructure, and create new enterprises through the semi-state. For instance, Fine Gael, copying ICTU’s proposals, suggests that a €18 billion infrastructural programme deployed through existing and new public enterprises could create 100,000 jobs over the next four years. Looking at their calculations, I would concur. And that’s just a start. But that would entail ‘stimulating’ the economy through state action, rather than contracting the economy as the current Government is doing

On that point, LOC, I would like to ask what concrete short-term steps you would propose to benefit working people.

Puca, I wouldn’t be too pessimist about the state’s ability to afford a stimulus programme and certainly wouldn’t support firing 30,000 to 40,000 public servants (adding this many to the dole queues would make stimulus even more difficult). The NTMA has now stated that it has €27 billion in free cash balances while it’s debt issues this year have been oversubscribed by factors of up to four times suggesting that there is great demand for Irish bonds and bills. We needn’t worry, at this stage anyway, about international markets drying up. Indeed, the Government intends to borrow billions through the NAMA. Regardless of whether this is the correct policy, it shows that there is little official hesitation about upping our debt. Therefore, the question is not whether we can borrow extra – we are and we can. Even by 2010 we will have a net debt ratio well below the Eurozone average. The question is how we can extract the best benefit from this borrowing.

A stimulus programme will not resolve all our problems. At best, it will give us a breathing space – one where more people will be working with higher incomes. Policy must address the failure of indigenous enterprise base and our over-reliance on multi-nationals; our degraded physical and social infrastructure; the failed low-tax, low-spend, low-regulated model we have been pursuing. There is no normal to go back to. We have to chart out something different – something only the Left can deliver.

author by LOCpublication date Mon Apr 13, 2009 00:44Report this post to the editors

Its foolish to talk about a deflationary situation without mentioning the overvalued exchange rate. Ireland is clearly in a very deflationary situation with unemployment at depression era levels and rising.
Taking more money out of the economy as the budget does will clearly increase the deflationary pressure.
A massive budgetary deficit such as Ireland has is clearly pumping more money into the economy than it is taking out. The conventional Keynesian meaning of a fiscal stimulus is a budgetary deficit such as the one that Ireland has. That this stimulus is not working is evident by the growing unemployment and price falls not seen since the 1930s. Calls for further fiscal stimulus in this environment are silly.
If a deficit equal to 11 percent of the GDP will not work how much of a deficit, do you believe, Mr. Taft, will do the trick? How much more do you think we should borrow on the international markets at a rate 2 percent higher than Germany.
With the new NAMA bailout, projections of Irish state debt as a percentage of GDP for 2010 are now above 100 per cent. How much, Mr. Taft, do you propose to add to this? and at what additional costs of borrowing? and to what purpose since the already huge deficits are not countering the deflationary effect of an overvalued exchange rate and a banking system in a zombie condition. Because of your failure to address this issue you continue with your foolish advocacy of a 'Keynesian stimulus'.
Any comparisons with the U.K or U.S,-where Keynesian stimulus policies have a chance of working-are inept, because the Irish situation is so different.
Your reference to the 'business cycle' also makes little sense. That capitalism has its ups and downs has been known for 250yrs. But these are not 'cycles': there is no regularity or periodicity involved. In short, every downturn is unique, and the one we are now experiencing is much more unique than others. Its peculiar Irish manifestations result from the specifics of Irish political economy, especially the overvalued exchange rate, over which the Irish state has no control, and the zombie condition of the banks resulting from imaginary or fictitious capital derived from the property boom. Your failure to include the most important features of the Irish economic debacle in your analysis, means that your calls for 'fiscal stimulus' are merely empty sloganeering based on lack of knowledge both of economics and of Ireland's material reality. Calling it 'progressive' does not alter its ineptitude.

author by southern (dis)comfort - Judean Democratic Bloggers' Frontpublication date Mon Apr 13, 2009 16:29Report this post to the editors

Go easy on Lenihan, he has been min of finance for less than a year. Sure, he hasn't even learnt to count yet.

Weren't his grandparents tatie-hokers, just as all the rest of us are going back to tatie-hokin' now. There was never a penny of money in the country till they borrowed it, and spent it on their mercs, and now the banks want it back. And Saint James Connolly would have done the very same.

author by pucapublication date Tue Apr 14, 2009 00:41Report this post to the editors

I don't disagree with most of your argument Michael, as I said earlier most of it is theoretically appealing but i don't believe it describes the country we live in. For example, increasing demand does not necessarily make a great deal of difference if whats consumed is imported. There is a net gain obviously but there is no significant multiplier effect due to the consumption of imported goods. Good for sales tax and shopkeepers but no good at all for employment or adding value. Similarly you suggest (the ictu/fg idea) of up to 20bn in infrastructural investment to put people to work. To me that just sounds like more construction industry subsidy. I don't believe it would represent value for money for lots of reasons. The first is that, as we have seen, construction plays far too big a part in the Irish economy already. Thousands and thousands of young people have foregone further education to get involved in the building game in which there is no future for many of them. Ireland does need infrastructural investment, the stock of schools is abysmal, rail, ports etc all need attention but a huge spending program without any long term view of what it is to achieve will be useless and simply postpone the day when the construction industry in Ireland employs half as many people as it has done in recent years.

In 2008 Irish GDP fell by almost 8%. At the same time govt spending grew by >2.5%. Thats significantly down on 07 but still is getting close to your figure of 3% growth as a stimulus measure. At the same time the govt has taken on a liability approaching 500bn through the bank guarantee and what looks increasingly like an out of pocket charge of 90bn through the NAMA. That might not be all of it. 90bn is 2 years gross domestic product. I don't know how you imagine Irish debt will be in line with anyone in Europe considering the transfer of wealth to the rich that is represented by this manoeuvre. This is basically printing money by borrowing at an excessive interest rate. The net effect is to reduce services in the future. And its worth remembering that by not letting anglo go bust FF have created this situation, which will be regarded as one of the biggest fuck ups ever in Irelands history. It will allow FFs last great economic contribution, the trade war with Britain which destroyed the economy in the 50s, to be forgotten.

Your arguments against deflation don't make any sense to me. Ireland is insanely expensive. The average house price is still 7 or 8 times the average industrial wage. There are no tenants rights in the country which means that to achieve security families feel they must buy a house. Yet, according to traditional mortgage earning multiples that will again become the norm, one would need to earn about 150k pa to buy a 2 bed house without a garden in the city. Not many people earn that sort of money in ireland. Housing prices need to fall a lot further before they make any sense. dental work is half the price in the 6 counties. I could go on and on. Prices for everything need to fall significantly in Ireland. I think people are slowly waking up to the fact that Irelands economy is built on sand. the export sector, if you remove the mnc's, is pitiable. And no surprise there, for more than a decade investment in manufacturing and in research and technology has been disadvantaged by the manner in which property speculation and 'investment' has been privileged. It made more sense for the last 15 years in ireland to invest in car parks than in companies that made things.

The main issue in Ireland though is that the place is run by a bunch of crooks who number a small few hundred. The electorate are conservative and stupid and seem incapable of grasping how bad their situation is. Ireland is looking more and more like a state in a death spiral.

Whats needed in my mind is a total shakeout of the establishment. They are venal and, much more importantly, utterly incompetent. Your call for 'the left' to offer an alternative read to me like a mocking cruelty. Do you mean ictu. sf. labour , the greens? I have not heard one line out of these people that makes any sense. As for stimulus, Ireland needs a real industrial export oriented program of investment. Unfortunately because of the manner in which the boom (there really was on up til about 2002) has been wasted the turnaround will be slow. That means real r&d investment, real funding for start ups, a coherent education policy and a view of where Irelands economy can excel. Ireland has has lots of potential in ag and in energy, those areas need planning and far sighted investment and goals. there are lots of potential upsides to this crisis. Certainly the state must be reformed (it doesnt look like it will be abolished for the time being) and beyond the economy the current crisis should deligitimise all of the players (fg/ff/lab/gns/media/courts/bsiuness). More intelligent discussion of the economy on idymedia and elsewhere is also vital, and not just well worn platitudes and slogans.

As to Ff's capacity to borrow regardless of whether its a good idea. Yes they will borrow to dig out the banks and that will be disastrous over the long term. And yest they could borrow to increase incomes in the short term to get us through the hump as you suggest. I don't believe that its a hump though. I think we are in for a long period of contraction, i think ireland is very uncompetitive and will become even more so as accesion states develop their own trade and industrial strategies. I doubt many of them will make the mistakes ireland made and they will be in a far stronger position than us to benefit from and global recovery. None of this is inevitable but it is cersin if Ireoands political economy remains as it is and has been for decades.

author by Dan Tarbertpublication date Wed Apr 15, 2009 12:07Report this post to the editors

Paul Sweeney, economic adviser to ICTU, has also said that what we need for recovery is a "major Keynesian-style package".

So are the unions receiving 'inept' advice?

author by rockyracoon - Internationalist Republicanpublication date Thu Apr 16, 2009 08:42Report this post to the editors

Some good arguments for and against a stimulus package. Everything, imo, depends on how we sort out the banks, their utter stupidity with regard to developer loans, and the general idiocy of the recent past. Socialism will have to learn some home truths, and comprehend some basic market mechanical tenets, before it can make a meaningful contribution. Despite one poster's protestations that the 'left' hasn't progressed on this score, I'd suggest they go to the newish SF website for a PDF copy of their throughts on stimulus and investment. They're making some good strides in connecting the dots and creating some throughful insights. They still have a good ways to go.

The banks have to be temporarily nationalised. We need to know, publicaly, the full extent of bad loans on their books. We need to cull the failed top management from these institutions and rationalise the number of banks so that their capital bases are adequate to stimulate targeted lending in the future. If recapitlisation is required, we need to invest the money now. We'll need to have an independent COLLECTION agency deal with the toxic loan shite. We have to pursue the borrowers to the full extent of the law (or make new laws) in order to seize personal assets or force them to pay their loans as quicly as possible. This will take years of hard graft. These collected monies must go to the Irish treasury and not be wasted on bean feasts.

Ireland could indeed use a stimulus package but not right now. We need to lower costs dramatically in Ireland. Our expense base it utterly ridiculous. When we have rationalised our expense base,and fixed the banks, we can then explore highly targets infrastructural projects and funneling funds into Irish based ventures which will create jobs and income. The banks must become boring utilities for distributing savings into local investment projects. We cannot implement a stimulus package in the old ways. It is no good giving enormous Euro cash to the same old gang of developers for school development for example. This money must be spread around and not concentrated into the same tiny, crony groups as in the past. The devil is in the detail and the processes. Competition for these stimulus funds must be intensive to keep costs down. Will the FG's stimulus proposal just change the political party which gives funds to a crony group?

Finally we have to change the mindset of the body politic. The poison of quick profits for no work or saving has to alter dramatically in Ireland. We need economic policies which develop checks and balances on how business is conducted and what level of sustainable consumption is appropriate for our society.

My prognostication is that we'll muddle through this crisis and return to the ways of the past. There will indeed be a stimulus package provided by FF before the next GE that will focus on start-up businesses with a good percentage investment in energy etc. FF are far from dead as so many propose. The will continue to foster the get-rich-quick mentality while they continue to funnel billions of Euros into ever fewer hands and let the plebs eat debt.

author by Jobs2Ireland - Jobs2Irelandpublication date Fri Apr 17, 2009 00:00Report this post to the editors

No sooner is the budget released and the stealth taxes are on the way....

Cost of driving test doubles overnight, etc.

I know economics is not FFs forte but if VAT was reduced by say 6%, it would have stopped hard pressed shoppers going North and saved jobs and also added the lost revenue to the exchequer.

A half a loaf is better than none.

Related Link:
author by Edgeworthpublication date Fri Apr 17, 2009 00:33Report this post to the editors

"UNEMPLOYED bankers, accountants and architects are among hundreds of applicants for staff jobs in Ireland’s latest McDonald’s outlet."

Is this the future, or is it just temporary?

author by pucapublication date Fri Apr 17, 2009 00:46Report this post to the editors

i think that story about the phds flipping burgers in McD's is just a clever piece of marketing. I don't believe it for a second but fair play to the franchise guy for having the wit to recruit the natinal papers to advertise free for him.

author by L.O'Cpublication date Fri Apr 17, 2009 23:52Report this post to the editors

The debate on the advisability of fiscal stimulus, - a budgetary deficit as a means to stimulate the economy-intensifies in the U.S.
The credibility and legitimacy of the economics profession is being called into question. Even many on the left are clueless about the origin and nature of 'economics', -meaning the orthodox pseudo-science taught in economics departments throughout the world.
The foolishness of Eamonn Gilmore calling for 'fiscal stimulus', when a massive fiscal deficit already exists, is a manifestation of economic illiteracy.
"We have to build a society that doesn't depend on forecasts by idiotic economists." -Nassim Nicholas Taleb.

author by L.O'Cpublication date Tue Apr 21, 2009 01:32Report this post to the editors

"How did Ireland get into its current bind? By being just like us, only more so. Like its near-namesake Iceland, Ireland jumped with both feet into the brave new world of unsupervised global markets. Last year the Heritage Foundation declared Ireland the third freest economy in the world, behind only Hong Kong and Singapore." Paul Krugman

Incidentally the Nobel Laureate doesn't say a word about stimulus-Keynesian or otherwise.

author by pucapublication date Tue Apr 21, 2009 18:50Report this post to the editors

"Incidentally the Nobel Laureate doesn't say a word about stimulus-Keynesian or otherwise. "

Not in this article but Krugman is currently the maximum Keynsian, arguing that Obama is not going far enough.

author by L.O'Cpublication date Tue Apr 21, 2009 22:16Report this post to the editors

I agree. Paul Krugman is indeed a leading Keynesian, and has been critical of the Obama stimulus as not being big enough. Which makes it all the more significant that in an article on Ireland's economic difficulties he doesn't mention 'Keynesian-type' stimulus.
Hopefully those misguided economists, some of whom work for the unions, and are calling for a 'Keynesian fiscal stimulus' will take note.

author by L.O'Cpublication date Thu Apr 23, 2009 15:49Report this post to the editors

- My views on a stimulus are more nuanced than they were in an Irish Times article heading some months ago. Clearly a small open economy like Ireland cannot stimulate demand on its own and so a European-wide stimulus is required. Until the German government recognises its vital role in this area, all Europe will continue to wait for the (delayed) upturn. On the other hand, while Irish government action on stimulating the economy is very limited, its actions can depress demand. The recent Budget took lots of tax and thus demand, out of the economy, but the extent of this unprecedented fiscal crisis is such that it had little choice. The NDP will provide some stimulus if maintained over the years to 2013, especially with falling costs. If it is focused on labour intensive areas, a very difficult agenda, it will be of help in maintaining demand-Paul Sweeney, on

author by Con Leepublication date Sat Apr 25, 2009 00:31Report this post to the editors

The failure of the political class in Ireland to formulate a strategy that has a chance of working is impeded by the interlinked economic and political system.
In an interesting article in the current Atlantic Monthly, Simon Johnson, makes the case that 'the finance industry has effectively captured our government'.
This is true too in Ireland only much more so. This is obvious from the NAMA plan which was authored by the property speculator, Peter Bacon.

author by Cantillonpublication date Sat Apr 25, 2009 22:46Report this post to the editors

Simon Johnson's piece in the Atlantic is called The Quiet Coup.

Developing a similar theme David McWilliams in the Irish Independent, April 22, says that the banks have embarked on a "silent takeover" of economic policy.

Brian Lenihan in a furious response said:
"I reject the accusation in David McWilliams' article yesterday that the Government is placing the interests of the citizens of this country second to the interests of developers and bankers. It is a casual and loaded insult that has no place in serious discourse."
Bruce Arnold has come to the defense of McWilliams.

The cozy crony gombeen capitalist DNA of Fianna Fail is intertwined with the banker/speculator element. That is why the plan of the property speculator, Peter Bacon, NAMA, has now been adopted as government policy.
When even conventional commentators are beginning to see the light it is surely the task of the Irish left to expose the charlatans and ensure as this crisis deepens that solutions developed are in the interests of social democracy and not the interests of the entrenched power elite that is the cause of the problem.

Very sensitive political nerves are being touched. The powers-that-be are afraid of open, analytical, democratic debate. Let's increase their fear. Their trembling is fun to watch and the possibility of real social progress presents itself.

author by Anoypublication date Sun Apr 26, 2009 01:19Report this post to the editors

I believe the root of the global financial crisis lies in systemic corruption, Ireland is no different to most other western countries where cyronism, unbalanced tax regimes and policy for friends and insiders is the order of the day. The FF government have pursued policies and continue to pursue. which are highly damaging to the ordinary people of Ireland, I personally can not see how deficit payments can be sustained under current international conditions and the collapse of the economies in our of main export markets namely the US and the UK. I also can can not believe the government are ignorant of this simple fact. NAMA will do nothing but quicken this process into national bankruptcy and is nothing else then a bailout for banks, the only really beneficiaries with the setup of this agency, are the bank share and bond holders both here and abroad (the greatest scandal of all this). Therefore the only way to stop this madness is to instigate criminal investigation and reform the system (which facilitates, and encourages this behaviour and prevents those who are decent from acting in a way which benefits all our interests, remember the tribunals), The main driving force behind this corruption is a centralisation of power, when power is centralised as it has been in numerous agencies, departments etc it attracts the criminal element. We need to decentralise, start to focus on building and growing indigenous industries based on the geographic, social and human strenghts of the Irish nation, the world has changed and the old consensus of globalisation and neoliberal ideology has been discredited, it is time to start depending on ourselves to get out out of this mess rather then the clearly incompetent and corrupt gombeens in Dail Eireann.

William Black (SEC Chief investigator in Saving and Loan crisis) conducts a good interview here describing the modus operandi of fraud corruption in the current financial system in thee US, I believe many parallels can be drawn here and elsewhere, for those who might be interested.

He is also author of "the best way to rob a bank is to own one"

As Lord Acton so presciently put it

"Power tends to corrupt and absolute power corrupts absolutely. Great men are almost always bad men, even when they exercise influence and not authority: still more when you super add the tendency or the certainty of corruption by authority. There is no worse heresy than that the office sanctifies the holder of it."

author by Dan Dillonpublication date Sun Apr 26, 2009 03:06Report this post to the editors

Here's an interview with Wm. Black on Counterpunch.

author by Joe Dismalpublication date Mon Apr 27, 2009 00:42Report this post to the editors

-America ranks 22nd out of 23 high-income countries in public social outlays as a percent of national income (ahead only of Ireland), for health, pensions, income support, and other social services.-Jeffrey Sachs, Scientific American

Ireland is dead last among 'advanced' countries when it comes to spending on social services. Yet Ireland's orthodox, right-wing economists are all calling for more cuts in such spending in coming budgets. There needs to be organized resistance to this attack on workers living standards. Why are the unions so complacent? Does Eamonn Gilmore have any cojones?

author by Socialism or Barbarismpublication date Tue Apr 28, 2009 12:45Report this post to the editors

A socialist response to the Irish economic crisis

The Bank Bail-Out – Another Robbery of the Working Class

All the main political parties, including shamefully both Irish labour and Sinn Féin, have publicly supported the bail out package afforded to Irish banks.

Surprisingly little has been made public about the bailout scheme but it is understood to cover not just deposits held at banks but their liabilities. If so, by signing up to the bailout scheme the government has effectively committed the state to liabilities vastly exceeding the country’s gross domestic product. It is this reality that has led to the downgrading of Irish sovereign debt and the heightened cost of borrowing. It is clear that the debts which were built up by property speculators and enabled by greedy bankers who lost contact with economic realities will be paid by working class people: us who never gained from the benefits of the economic growth of the Celtic Tiger.


author by Basket Maker.publication date Mon May 04, 2009 13:39Report this post to the editors

"Ireland is dead last among 'advanced' countries when it comes to spending on social services."

We are no longer an advanced country.

We are a basket case.


author by Scared.publication date Mon May 04, 2009 13:44Report this post to the editors

That is scary.

"In a dismal assessment the ESRI's Dr Alan Barrett also said: "It is possible that people like Zimbabwe have bigger contractions, but you know when you're in trouble when you're saying at least we're not Zimbabwe.You're talking about the biggest contraction in an industrialised country since the Great Depression."

We in Ireland sure don't have much to boast about when all we have to say for ourselves is that Zimbabwe is worse.

author by Cantillonpublication date Tue May 05, 2009 01:01Report this post to the editors

Maybe Dave McWilliams has a point.
-Less that a year ago - just think about that: a mere 12 months ago - the ESRI released a forecast for the Irish economy, predicting that for the next seven years, Ireland would ‘‘grow by 3.75 per cent on average per annum’’. It went on to say that, after a blip in 2009, ‘‘the economy would continue to outperform its EU neighbours’’. Consistently since 2005, it said that a ‘‘soft landing’’ in the property market was the most likely outcome, with a collapse a ‘‘possibility’’ . . .but just that.

The august ESRI with dozens of economists on its payroll, devoted much time to discussing the importance of demographics underpinning the economy. Who remembers that argument?-Dave McWilliams, Sunday Business Post.

But surely Taleb makes a better point:

Critics are scathing. Nassim Nicholas Taleb, the scholar of rare events who wrote Fooled by Randomness and The Black Swan, says: "We have to build a society that doesn't depend on forecasts by idiotic economists."

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