July 22nd Early Morning: The Recession Diaries

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a1_downarrow.JPGIt gets worser and worser. Davy has just issued their predictions for the economy. One always has to treat Davy with a large grain of salt. They tend to be quite pessimistic; if there’s a downside they’ve been to the bottom and gone looking for new depths to plummet. That’s what makes their recent projections so insidiously unnerving because they’re not all that sensationalist.

While Goodbody was projecting a severe contraction of – 2.3 per cent in the GNP this year, Davy’s projected decline of 0.3 per cent is more cautious. But unlike all other projections (the ESRI, Goodbody, NIB, etc.) which predict an end to the decline in 2009, Davy says the recession will continue and deepen with a further drop of 0.7 per cent. This marks them as the first institutional commentator to claim the recession will continue into 2009.

Is this too gloomy? Who knows? Clearly, at each quarterly update institutional commentators have been revising their projections in the wrong direction – declining growth, rising unemployment, etc. The immediate reason for Davy’s gloom is quite simple: lack of money in the economy. Currency in circulation or in very short-term deposits has actually shrunk by 7.1 per cent (last year it grew by over 20 per cent).

So less money for spending, less money for investment. A chief concern is that:

‘. . . . bank funding will not be available to creditworthy businesses wanting to expand. In turn, this may delay the return to trend growth or, in the worst-case scenario, reduce the economy’s medium-term potential.’

It’s a weird situation when businesses are stopped from creating jobs and growth, especially at a time when we need it most. Now more than ever we need new policies to create new funding sources, put money into the economy and, in the long-term, put the economy on a more sustainable footing (whatever that might mean). So all the more curious that Garret Fitzgerald suggests that opposition parties don’t do that:

‘The Opposition (has) confined itself to castigating the Government for having aggravated our externally generated problems by its failure to tackle the housing bubble earlier, and has wisely avoided being prescriptive about the best way to deal with the crisis thus created. For, in the nature of things, only the Government and the Central Bank have sufficient information to be able to judge how best to act in this situation . . .’

Never mind that his own party ignored his advice – they’ve published their own prescription. The idea that only the ‘experts’ can come forward with solutions (the same experts whose policies got us into this mess in the first place, to boot) is, to my mind, anathema. What got us here is the pursuit of particular political policies. What will get us out is particular political policies.

Fine Gael has proposed cutting our way out of the recession – a sure-fire way to deepen the recession. In essence, they share the same approach with the Government. My question is: when will the Left come forward with its own comprehensive and coherent policies – based on expansion and spending? Lord knows we need some hope. And some clear red water.

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