October 20th Lunchtime: The Recession Diaries
They say a picture is worth a thousand words. I think that’s an underestimate.
The chart above is taken from an analysis by Dan O’Brien of the Economist Intelligence Unit which appeared in yesterday’s Sunday Business Post. He presented this chart to make a point:
‘The increase in public spending in Ireland over the past decade has been far larger than in any of the other 11 long-standing members of the eurozone. No one doubts that much of it is wasteful. Chart 2 (above) illustrates the folly of the government’s approach. Only three eurozone countries have seen spending rise as a percentage of GDP over the past decade. Apart from Ireland, these countries are Italy and Portugal.’
It’s an interesting point. But are we in danger of missing a bigger point? Are we stepping into elephants-mice-and-room territory? Let’s look at it again.
Fine Gael insists that the root cause of all our economic woes is ‘profligate’ public spending:
‘The real tragedy is all these measures would have been unnecessary if the Government had taken the brave decisions needed to control day-to-day public spending . . . “It is this increase in day-to-day spending by an unreformed public sector that is driving up our borrowing next year.’
Oddly, this is the same line the Government is taking (though obviously they’re putting a different spin on it): to get out of the recession we must cut government spending, we must get public spending ‘under control’, we must reign our proclivity to ‘live beyond our means’. This line, in one form or another, is supported by IBEC, ISME, SFA, Chambers of Commerce Ireland, most media commentators, Independent House, Irish Times’ leader writers, the Business Post - you name them, they want to cut it.
I have a slight problem with all this. Is it really plausible that the cause of our fiscal meltdown and recessionary decline can be put down to ‘uncontrollable spending’ when
- Ireland spends less (and I mean really less) than any other Euozone country
- That Ireland’s increase in expenditure amounted to 1 bloody percent of our GDP - at a time when our population was growing much faster than almost any other country EU country?
Could it be that our ability to cope with the meltdown is encumbered, not because our spending is too high, but rather because our spending is too low? Is it possible that we do not have the resources to engage in ‘counter-cyclical’ policies (that is, flood money into the economy to maintain activity) because of our low-tax, low-spend economy? Other countries which much, much higher spending are going through hard times, yes - we’re all living together in this global downturn; but these ‘profligate’ countries haven’t seen their economic fall like a parachutist without a parachute.
If someone were to come along and argue that, given the distorted nature of our economic base (over-reliance on FDI, the poor state of our indigenous base, a distorted export platform, etc.), our spending cannot be sustained - well, at least that would show an appreciation of some of our real problems. Or that our tax levels have been so historically low that we do not have the slack to combat recessionary pressures now. At least with a high-tax economy you can cut taxes temporarily to get money into people’s pockets and cash-flow into business’s accounts. But if we tried that, we’d have to cut already starved public services and drive up borrowing more.
But the Right won’t argue any of that that because it would call into question the very basis of economicic policies that all parties have supported, policies whose shortcomings all parties have ignored. It would call into question the very nature of the Celtic Tiger economy; the low-tax, low-spend, low-service economyy we have all accommodated ourselves to; a model of social partnership which is based on tax cuts and counter-productive spending limits. At the best of times, people find such questions awkward. In the worst of times we’re all too busy taking cover.
So better to shout about the mouse running about the room, even when the elephant is trampling us into the floor. Better to ignore what this picture is saying.
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