March 9th Evening: The Recession Diaries
Jim O’Leary rightfully points out our tendency to view our problems in isolation from the rest of the world - as if we were somehow unique. He suggests we look abroad, to other examples. He selects my home state California to see what lessons we can draw. His principle is sound, his selection curious.
It’s not just that California is unlike most other places. After all, we have elected a Zen Governor, a B-movie Star Governor and, currently, a champion body-builder Governor (we Californians don’t do anything by half). It’s that California’s position is not analogous to our own. It is a subordinate tax jurisdiction, operating under a law that prohibits deficits, and has a Federal Government available to bail them out (all of which Jim mentions). It also has a peculiar provision that allows voters, through propositions, to impose both costs and tax policies on to state finances; in other words the executive and legislature share budgetary policy with voters.
But there’s one thing he didn’t bring out. There’s much to admire about Governor Schwarzenegger - he is a strong social liberal and promotes sound environmental policies (to the point that he is referred to as a ‘Rino’: Republican in name only). But Arnie is a fierce promoter of a crude low-tax model - so much so that the first thing he did when he took office was repeal an unpopular car tax hike, with no regard to the effect it would have on an already overwhelming budget deficit. His continued attempt to promote this model in the face of economic reality has helped bring my home state to its sad condition. Sound familiar? Yes, there is much to learn from the California experience - but not the lesson Jim has drawn.
But, hey, let’s not get hung up on one example. Let’s take Jim’s sound principle on a whirlwind global tour to see what other countries are doing in response to the international recession. Thanks to a link provided by P O’Neill over at Irishelection.com, we can turn to a new IMF publication which charts these initiatives.
The IMF considers the G-20 nations (the world’s largest economies). And what does it find? All the G-20 nations, with the exception of Turkey, are putting forward stimulus plans. Some are small (India), some are quite large (China, Saudi Arabia) but they are all engaging in various forms of stimulus tailored to their own economic needs.
Now, just because everyone’s doing the same thing doesn’t necessarily make it right. After all, look how many bought into the casino-capitalism of deregulated finance markets. But it would not be wise to ignore this international trend - especially as countries with divergent ideological perspectives are taking up similarly reflationary cudgels.
Nor does it mean that all measures are equally efficient or applicable across the board. Australia, for instance, is boosting their house building programme; not terribly relevant here with all our empty houses. Some are cutting taxes, others are ramping up public spending (the IMF considers that latter to be more effective than the former - more than twice as effective). The US is doing a bit of both - a result of the inevitable compromises their political system demands. So what are all these countries doing?
Almost two-thirds of stimulus measures are expenditure based, with particular emphasis on higher capital investment such as transportation networks (Canada, France, Germany Korea and others).
Others are boosting social protection measures: strengthening unemployment benefits (Russia, the UK and the US), cash transfers to the poor (Korea) or supports to children (Australia, Germany) or pensioners (Australia, Canada).
Some are stepping up support for SMEs (Korea) and strategic or vulnerable sectors, such as construction (in Germany, for energy efficient buildings and repairs and renovations).
Others still others are using stimulus measures to promote public services such as health and education (US, Australia and China), or introducing incentives for environmentally-friendly technologies (China, Germany, and the UK).
What are the masters of the Irish economy considering? Just about the exact opposite of all of the above:
- They will probably cut capital investment and are already overseeing cuts in our public transport network (CIE)
- They are making it more difficult to get social insurance (and even considering means-testing it), while imposing income levies on low and average incomes
- They are pretty much doing nothing for our SME or enterprise sector - letting them fall like dominos (compare this to Germany’s recent initiative to provide up to €10 billion support for enterprises in critical economic sectors)
- They are cutting health and education - in some cases, viciously so.
On the revenue side, some countries are cutting taxes in an attempt to boost disposable income and, so, consumer spending. Nine countries are cutting income taxes (Brazil, Canada, France, Germany, Indonesia, Japan, Spain, the UK, and the US); while six others are cutting indirect taxes (UK).
Cuts in the corporate income tax have not been as large: outright reduction in the tax rate (Canada, Korea, and Russia), investment incentives (France and Korea), or more favourable depreciation schedules (Germany, Russia, and the US).
Not only are these measures not as efficient as expenditure measures; in any event they would probably be unwise in the Irish context - especially as our burgeoning deficit is not so much a result of cyclical factors, but of stubborn structural ones. And there’s only so much corporate tax we can cut from an already ultra-low base.
However, there is no doubt that we have to find ways to raise consumer spending. That will require more creative strategies than crude tax cutting which doesn’t necessarily result in higher spending (it can result in higher saving or paying down debt - a rational household choice but not much good for economy today). But the Irish Government doesn’t do creative strategies - it is figuring out ways to take more money off people through new general tax increases.
So everyone’s doing it. Almost all countries are responding in a responsible and urgent way - all save for Ireland. We stand alone, moving in a completely opposite direction. Maybe Brian Cowen, Brian Lenihan and Mary Coughlan all have some unique economic insight that has eluded other leaders; maybe they have, after careful study, identified fatal flaws in the programmes of all other industrialised nations.
Maybe they, and pretty much they alone, have found another, better way to get us out of the recession - cut investment, cut wages, cut expenditure, impose tax after tax on low and average income groups.
Maybe they have sat up all night, pouring over models and analyses and learned papers, to come forward in the morning light with the only viable strategy: that the road to prosperity lies in trashing our economy.
Maybe.
But with even the CIF’s Tom Parlon claiming that deflation is the wrong thing to do, allow some of us to doubt.
Really, really doubt.
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Collaboration, with our European partners | Cunning Hired Knaves
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The post Collaboration, with our European partners by Richard of Cunning Hired Knaves summed up in one sentence. For much better sentences and many more urgent points read the post.
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S.P.A.R.K. protest at cuts to lone parents, Dublin 18th February 2012
Many families were cut in the last budget but lone parent families were particularly hit by the Fine Gael/Labour Party government.
The key elements are that single parents can’t take advantage of training such as Community Employment (CE) Schemes and when the youngest child turns 7 years old, the parent is declassed as a lone parent but treated as an ordinary worker even though there are few affordable creche places. There is a bill coming up in March which will copper fasten some of the worst elements of government plans.
There is particular anger directed at the Labour Party because they are associated with women’s rights and a more progressive society.
Please share the link to this video
Exiting the euro | Michael Roberts
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[...]
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Comment by: Robert Browne
Mar 12th 2009 at 01:03
The Irish governments key motivation is to stay in power full stop. They will do whatever it takes to give the impression to the international moneylenders that they are tackling the problems. Even if this means, crucifying the usual suspects. The key for out government, is to know, that they can still borrow money to keep themselves in power. The Green Ministers will qualify for ministerial pensions in June so they will not be doing anything rash before then!
The last time the IMF threatened to come in to Ireland, In the late 80’s they were met by our senior civil servants who told them, they would not allow them in to the country! Unless, their jobs, conditions, pensions, etc. were guaranteed. In other words, the public service get to use the life boats first. Then the women, that is, the ones that don’t work in the Public Service, may be allowed to proceed to the lifeboats. Followed finally, by the children from the private sector if there is still a few scabby seats left. The children from the public sector were the first on board. Finally, if you are in the private sector you can sink or swim as you have been doing all along, you know the routine by now.
This government deflationary economic “policies” if indeed they could be classified as policies, will lead to mass unemployment. There is no doubt about that. The evidence for this is building up at a rate of knots, that few of us could have imagined. However, Brian, Brian and Mary, Mary are hoping that the public unrest, when it comes will not be sufficient to topple them from their jobs! I very much doubt if they will be able to hang on. We are living in interesting times!