April 14th Afternoon: The Recession Diaries

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That wild and whacky outrider of neo-liberalism, Constantin Gurdgiev, has taken a scalpel to the Government’s budget numbers and I find myself . . . agreeing with him. No surprise there. People from wildly varying perspectives can still agree the sky is blue. Even if the great Fianna Fail sky-gods are doing everything possible to paint it black and blacker.

In my piece on Indymedia, I suggested the Government’s deflationary policies wouldn’t work, even on their own terms. If the goal is to reduce the annual budget deficit to less than -3 percent by 2013, it will fail. And this can be deduced from the Government’s very own numbers. While the Government accepted the collapse in output this year and next, they are bullish from 2011 on. From projecting a decline of nearly 8 percent this year the Government is proclaiming (and basing fiscal policy on this hosanna) a great turnaround – nearly 3 percent growth by 2011. Hurrah!

Have they read the runes? Have they studied the forecasts? No. They merely cut the headline growth rates from the January Addendum figures and pasted them into the new April growth projections; the same January figures which were so implausible they had to be torn up (back then they predicted a decline of less than half than what they are now). They took these discredited numbers, slapped them down in the current framework and reworked the percentage increases in the sub-components. Neat, eh?

Comrade Constantin saw this, too, and went off a-calculating. Here’s what he returned with:

  • -11.5 percent to -12.5 percent decline over the next two years (compared to the Governments -10.6 percent projection)
  • For 2011 to 2013, modest growth of 5.5 percent (Government: 10.9 percent)

This may seem just numbers on the page, but Constantin’s projections (and they are just that, projections) would certainly spell failure for the Government’s fiscal deficit by 2013 – a spectacular failure.

Already the Government’s fiscal ship has been blown off course. Because of the deflationary impact of the budget, Ulster Bank wrote down it’s projections the very next morning – now projecting a -9.5 percent fall in GNP compared to a pre-budget figure of -8 percent. What does this mean? The Government will not be able to maintain it’s deficit target of -10.75 percent without even more cuts later this year.

I projected, at a minimum, that the deficit will fall back to -11 percent this year. Constantin is more pessimistic. He projects the deficit to deteriorate further – to between -12.5 to -13 percent. Now remember – the very reason why we had an emergency April budget was the realisation by the Government that the deficit was running out of control – at -12 percent. They rejected the -9.5 target as being too uber-deflationary and settled on -10.75. If, however, Constantin is correct, or even close, then we will be right back where we started. But worse.

That’s the problem with pursuing deflationary policies in the middle of a recession: it’s like running in quicksand. Yes, you work up a sweat, even work the muscles; you give the sense of action and exercise but in truth, you are going nowhere. You’re just sinking faster. It’s a mugs game.

But where is the alternative? And who is proclaiming it? The Left seems content to exploit the Government’s difficulties but is giving these difficult calculations a wide berth. The trade union movement is preparing to re-enter ‘dialogue’ with the social partners after Easter; what are they going to talk about? How to distribute the pain more evenly? How to equalise everyone’s share in a collapsing economy?

What is so frustrating is that the instincts of the Left and the trade union movement are correct – that you can’t cut and tax your way out of a recession. You have to grow and pursue policies that generate and sustain that growth. In the first instance, this means putting the brakes on the decline, stabilising the economy and then prepare it for growth. Progressives throughout this island know this. Why, then, the hesitation?

So let’s give our instincts their collective head. Start from where we know is right. That doesn’t diminish the challenge – not only do we have mounting unemployment; now we have this NAMA lark (which I will be discussing in a couple of days) to contend with. Every indicator is going the wrong way but the Left and the trade union movement are in danger of being dragged along in the orthodox undertow for want of a concrete alternative.

If this is not the moment for the courage of our convictions – I don’t know when it will ever be.

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