Yesterday I talked to Michael Burke, an economist with 25 years experience working in the Financial Services sector in the UK, including a 5 years period as a senior economist in Citibank. Recently he entered the economic debate here by saying that the Government’s current strategy of cutting government spending could lead to an even worse disaster for the Irish economy. On October 9th last he published an article in Ken Livingstone’s Socialist Economic Bulletin called ‘Ireland – The Nature of the Crisis’ in which he argued:
“Like many other economies, the downturn in Ireland has been concentrated in an extremely severe collapse in investment. But the slump in Irish investment almost makes declines elsewhere look mild by comparison. From its peak level at the beginning of 2007, Ireland’s gross fixed capital formation has fallen by 42.6%. For comparison, this is nearly 3 times as great as the decline in investment in the UK and US, almost 4 times that of Germany. In this sense, the ESRI’s prognosis is not a forecast at all. The current decline in investment in Ireland is already of a similar magnitude to that of the US during 1929-1931.”
“This collapse in investment is a private sector response to the crisis. From the perspective of potential profitability it is entirely rational, if economically ruinous. It amounts to an investment strike.
From a different perspective, that of optimising the level of output for the whole economy, the rational response is to take control of the main levers of the key economic sectors to ensure a resumption of investment activity. Only the state can replace the investment that private operators now refuse to make. And, as investment is decisive to future prosperity in doing so, it can ensure the future well-being of the entire economy and its citizens.”
Michael discusses the points raised in this piece and his posts on Progressive Economy and concludes that what the Irish Government is now providing is something you never see in economics – that is, almost laboratory conditions of what would happen when fiscal contraction is imposed in a recession. The effects so far are exactly what are so often imagined but rarely witnessed – the rapid increase of the deficit as a result of cuts in public spending during the worst collapse of private sector investment the country has ever experienced.
The solution is to provide Government investment in the real economy – the extra money going to the banks indicates that the money is available – and the deficit will take care of itself once the economy has begun to reflate
The interview is about 25 minutes long. There are some domestic background noises for which I apologise. I’d like to thank Michael for taking the time to talk to me.
Photo courtesy of the Irish Times
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