Dan O’Brien from the Economist Intelligence Unit has been appointed economics editor of the Irish Times. He is someone whose opinion should be taken seriously, even if one doesn’t agree with everything he says. On last Sunday’s The Dunphy Show, Sarah Burke, one of our leading analysts on the health sector, argued for a stimulus programme to put people back to work and the economy back to growth. Dan O’Brien responded, and frankly one could be heartened:
‘Sarah advocates a stimulus package as many other countries have done and that, in theory, would be a good thing.’
Yes, there is that conditional; and it’s a big one. Dan refers to our ‘depression‘, our ‘profoundly bust‘ banking system and the risk of Ireland being unable to meet its current commitments (that is, pay off our debts). Given these factors, Dan concluded:
‘(We) just can’t afford to borrow even more money and stimulate.’
Let’s leave aside the argument, consistently made here and over on Progressive-Economy, that a significant driver in Ireland’s depression has been deflationary policies. Calls to maintain and even accelerate such policies are tantamount to finding oneself in a big hole and still insisting on digging.
Let’s also leave aside the argument that the reason the ‘markets’ are tearing strips off our debt is precisely because of deflationary policies which have wreaked so much damage to the economy and, so, our balance sheet.
We are where we are. What is helpful about Dan’s comment is that stimulus is good in principle. The whole point of political economy is to turn what is ‘good in principle’ into something good in practice. That such an actualisation may be difficult doesn’t take away from the benefit. It just means we have to, as the saying goes, ‘work smarter’.
I put forward some ideas on where we could source investment while limiting exposure to the Exchequer’s borrowing profile. In addressing Mr. Johns crude ‘no cookies in the cookie jar‘ argument (and for a hilarious follow-up, see Conor McCabe’s gem) I pointed to the potential of public enterprise as a source of investment, the massive €48 billion the ESRI projects will be held in Exchequer cash and Pension Fund assets by the end of next year, the potential for tax revenue from high-income earners, and reform of tax expenditures. Let’s discuss a couple of more.
a) The Government’s fiscal projections up to 2014 include provision for contributions to the Pension Reserve Fund. These contributions, pegged at 1 percent of GNP, have been suspended for this year and next. However, they are set to resume in 2012 (with a ½ percent contribution) with the full 1 percent restored in 2013 and 2014. The total for these three years will come to €3.86 billion. That has already been factored into the Exchequer Balance sheet.
There is a strong argument for bring forward some or all of those contributions as part of an investment stimulus package. This would only mean a re-directing of expenditure already committed. In terms of the balance sheet, it would mean less borrowing as such investment would (a) increase tax revenues and reduce unemployment expenditure, and (b) would provide a long-term, supply-side boost to the GDP.
b) In 2009 the NTMA managed to realise a 20 percent return on the Discretionary Investment Portfolio (the Fund excluding the preference shares in Bank of Ireland and Allied Irish Banks held). This may not happen this year, as the NTMA rightly warns. However, again, we have the opportunity to redirect some of that return into commercial infrastructure projects (e.g. Fine Gael’s proposed public enterprise company for Next Generation Broadband, etc.).
Are these good ideas? Are they better ideas? Let’s have that debate. If, as Dan says, stimulus is good in principle, let’s discuss how we can do that. Maybe at that end of that discussion we’ll find that there are no resources. But we won’t discover that until we get to the end of the discussion. As it is now, we haven’t even started.
The point here is a modest one. Finding the resources for investment is not a silver bullet exercise. If, in the short-term, resort to international markets is deemed unwise, that is not the end of the debate. Considerable resources can be found domestically – resources which, if put to efficient use, can provide real returns in terms of economic growth, employment, demand and the fiscal deficit.
In this respect, Dan O’Brien’s comment on stimulus could change the terms of the debate on growing the economy and repairing our public finances.
And not before time.