Sunday, 5 December 2010
Why cuts are the wrong cure
Slí Eile: With less than 48 hours to go to the Budget we would do well to pause and think about the drive to cut more and more and to compound our debt crisis through higher unemployment and lower incomes. Every decision has a bearing on real people and communities. The message from this UK video clip is simple and powerful - cuts do not work. See this two-minute video clip here. The argument should not be about the ratio of spending cuts to tax increases within a false budgetary arithmetic set by the political Right. It should be about fiscal regeneration versus self-defeating cuts.
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12 comments:
What exactly is 'fiscal regeneration'?
@ Anon
I am referring to a fiscal stimulus - supported by a number of commentators - albeit in a minority as the Dublin Consensus is much stronger.
Do you think Ireland would be able to survive the extreme economic autarky your course of action implies? And if so, how?
Paul Hunt
Autarky follows from the policies that have already been pursued. Imports are €16.3bn lower currently than at the end of 2007. Without this lower arithmetical addition GDP would have declined by 23%.
Argentina, facing IMF-imposed ruin defaulted on its debts in 2002 and has since enjoyed an average annual growth rate of 7.5%.
Iceland refused to bail outs banks and refused to the IMF's offers of 'help'. As such, it was able to get a much more favourable agreement with international creditors and from that a much better agreement with the IMF.
"The Fund considers us to be on the right track," said Árni Páll Árnason, Minister of Economic Affairs. "The restructuring of household and corporate debt is a priority for the Ministry and we welcome the IMF‘s affirmation of its importance. The fundamental principle is though that debt beyond ability to pay be written off, while making sure that the cost of debt restructuring is not socialized."
Domestic legislaion alone was required to impose the writedown on foreign creditors.
http://eng.efnahagsraduneyti.is/Publications/nr/3167
@Paul Autarky? goodness no. I would propose doing a better job convincing the markets than the present failed strategy of driving us into debt deflation.
I thought I spotted a comment by Michael Burke advancing an Icelandic solution, but it seems to have disappeared. The problem is that we have run out of other people's money that they are prepared to offer us freely at affordable rates via the international capital market. That is why we have the deal with the Troika - comprising the key empowered and resourced international bodies. Where else may we source funds? Hugo Chavez? Gulf Sheikhs? China? Rejecting the current deal, in the absence of alternative funds, means the deficit would have to be set to zero immediately.
@Paul don't despair. there are more choices than penury by slow strangulation or penury by shock therapy. There are significant cash reserves in NTMA/NPRF to be negotiated over when - not if - the 'deal' is revisited as it will because the markets don't believe any of this nonensense. there are also signficant national savings and potential for a new solidarity bond ( a point acknowledged in the 4-yr plan). And the growth-inducing properties of a no-cuts strategy can generate confidence and revenue flows over time. so, we don't have to resort to the gulf states, or comrade Hugo or Russian oil or turf collection in the Dublin mountains. the country is full of wealth - 100,000s with ideas, skills and education along with huge natural and community resources if we just put them to work.
Neither despairing nor presuming. I'm sure the Irish people would applaud your willingness to convince the markets on their behalf - and, in particular, if they were aware of your abhorrence of these intrinsically evil social constructs.
Having easily over-run the outer defences of the EZ comprised of Ireland and Greece the markets continue to focus on the gap between the political fantasy the EU is seeking to sustain and the economic reality as they perceive it. And it's unlikely to be a common view as some will make money from any mayhem and others want some certainty to avoid losing money now or in the future. But all want an end to this suspension of disbelief. The EU will muddle through as it always does. The revised bank stress tests next spring will help to close this gap a little - and I would be surprised if Ireland were not to get some relief on its bank debt.
Misgovernance, greed and stupidity placed Ireland on the vulnerable and easily over-run front-line of the EZ. Unfortunately, we have to sweat it out and improve those things that are within our limited, remaining sovereignty to effect.
@Paul far from abhorring such a social construct as markets. We live by markets day after day. I just don't like being dictated to by the MARKET or by the STATE.
The international capital markets have an ability to dictate to a country only when that country, by dint of misgovernance, greed and stupidity, has allowed itself to be vulnerable to this dictation. You may not like it, but we have run out of other people's money available in this market and we can only secure the money required via duly empowered and resourced international bodies and very expensively. We are also in the unfortunate position that our partners in the EU are unwilling to confront their voters with the implications of providing us some relief on the enormous bank debt that has been built up.
The progressive-left in Ireland could play a historic role by reaching out to their similarly minded comrades in the core EZ countries and appealing for solidarity and burden-sharing with hard-pressed Irish citizens.
And the state is comprised simply of those whom people elect to govern - and the people they, in turn, appoint to execute or administer governance. The people decide who governs. If you don;t like being dictated to by the state, vote for someone else.
@Paul
thanks for your comments.
The key point in the original post is that cuts are wrong - they are morally wrong because they take from the poor and protect the rich, they are ineffective because they compound and embed fiscal debt and they fail to convince the market gods because the latter, governed as they are by greed and fear, see no prospect of repaying loans and debt in the longrun due to the lack of a coherent and sustainable recovery plan.
I don't accept that we 'have no alternative' except to borrow from abroad to this extent and on these particular terms. I agree about building cross-national alliances to oppose these terms. That the 'people decide who governs' is debatable right now - but that is another debate.
Ireland on its own cannot confront the hypocrisy and pursuit of naked self-interest by the core EZ governments which are seeking to impose the burden on Ireland and the other peripherals of fully protecting the investments of their stupid banks in the banks and sovereign of these countries.
That is why we need a new government to co-operate with governments in the other peripherals to push the case on the core EZ governments to work towards a common political and economic solution. The longer it stays in office the more popular support will build for an entirely self-defeating solo run.
And the impact of the fiscal adjustments on the poor would be much ameliorated by a determination to remove the burden of the deadweight costs imposed by the public, semi-state and private sheltered sectors - and would provide the basis for a strong economic recovery in the interest of all.
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