Response to Mr Howlin

Paul Sweeney: Mr Howlin’s considered response to the letter from the group of economists, of which I was one, is very welcome. His response is serious and measured and set out the case for the Government programme and its actions to date.

It reads far better than the crass headline of the article – which implies the authors of the letter were simply proposing “a silver bullet” to resolve Ireland’s deep and complex economic problems.

First, is it important to acknowledge that Mr Howlin in a government whose hands are tied by the Troika Agreement and the destruction left by the pro-cyclical, tax-cutting, tax-shifting and anti-regulation policies practiced with such vim by the last government. It has had to shift a lot of dung from the Aegean Stables of the Irish State before it can make progress. He is also in a government led by a bigger, deeply conservative party.

To my reading, Brendan Howlin acknowledges in a cautious way – as one would expect from a Minister in a government which is being underwritten by the Troika – that Europe and the ECB is not really dealing effectively with the crisis. We economists and social scientists can say it explicitly and see their repeatedly failure, but it is very difficult to this government to bite the hand. The EU/ECB approaches are partial, piecemeal and doomed to failure and repeated revisions. Further, an EU-wide stimulus would lift many economies from recession, but with 23 of the 27 states being led by conservative parties, this may be wishful thinking, for the moment.

As Minister for Public Service Reform he has had the most difficult task, especially in such a deep crisis, and he pays tribute to the role of public servants in their actions. Ireland is also fortunate that it has a Minister who is committed to public service – notwithstanding the dire circumstances we are in – and this shows in his dealings in the complexity of the reform programme.

His response demonstrates a cautious but welcome commitment to investment and that the government “is open to using the NPRF to leverage investment” in jobs and the economy. I read this as someone who implying that he needs support from progressives to help persuade his conservative colleagues who, over-awed by neoclassical economic view of the dreaded word “leakage” from a small open economy, are afraid of taking action in effecting this investment.

One can debate on whether the government is pursing “austerity” (I’m beginning to dislike the word almost as much as that other abused word, “neo-liberal”) or not. He is correct that they are “borrowing enormous sums of money to sustain the state,” and so are not pursuing austerity, in this sense. But by the end of this year, a staggering €24.4bn will also be taken out of the economy.

I also think that the time period is too short. It was to be 3 years originally and it is clearly not working as we have no green shoots except exports. A puny rise in GDP last year tells more about the activities of MNCs than about the Irish economy where domestic demand continues to collapse – aided and abetted by too high a level of cuts in too short a time period, and with too little in progressive increases in taxes.

Where we can have productive debate is on where the cuts are being made and where taxes are being raised. I, for one, will say that this government has shifted the balance somewhat from cuts to taxes, but the tax mix has not been what is optimum or best needed. For example increasing VAT by 10% is both regressive and deflationary (from 21 to 23%) and not increasing income taxes or introducing wealth taxes or getting a few bob with say a 2.5% increase in the low CT rate from the booming, exporting corporates is not good economics. (I also acknowledge that there have been some good progressive taxes on unearned income). Of course, if there had to be cuts, have they made the right ones? I’ll skip over this debate as it is complex and most people will disagree with each other on the detail.

Mr Howlin ends with the comment like “we would use all of our available resources in an all-or-nothing attempt to kick-start the economy strikes me as more Fianna Fáil circa 1977 than John Maynard Keynes”. Yet did I not hear conservative Mr Noonan on the Politics Programme a few weeks ago go further? He was talking of the possibility of investing the €5.3bn AND leveraging (borrowing) it for more investment, AND New Era AND EIB money.

So maybe the Government will finally work out where it should invest and get moving on it, sooner. But is also needs to re-examine where it is cutting and taxing.

Finally, it is not good enough for the government to simply blame the EU recession for its failure in generating any growth (in GNP and Domestic demand). The role of government in the cuts and taxes to date has had a major negative impact on “growth.”

Constructive criticism is aimed at assisting.