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We need to restore economic growth

The big macroeconomic debate is over deficit spending. Should the federal government keep borrowing money and spending it to lower unemployment and hasten economic recovery, or should it focus on fixing its balance sheet by cutting spending and possibly raising taxes? Ireland went for the latter approach, and the New York Times reports on the results. Ezra Klein has the Cliffs Notes version. I’ll go even shorter: it’s been a disaster for Ireland.

9 Comments

  1. Sadly, are chance for salvation was about 10 years ago. The choice is Greece or Ireland. Fantastic isn’t it?

  2. A disaster, yes. But also utterly unavoidable given there’s no way the government here in Ireland can borrow any more money than it already is, so the seemingly neoliberal policies enacted by raising taxes and cutting spending were unavoidable: it’s the only way we have of keeping off total collapse.

    Mind, this crap has been coming since the early 2000s when the government (which is pretty much the same one that’s in power now) abandoned any thin skin of responsibility and started feeding a wholly homegrown property boom at the expense of the greater economy, all because it was a soft option to keep their popularity up, when what ought to have happened was for growth to stablise naturally. It got so bad that our Taoiseach (Prime Minister) at height of the property bubble say that those who questioned or criticised government policy vis-a-vis banking, property and building, spending growth and taxation cuts should “kill themselves”. I kid you not.

    All that the crash did was expose how utterly screwed we already were, and now we’re left with the people who caused the mess still in charge and profoundly unwilling to admit their mistakes. And they’re still trying to blame the mess on what happened in the US.

  3. All that said, we here in Ireland don’t actually pay all that much in tax in comparison with our neighbour. That, however, doesn’t stop people from bitching and complaining when the inevitable tax hikes come. People here want US-style taxation with continental-style public services, and the option of private healthcare in public hospitals on top of all that, so we end up with most of the worst of all of those.

    We are so utterly screwed.

  4. And if you want a real kicker, for a country with a population of about 4.5m, our Taoiseach get paid a basic salary of just under €230,000 – compare that to similar positions in vastly larger countries for yet more evidence of how screwed we are as a nation.

  5. Thanks for the on-the-ground comments from Ireland. I do reject the premise that we are inevitably going to be in Ireland or Greece’s shoes at some point in the near future.

  6. Agreed: however screwed the US may be, its exposure is nowhere near as bad as that of Southern Europe and Ireland, or even the UK. The real problem in the US from my perspective as an outsider is its trade deficit with the rest of the world. Fixing that is going to be a lot more difficult than fixing the banks because it requires throwing off some of the illusion of wealth created by debt, which I can’t see happening any time soon.

  7. Rafe, if the government were spending our borrowed money wisely I might agree. As it is they are simply borrowing to prop up the states and delaying the hard choices that have to be made next year when that money runs out.

    We went from the tech bubble to an artificial housing bubble and now to a government debt bubble. National debt is up almost 50% in three years and that’s not including the liabilities we are on the hook for with Fannie and Freddie or the unfunded liabilities of SS/Medicare. It’s not sustainable and it’s not working.

    It’s not all Obama’s fault, Bush screwed things up pretty good and the American people have elected a ton of idiots to office in Washington (about 532 of them by my count)

  8. A big part of the problem is decreased revenue due to the bad economy, though, and while borrowing sucks, raising taxes or cutting spending in a crappy economy only worsens the economic problems.

  9. I actaully question whether government spending actually lowers unemployment. The stimulus created work not jobs. The whole idea that an unemployed machine operator can waltz on to a union construction site and get a job is wrong. Just because you don’t need a degree to do the construction work doesn’t mean experience is not necessary. Also, how many construction companies with DOT contracts were laying off workers in the first place?

    The real problem is our trade policies put the workforce at a competitive disadvantage. Why would Stanley/Bostitch get alloy for their tools from a domestic supplier when it is 60% less from foreign suppliers? This scenario plays out in manufacturing every day. What about all those jobs? I know, we will re-educate all the unemployed workers, because in America we only need an educated workforce, and they didn’t want to work in factories all their lives anyway.

    We can’t even do anything about it either. China has a lien on our economy and jobs.

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