Federal reserve implements its own stimulus

Great Debates
81

You linked a graph that showed Irish government spending rising exactly in line with revenue until thewir economy started to nosedive. Just before their economy started going into reverse Ireland was running a small budget surplus. Their response to the meltdown was, as the record clearly shows, to start cutting existing spending. And it doesn’t matter if their spending doubled over any given period. US government spending doubles every ten years, often much less than that. If revenues double over the same period then the fact that spending doubles as well is irrelevant. And your own graph shows spending keeping the exact same pace as revenues, so bringing up the fact that their spending doubled is disingenuous irrelevance. That’s completely unlike you Sam.

And I think we’re all still waiting for the explanation of how a completely unregulated financial sector/low tax, low-government-spending business-friendly pro-growth economy could fail as disastrouslyl as Ireland has. How could it possibly have happened? Obviously the private sector was completely blameless so how did the Irish government fuck things up so badly Sam?

82

Yes, the government grew exactly in proportion to the revenues collected during an overheated, unsustainable economic bubble. When the bubble popped, the country was left with a huge gap between government expenditures and revenue.

Remember, good Keynesians are supposed to run large surpluses during the ‘good times’ so they can afford the big deficits they run during the bad times. If you’re just going to make government bigger every time you get a little extra, then your Keynesianism is just a one-way ticket to eventual fiscal collapse.

Their response to the meltdown was to cut spending two years after the revenue began to collapse, and to make cuts not nearly big enough to close the budget shortfall.

No, it’s really not. Because that doubling of the size of government has many other effects. And again, if the revenue gain was unsustainable, then the government’s size was unsustainable.

And there’s no need to grow government during periods when the economy is hot an unemployment is low. That’s precisely the kind of environment where you want to shrink the size of government - especially if you tend to inflate it during the bad times to replace AD lost due to recession.

I hate to bring up Canada as an example again (actually I don’t…), but that’s exactly what we did. When unemployment was low and the economy was churning along fine, we used the opportunity to reduce the size of our government, since the private economy was capable of picking up the slack. Then when the recession hit, we weren’t stuck with a huge bloated government, and had more flexibility in our response to the crisis.

But it’s typical of the left to always find an excuse to grow government. Times are good? Well, we’ve got lots of money to spend on new government programs! Times are bad? We need to spend more on government programs to stimulate us back to good health!

There’s never a good time for cutting the size of government, is there?

It’s not irrelevant! It’s exactly the problem. Revenue grew in unsustainable fashion, and the government grew in direct proportion. Then when reality asserted itself, Ireland found itself with an unsustainable public expenditure level.

We did the same thing here in Alberta under the Lougheed government. When oil revenue skyrocketed in the 1970’s, he grew the size of our government to match. Then oil prices plummeted, leaving Alberta with huge deficits and a government that was too big and workers that were paid too much. It took us two decades to unwind that little disaster and get our fiscal house in order. But we did, by making very large, very painful cuts in the size of our government. It would have been much better for everyone if we had never grown it to that size to begin with.

Low government spending? Ireland’s government is now at 55% of GDP. That’s a huge government.

I never said anything about the private sector being blameless. My understanding is that Ireland has a larger-than-average real estate bubble, due to a rapidly expanding money supply. Being tied to the Euro meant Ireland couldn’t devalue its currency or take other steps to get its act together. But I’m not an expert on Ireland’s economy, so I’m not willing to make pronouncements about all the reasons they got to where they are. Maybe the private sector shares some of the blame. Maybe the regulators do.

I do know that whatever caused the problem, they would have been much better off if they had grown their government at a more reasonable rate, or even used the opportunity to reduce the size of it, simply because it would mean they wouldn’t have such a large gap now between revenues and expenditures.

But I’m sure you’ve got it all worked out, and government was completely blameless, and it’s all the fault of those evil capitalists, right? Damned free markets, always ruining everything.

83

I’m certainly no expert in the Irish economy. But Sam:

  1. Once Ireland gives up monetary policy, fiscal policy is the only game in town.

2a. If Ireland leaves the Euro, devaluation will be anticipated. Then we get the mother of all bank runs, as people shift their funds to German/French/real Euro banks. So, according to Eichengreen, there’s no reversal.

2b. Except… if a bank run/collapse happens anyway, then the Irish government could devalue as they pick up the pieces. That was Krugman’s insight, now acknowledged by Eichengreen.

Hey, I think the UK did the right thing by staying out of the Euro. But that’s water under the bridge. So if Sam is against fiscal policy in Ireland, that means he is either advocating depression or financial collapse. Or maybe he wants to appeal to the confidence fairies. I know this is harsh Sam, but sometimes economies face unpleasant choices.

  1. The contention that Ireland had out of control governmental spending before the 2007 crisis is simply false. Let’s look at the govt expenditure/GDP shares:


year	Canada	US	Ireland	OECD	Ireland-OECD
1992	53.3	38.6	44.8	42.3	2.5
1993	52.2	38.1	44.6	42.8	1.8
1994	49.7	37.1	43.9	41.9	2
1995	48.5	37.1	41.1	42.7	-1.6
1996	46.6	36.6	39.1	41.6	-2.5
1997	44.3	35.4	36.7	40.4	-3.7
1998	44.8	34.6	34.5	40.6	-6.1
1999	42.7	34.2	34.1	39.7	-5.6
2000	41.1	33.9	31.3	38.7	-7.4
2001	42	35	33.2	39.8	-6.6
2002	41.2	35.9	33.5	40.3	-6.8
2003	41.2	36.3	33.2	40.8	-7.6
2004	39.9	36	33.5	40.2	-6.7
2005	39.3	36.2	33.7	40.5	-6.8
2006	39.4	36	34.2	39.9	-5.7
2007	39.1	36.8	36.2	39.9	-3.7
2008	39.7	38.8	42	41.4	0.6

Source: OECD
I added Canada and the US for the heck of it. Special thanks to vBulletin for permitting tabs inside code boxes in their latest release.

Anyway, Ireland had small government from 2000-2006 relative to the US, Canada and the OECD. The post-crises figures are distorted due to the collapse of GDP, and I haven’t broken them out (the analysis would take me about 30 min in practice). As a share of GDP, Ireland expanded big guv about as much as George Bush.

  1. One thing I can’t claim without spending an hour on it is that Ireland has subjected itself to greater austerity than Spain or Iceland – and reality has depressed their economy accordingly.
84

It was already pointed out once to him that numbers have denominators, and yet he still spewed the same wrong conclusion out again. He does this constantly.

85

…at least through 2005. In 2006, Ireland had a bit of a party. But seriously, it wasn’t that large - it’s dwarfed by the 2001 and 2002 expansion in US government spending for example.



year	Canada	US	Ireland	US-2000	Ire-2000
1992	53.3	38.6	44.8		
1993	52.2	38.1	44.6		
1994	49.7	37.1	43.9		
1995	48.5	37.1	41.1		
1996	46.6	36.6	39.1		
1997	44.3	35.4	36.7		
1998	44.8	34.6	34.5		
1999	42.7	34.2	34.1		
2000	41.1	33.9	31.3	0	0
2001	42	35	33.2	1.1	1.9
2002	41.2	35.9	33.5	2	2.2
2003	41.2	36.3	33.2	2.4	1.9
2004	39.9	36	33.5	2.1	2.2
2005	39.3	36.2	33.7	2.3	2.4
2006	39.4	36	34.2	2.1	2.9
2007	39.1	36.8	36.2	2.9	4.9
2008	39.7	38.8	42	4.9	10.7
86

But you’re looking at numbers in terms of GDP. That’s my whole point - Ireland’s GDP Growth was clearly not sustainable, but the government grew at the same rate.

Look at this chart: Ireland GDP Growth. Ireland’s annual GDP growth between 1995 and 2007 was out of this world. Of course if you measure government expenditures against that it’s going to look reasonable. But that’s only because the baseline it’s being measured against was unreasonable. Ireland basically rode a big bubble, and instead of being prudent with the revenue they spent it all on more government. Then the revenue went away, and here we are.

By the way, I wasn’t arguing for any particular solution. I’m just pointing out the cause of Ireland’s big fiscal trap - they used a bubble to blow up the size of government, then the bubble popped. Now they’re in a world of hurt.

87

You want to talk smack about me in the third person, take it to the pit. I post heavily cited posts with a lot of numeric content in them on a regular basis. I’ll put my record of accuracy up against yours any day, sparky.

88

Sparky? Sam, such language is unbecoming in Great Debates.

And who’s keeping records of accuracy? Is there a Great Debates’ League Leaders page I’m unaware of?

89

Why, you must be keeping track, since you said I do this sort of thing constantly. But if you want to retract that statement, fine. In the meantime, I’d appreciate it if you’d refrain from the personal commentary.

90

And we’d all appreciate if you’d stop spewing your conservative think-tank nonsense in every GD thread.

91

I dunno Sam. Ireland was receiving accolades from Heritage et al in 2005. When your GDP shares are over 5 points below the OECD average, you have a lot of room for error. Or at least you would if you had flexible exchange rates. And if it’s solvency you’re concerned about, that’s a question of whether they were running budget surpluses, not about the size of government. I think you’re barking up the wrong tree.

92

Let’s go back to the start of the conversation again. I asked you why Ireland is such a disaster. You then blamed it on their economy tanking and waffled on about revenues falling (they did) and the Irish increasing spending (they cut their budget in fact, the increased spending was them bailing theirbanking sector out, something they had to do to prevent their financial sector bankrupting the country and sending europe then the world into an even bigger meltdown.)

I then point out that the whole revenues/taxes situation is incidental to the fact that their banks blew the economy up. Their banks have just recieved a bailout of about $120 billion which is half Irish GDP on top of the tens of billions they’ve already been given. Yes there was an unsustainable bubble and yes the collapse of this bubble caused a drop in revenues but the bubble is small potatoes compared to the bad debt the banks issued and now need covered by the government, a figure now over half the entire Irish GDP and probably more to come yet. Ireland would have no serious economic problems at all had the banks not gone nuts over the past few years.

When asked directly what caused the meltdown and who was responsible for it you dodge the issue. You claim not to be an expert on the situation so you’re unable to say what happened. Well you’ve proven to be not an expert on endless economic issues over the years yet this hasn’t prevented you from endlessly pontificating about them in thread after thread after thread. I think the reason you won’t answer this is beacause there’s no Fannie O’Mae or Freddie O’Mac to blame this one on. The Irish crisis, as accepted by everybody who does have an opinion on the subject, was caused by an unregulated private sector making vast quantities of dangerous loans and investments. Go and look at the Heritage Foundation website and similar nutjob outlets and see if there’s anybody anywhere making any kind of case that the Irish economic disaster wasn’t 100% down to the private sector. Do five minutes reading around the nutosphere and becmome as expert on Ireland as you are on everything else. Then in your expert opinion let us know if there’s anything the Irish government did that caused the meltdown.

93

Well if we must continue with this hijack, perhaps I can pass on the recent thoughts of a true expert in the field, Barry Eichengreen, who has been driven to distraction by the EU’s recent cock-up:

Barry Eichengreen on the Irish bailout – The Irish Economy