I would like to hear the OPs plan for Ireland to keep up deficit spending when no one is willing to loan them money. That is the reality of the situation for Ireland without austerity measures. Their debt to GDP ratio is ~120% and deficit to GDP ratio is 25% (and maybe 32% this year). It doesn’t take a genius to see that that is an unsustainable situation.
I don’t think anyone believes that cutting government spending is a great idea for Ireland or most countries at this point. It is, however, a much better idea than defaulting on loans. At that point you will almost have to have a totally balanced budget because no one will lend you money.
What’s even worse for Ireland is that they can’t fire up ye olde printing press and inflate some of their debt away because they are in the Eurozone.
As I explained in considerable detail, Canada began this process in 1993, long before Ireland did, and succeeded. So your statement isn’t even close to being true. And even if you limit your definition of “austerity” to “spending cuts by European countries reacting to the recent fiscal crisis”, it’s too little, too late all around.
There’s no solution to this for Ireland except getting bailed out (or just suffering for a long time, which isn’t much of a solution.)
So you’ll be kind enough, I am sure, to provide some cites demonstrating that corporate tax cuts resulted in a critical shortage of government revenue. I mean, it very well might be true, but some numbers would be nice.
Thanks for the compliment. But it does demonstrate that austerity works. A government can rein in spending and save itself from bankruptcy - and, for that matter, can free up money for social programs in the future. What you’re seeing in Ireland is not “austerity,” it’s “absolute pant-shitting panic.”
Oh, I’d say a closer statement would be that they fucked each other. Of course, the truth is that this isn’t just the government of Ireland, either; this is a multi-country orgy of economic stupidity and nobody brought the condoms.
The UK’s not on the euro, a fantastic decision that’s hugely benefiting the country today. Ireland was not so clever. They have to suffer through the intolerable Frankfurt-über-alles incompetence that stemmed from the naive belief that one monetary policy could fit 16 different countries.
I was just about to say the same thing. Being on the Euro has allowed fiscal problems in these countries to get out of hand. Had there been floating exchange rates and local currencies, Ireland wouldn’t have gotten into the situation it’s in.
I’ve been saying for years that the Euro was going to bit Europe in the ass once a situation developed where one country needed expansionary monetary policy while another needed the opposite. Divorcing monetary policy from government fiscal policy, welfare policy, and other structural choices was a very bad idea.
Germany is not an irrelevant case study. Yes, Germany’s economy is currently still benefiting from the last of the fiscal stimulus. However, the announcement of the austerity plan has had a positive effect on both business and consumer confidence. Business confidence in Germany is higher than it’s been for years, and consumer spending is increasing even as the fiscal injection’s effects tail off.
Of course, we haven’t seen the result of the austerity measures as they cause actual spending cuts, but it’s at least plausible to postulate that a visual show of fiscal responsibility could increase the German people’s estimation of their future success and lead to more private spending to take up the slack in government expenditure. We’ll see.
The UK, being free of the Euro, has one more trick up its sleeve - it can engage in expansionary monetary policy while restraining government program spending. That seems like a rather intelligent way to try to unwind out of control structural spending without collapsing the money supply.
It is very unfortunate that Keynes’ theories are discredited among the quack Chicago school (descendants of the Austrian school) of economics. But the thing is that rich people who have all the power are hurt less by austerity programs than they are by spending programs because they are not taxed and their wealth is not reduced by heavier spending. The rich are not completely wrong on what their interests are in tougher times: not to incur greater future tax liabilities. The non-rich (the middle class and poor) are strongly hurt at all times by lighter tax burdens on the rich, because all present and future taxes that do not fall heavily on the rich fall on the non-rich.
So what is my point? All deficits are taxes on the future. The rich don’t want to pay higher tax rates in the future, and the non-rich don’t really understand the difference.
So they should keep cutting even though it’s doing absolutely nothing to help? Austerity, at least Ireland’s version, is rife with unintended consequences - all of which are digging Ireland a deeper hole.
I mean, really, this is like a bad cartoon. It reminds me of that scene in the movie Final Fantasy 7: Spirits Within where the guy running the orbital cannon kept saying “Fire! Fire again! FIRE, DAMMIT!!!” even though every catastrophically powerful shot made things even worse planetside. That cartoon now is the Irish Government.
Hint: If you are going to sacrifice your country’s working class and throw them under the bus, make sure that the metaphorical dead at least get you across the river.
Let me repeat for you: cutting Government and raising taxes during a downturn results in a deep cut in growth and revenue. It drives you deeper in the hole.
“We’ve got to do SOMETHING!!!” is 100% bad justification for doing something that digs Ireland a deeper hole. When your economy shrinks 7% after TWO years of austerity cuts you are doing something… something very stupid.
This is only true if you assume that borrowed money you spend via government as a velocity factor greater than 1, and can be paid back in a reasonable timeframe. The first is dubious of late, and the latter probably not true because of the increasingly high debt levels.
Leaving aside the fact that you evidently are falling into a “post-hoc” fallacy of the worst kind…
Do not mistake events you dislike with panicked responses. Ireland cut back because they had no choice: it is not possible for them to borrow the money they would nave to have to maintain spending like this. You seem to believe that Ireland can just magica up the money to pay for everything it wants, but that’s not true. The entire Eurozone crisis is coming on (fast) because lenders are increasingly saying, “No more!” to the PIIGS.
These countries cannot get any more money, except by assuring lenders they can and will be paid back. This is not a trivial fact you get to ignore because you don’t like it. Even if it would be a good investment (a highly dubious proposition), there are limits to the amount of cash you cn get, and at some point, you might be able to get cash but it the price of repayment would turn it into a net negative.
Finally, few of us on the Right dislike Keynes. What we dislike are governments who use his name like a magic talisman to justify spending. All spending has costs - government spending huge ones - and you cannot indefinitely ignore the downside of Keynes. I personally don’t favor using his policies because I consider them too vulnerable to politics, and too reliant on information you cannot get.
But they’re out of money. There’s no more money. How do you spend money you don’t have?
You seem to think this is some sort of ordinary budget decision. It isn’t; it’s called “no more money.” Ireland is not in the position most countries are in where they can choose to spend more in exchange for debt servicing in the future. They’re broke. What they’re calling “Austerity measures” is nothing more than deciding which bills they can pay and which they can get away with not paying.
This is unquestionably a very bad thing for the Irish people, but spending more money just isn’t possible unless some other country gives it to them.
Dude. I get it. I got it from day 1 when they started this all-out austerity madness 2 years ago. They can’t spend money they don’ t have. I get it.
It still doesn’t change the fact that austerity is only making things worse. The more they cut the deeper in the hole they get. Growth shrinking by 7% pretty much reasonably means that they’re sinking even faster than they would without austerity cuts. Especially when you realize that their austerity cuts are why their growth is shrinking.
You do realize that investors and bond holders are saying the same thing that I am - the same bastards who pushed Ireland (and Greece) into austerity measures are the ones now saying that it’s retarding growth.
Iceland is a microstate. You can’t deduce anything useful from what happened there. It seems to me that you are trying to jump to some big Keynesian conclusion from current events in Ireland and the rest of Europe. As Quartz says, this may be a bit premauture. It’s a complicated situation in Europe, with a credit bubble coinciding with an attempt at a currency union.
I am reminded of the 20th century Chinese statesman who, when asked what he thought was the impact of the French revolution, replied “it’s too soon to tell”. The Euro and the late 2000s financial crisis are big events, and I don’t think anybody really knows how things are going to turn out.
An analogy would be if I were going bankrupt and lost my car. I wouldn’t have car payments anymore, nor would I have car maintenance costs. Woot, big savings… but I also couldn’t hold my current job, thereby making my financial situation worse.
But you seem to be implying Ireland should be doing something different. There isn’t anything different to do. They have a Hobson’s choice.
I think you’re really showing a fundamental ignorance about a lot of things in this thread:
Keynesian economics - Keynes never, never, never advocated spending your country into national bankruptcy. Keynesian economics isn’t about “endless deficit spending that magically fixes the economy.” Keynes would roll over in his grave if he knew people like you were using his ideas this way.
Irish fiscal situation - Ireland is making cuts because they are at a point where there is not enough money to keep up with the programs they have, they aren’t making “austerity cuts” because they necessarily want to, but because they have to. If I pay $500 a month for health care and $500 a month for rent, and earn $2000 in net pay per month, I can probably comfortably keep paying my rent and my health care. If I lose my job and now get unemployment checks which are $750 a month, either I have to stop paying rent and end up homeless or I have to stop paying for my health care. That’s the situation Ireland is in, it isn’t about cutting or not cutting, Ireland is in a situation where they have to make cuts, because the government doesn’t have enough funding to cover its outlays. This means it isn’t about deciding whether or not to cut spending, it’s about deciding what can be cut in an environment where the government has no other options.
Iceland did in fact fix this problem but good. They screwed the foreign lenders instead of sticking it to their own people. There was also the issue of capital controls. Also, they let the Krona devalue, which Ireland cannot do; but Ireland CAN stick it to the foreign lenders who screwed them instead of squeezing their own people.
Ireland might as well party like it’s 1999 (or December 20, 2012) if all they can think of is austerity measures that are just driving them into the dirt. If they’re not smart enough to turn around and penalize the foreign lenders and enact some capital controls… I mean really, what do they have to lose by saying “eat, drink and be merry for tomorrow we shall be bankrupt”? They’re going to be bankrupt anyway.
Well, if Ireland just wants to go bankrupt they can, but it would also mean they’d probably have to leave the Euro entirely. That may be good or bad, but it doesn’t appear to be what Ireland wants to do.
Countries going bankrupt aren’t usually good for the working class, in fact it’s usually very bad for them.
It also wouldn’t be them “partying like it’s 1999” it’d be more like “enjoy the few months of government services we have left, because after X date everyone will be getting paid in government IOUs and they will probably stop working.” People that provide government services have no incentive to work for no pay, they can’t feed their families on IOUs.
The whole reason Ireland is doing what it is doing is because the EU is demanding it. That’s the thing, they aren’t just doing austerity measures and expecting to go bankrupt, they’re implementing these measures so the EU will bail them out–so they won’t go bankrupt.
The whole point is Ireland has absolutely no way to fix this problem internally, unless they’re willing to bankrupt the country and start over. Its leaders are not willing to do that, and I honestly doubt its people are willing to suffer through that either, because there will be a period of time where things are very bad for them.
In the spirit of giving you the benefit of the doubt, I’ll add something that should explain the Greek and Irish austerity cuts.
They aren’t about fixing their current problems. Like I said, Greece and Ireland simply cannot fix their current problems. Sans outside intervention, both countries were going to go bankrupt, period. When they appealed to the EU to bail them out, the EU wanted the austerity cuts because they want to see evidence that Greece and Ireland are willing to change their failed systems so that the EU isn’t going to have to bail them out again 5 or 10 years down the road. That means Ireland and Greece need to show some willingness to try and properly balance their spending and their expenses in line with EU norms.
So, no, the austerity cuts will fix nothing in the short term. However, they are a precondition of getting bailed out. If Ireland wants bailed out, they have to do what they are told. No one is arguing or expecting the current austerity cuts to fix things, it’s well past that point. What they are hoping is that if Greece and Ireland implemented these structural changes, then after they are bailed out they will be countries that are more likely to avoid falling into this scenario in the future.
Also, Ireland cannot penalize foreign lenders ala Iceland because they are members of the Euro.
It’s also worth mentioning that a lot of the people that Iceland screwed over were working class and middle class Brits who had savings accounts and such with Icelandic banks. Accounts that Iceland heavily advertised to Brits in order to get them to open said accounts. When Iceland basically fucked them over the British government had to step in to save its citizens from financial ruin. Iceland didn’t screw over large mega corps, they screwed over thousands of regular, working class people.
They also essentially did go bankrupt, defaulting on all your debts is essentially state bankruptcy. There have been negative consequences of that action and there will continue to be negative consequences going down the road. Namely, Iceland is probably not going to be a place anyone wants to put serious investment in going forward. Additionally, Iceland has no military forces of its own and has relied on NATO to provide that protection for some time. The British refused to do their tour of protection duty for Iceland because of this. That’s a real world consequence of their actions.
Now, the flip side is Iceland was so fucked I think they probably did what they had to do. To pay back the massive amount of debt Iceland would have needed to get like $200 a month from every citizen for like decades. That’s not really very easy or realistic to do. Iceland’s population was so small relative to its debt, I don’t really know that Iceland had any other option.
Iceland is a small country though, and it’s a lot easier for them to rebound from something like that. Iceland is smaller than a lot of American cities, Ireland has millions of residents and is much more tightly tied into the global economy. For them bankruptcy would probably be much more disruptive.
You clearly don’t get it. They can’t spend money they don’t have. In other words, if they go bankrupt and lose access to debt markets they immediately need to have a completely and totally balanced budget. That is much much worse than austerity.
Actually, I think I may understand one of the flaws in Le Jacquelope’s thinking, or rather, unthinking. Unthinking: Not realizing it, he’s making a tiny little assumption which colors his thought.
The people who might be able to loan money to Ireland are not an amorphous mass of invisible, insrcutable ciphers. They are real, living people. Most of them are investors who handle large sums - but those sums are handed over by thousands or millions of small investors in savings or bonds or whatever. They don’t give a shit about the Irish - and they shouldn’t. It’s not their job in this world to sacrifice their client’s wealth for the Irish.
The problem running up to this is even if you are right, nobody else has a good reason to lend to the Irish. Even if the austerity cuts are a bad thing (which you haven’t shown and are clearly not thinking through, because even a good investment doesn’t matter if its taking you to bankruptcy), new investors right now would be insane to lend: the chacne fo being paid back is low.
The people making decisions have a fiduciary duty, and can be fired, effectively barred from the profession, or even (successfully) sued for bad enough decisions. And that’s leaving aside the fact that they personally stand to lose a ton of money for a bad investment.