We had a credit bubble, the Irish economy was inflated way beyond it’s natural limits by money borrowed on the European wholesale markets and multiplied internally thanks to the joys of fractional reserve banking. That bubble is gone, it is never coming back. That means that we cannot currently sustain an economy at 2006 levels. There are some who want the public (that’s us – via the government) to take on the burden of large scale borrowing, to sustain for a minority, bubble-level incomes and living standards. To those who wish to pursue that option – do you think that massive borrowing worked out well for the private sector? Who will bail out this state, if we can’t meet our debt repayments?
Rather than face the reality of the crash head-on, while workers in private companies take pay and benefit cuts and job losses mount, representatives of those with the best paid and most secure jobs in the country talk the talk of war. Internal civil war. They call for tax rises on families struggling to meet mortgage payments, living in fear of redundancy, to sustain wages at the top of the public sector that would shame all but the most hard nosed.
Faced with losses of such enormity the natural human reaction is disbelief, or to go into denial. Those in the private sector have had no choice but adapt fast, those whose pay and conditions are within the governments gift to determine have thus far managed to dodge dealing with the problem. In the run up to Friday’s day of action, it appears that some Union leaders are beginning to get to grips with reality and are moving on from the denial phase. Peter McLoone of IMPACT appears to comprehend the sheer scale of the existential crises we now face.
In a confidential letter written to IMPACT officials, Mr McLoone said that, in his view, the alternative to pay cuts would involve a significant reduction in public service numbers over the next three to four years.
Spending cuts are essential and unavoidable. While they are ‘deflationary’, the economy itself is unsustainably large – massive government borrowing is preventing even steeper declines than we have seen. Some cuts are more deflationary than others. Cuts that effect workers on below average income will directly suck money out of the economy that would otherwise be spent here. But not everyone who benefits from the public purse, is on a low salary – indeed not everyone who benefits is a government employee. Private landlords, as highlighted on Slugger months back (and on Frontline by Fintan O’Toole last night) benefit from high state-funded rental supplement payments. It is unconscionable that we mortgage our children’s future to sustain bubble leveling spending. We need to take the hit in our time, and not pass more problems onto our children. There is a debate to be had, once the blinkers of denial are removed. While spending needs to be cut, we need to make the right choices about what is cut, what taxes are raised and indeed what additional help we need to give to people who are struggling.
No bio, some books worth reading – The Rational Optimist: How Prosperity Evolves – Matt Ridley .
Crisis Economics: A Crash Course in the Future of Finance -Nouriel Roubini, Stephen Mihm