Slí Eile: Nothing better to create some heat over on irisheconomy.ie or in follow-up comments to an op ed on the Irish Times than an article by ICTU General Secretary, David Begg, arguing against deflation and for a fiscal stimulus. Fulminations followed in quick succession. Interesting to see such passion, conviction and certitude. Remember, a key point of the Dublin Consensus is that There Is No Other Way. Say it often enough, loud enough and confidently enough and the message will stick especially when it is backed by stylised and 'obvious facts'. One commentator on irisheconomy.ie even commented: 'Begg’s quoting of Joe Stiglitz’s comments on the US fiscal stimulus in support of his (Begg’s) critique of Irish fiscal policy is quite ridiculous.' Others were even more strident and impolite. 1 "A very formidable deflationary coalition has been assembled in support of current policy. This was in evidence at the MacGill Summer School – an irony given Patrick MacGill’s commitment to working people – and it includes many of the State agencies like the ESRI and IDA."
Michael Taft has been contesting some of these 'obvious facts'.
David Begg was spot on in drawing attention to the very dangerous policy currently pursued. Analysis based on modelling of the Irish economy shows how various policy scenarios including pay cuts, public spending cuts and international recovery would impact on GDP, public sector borrowing and consumption (which I will hasten to add doesn't deter the ESRI from joining the Dublin Consensus). Public sector pay cuts offer extremely limited returns in terms of borrowing reductions.
Two key point that should not be lost in today's article by David Begg are the following:
The first point is vital because I sense that the room for rational debate based on evidence, research and values is very limited because:
Begg's second point is particularly salient and relevant. The 'population at large' is not convinced. It may be that we are are living on borrowed time, but I have a sense that the current mood could swing very suddenly and dramatically against ... the Dublin Consensus. Iceland was a very nice, phlegmatic and respectable place until recently. Hence, our passivity engendered, perhaps, by an initial shock and awe will give way to more public protest. Last year's demonstration by our seniors (the medical card issue) could be the thin edge. Ireland has yet to generate a Margaret Thatcher, to face down this opposition and no candidate is in the offering.
In conclusion - the switching to terminology of 'devaluation' over on irisheconomy.ie is very misleading. The 1986 and 1993 currency devaluations adjusted the prices of Irish exports on world markets and imports on Irish markets. It also kept inflation high for a time. Many differences apply between now and then, one of which was the extent to which product and labour markets internationally played a role in helping - eventually - Irish recovery. A so-called real devaluation now based, on wage-cutting, is a dangerous and possibly ruinous gamble. This was the point of Begg's article. The alternative is targetted stimulus based on recovery bonds in the context of a high national savings rate (as consumers are scared to spend) and the beginnings of a strategic investment in skills, jobs, innovation, new traded services. Otherwise, we may face a missed decade like we had in the 1950s, and like Finland initially underwent in 1991-94. Can we not learn from this? There is another way.
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