Notes on the Front

In early 2009 a number of commentators, analysts and economists claimed if we cut public spending, raised general taxes – if we took the pain 'up-front' – then we'd get the deficit under control, borrowing costs would fall and the platform for growth would be set.  So the Government cut nearly €12 billion out of the economy over a two-year period.

What happened?  Deficits rose, borrowing costs rose and growth rates have been cut.

You'd think we'd get some kind of apology or mea culpa or at least a 'gee, I didn't see that coming' (though a number of economists did) from those who made these demands for 'tough, courageous action'.  Have we? Not a chance.

Instead, we get Constantin Gurdgiev on the Six-One News.  Given that cutting €12 billion made the fiscal situation worse, Constanin called for  . . . cutting €8 billion more.  Okay, we all have our groundhog days.  But what made his call all the more frustrating is that he just about got it:

'Remember, we're looking at a protracted period of very slow growth, we're looking at continued contraction in the economy, we're looking at very sticky long-term unemployment which is going to sap resources.'

Yes, yes, yes.  So why propose something that will exacerbate those very problems.  The Government has admitted as such – though they, too, still haven't connected the dots.  In their Economic and Budgetary Outlook, they admit their proposed €6 billion fiscal adjustment will cut economic growth by 'somewhere in the region of 1.5 and 2 percent'.

On this basis (and this is a crude calculation) the €12 billion adjustment in the last two years would have reduced growth by 3 and 4 percent.  Is that what Constantin meant by 'very slow growth' and 'continued contraction' and 'very sticky long-term unemployment'?  I would have thought so.  So why call for €8 billion more which, based on the Government's calculation, would reduce growth by 2 and 2.7 percent – on top of the reduced growth from the previous two years. 

Can anyone seriously suggest that cutting growth somehow addresses the problem of low growth?

Such is the madness of this debate.  And in all this, no one has admitted their past mistakes. No one has put their hands up and said,

'Y'know all those spending cuts we proposed – on the basis that it would fix the problem?  We got it wrong.  Let's see if we can come up with something different, better, okay?'

I'd work with that.  But sorry is not a word you will hear in this debate.

NOTE:  I see that Constantin and I are bookends.  Does that mean if one or the other jumped off the shelf all the books would spill over?