Ireland, ahead of the curve

December 9, 2009

At least one country is making tough choices. From John Murray Brown (FT): Ireland poised for harsh budget

The Irish government is set to unveil the harshest budget in decades on Wednesday as it seeks to curb a ballooning deficit and restore credibility with international debt markets….

This will be Mr Lenihan’s third budget announcement in 14 months, after emergency measures in April that included new income and health levies.

Economists expect Mr Lenihan to tighten the budget by a further 2.5 per cent, which some say could exacerbate Ireland’s recession.

But speaking on Tuesday evening Mr Lenihan sought to offer Irish taxpayers some light at the end of the tunnel, insisting that Wednesday’s announcement would be “the last of the very difficult budgets”.

Economists expect cuts in public sector pay, social welfare entitlements and child benefit to be among €4bn-worth of savings aimed at restraining public borrowing next year to about 12 per cent of GDP.

This is what happens when debt problems get out of hand. Ireland, like California, is engaged in round after round of budget cuts, yet their deficit is still huge.

I was on Oregon Public Radio yesterday discussing what to do with TARP “savings.” (You can listen there or download an mp3, my segment begins 15 minutes in.)

A caller made the good point that government stimulus for jobs is a bad use of money, once the stimulus is gone, so is the job. The caller didn’t finish the point: after the stimulus and job are gone, the debt is still there.

The idea articulated by my interlocutor, Chadwick Matlin from Slate, was that it’s short-sighted to be worried about debt today what with unemployment at 10%.

But more than a jobs problem we have a debt problem. If we try to solve the first with more of the second, we’ll only make unemployment worse in the long run.

10% ain’t a bad number folks, not compared to where it will go if, like Ireland, we go so crazy with deficits that we lose the ability to borrow cheaply.

Remember, all this debt incurred today isn’t going anywhere. It will have to be rolled over in perpetuity (unless we magically start running surpluses).

If we wait too long, we’ll just need to make deeper cuts and/or raise rates more steeply just as all countries are forced to do when they run up unpayable debts.

3 comments

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It’s the idea of the balloon that you try to compress – you push down on it in one place and it bulges out in another.

Private debt is another area where current discussion doesn’t make sense. It’s said that the economy can only get going again if private debt goes up, yet private debt is at near record levels (though now at last falling).

So maybe we should pin our hopes on future times when those who now declare bankruptcy will again become eligible for credit? It’s wishing for a reset button that just isn’t there.

Posted by CB | Report as abusive

“At least one country is making tough choices”?!?

Yeah, in other words, by sloughing-off the debt-burden that was created by the criminal activities of the banks onto the poor working slob and overwrought taxpayer, Ireland is acting responsibly?

Quote: “Economists expect cuts in public sector pay, social welfare entitlements and child benefit to be among €4bn-worth of savings…”

This is what you are applauding?

This is the typical hairshirt and enema remedy that is so popular among Libertarians.

No thanks.

I got a better idea. How about a touch o’ the lash for the people who caused this mess.

Posted by Mike Whitney | Report as abusive

Mike,

Let he without sin cast the first stone.

Posted by Andrew | Report as abusive