An orthodoxy going mad… June 29, 2012Posted by WorldbyStorm in Economy, European Politics, Irish Politics.
The Irish Times editorial yesterday waxes not so lyrical about the current economic situation:
SOMETHING HAS to give in relation to promises made by Fine Gael and the Labour Party in their joint programme for government. Commitments made to public servants under the Croke Park agreement, to voters on taxation and social welfare and to the troika on fiscal retrenchment were based on economic growth rates that have not materialised. Because of the resulting revenue shortfall, unpalatable Cabinet decisions lie ahead.
The problem with that analysis is that the growth rates were meant to flow endogenously, as the term has it, from the measures taken – expenditure cuts reified over tax increases, cuts in wages in the public sector (and pension contribution increases) and so on and so forth. That’s how ‘austerity’ is meant to work. Otherwise what’s the point? And sure I get the line ‘there’s no money’, but it’s sort of unconvincing given the weighting of cuts to tax increases.
And if there are no growth rates now then it seems perverse to think that they will appear from the mists as it were.
Closing the gap between revenue and spending was predicated on strong economic activity and higher revenues. That hope has faded as the EU lurches towards recession and the currency crisis remains. The outlook may change, depending on decisions by EU leaders to boost economic growth or to share losses by the banking system between creditors and debtors.
But as any fule kno, closing the gap between revenue and expenditure in a recessionary economy is a mugs game. Austerity writ large across the European economies has delivered negative growth. This is a clue. Whether the divergent reports emanating from Europe this morning mean any change remains to be seen. I suspect that unless there’s a sense at ground level that changes actually impact upon the bite of austerity it will simply be seen – if it has any effect at all, as meaningless.