Morgan Kelly's now notorious polemic has reignited the debate about Ireland's debt levels, prompting the Taoiseach Enda Kenny last night to warn his solution would deliver a "lethal injection" to the country.
Kelly argues that Ireland should walk away from the IMF/EU bailout, claiming it condemns us to bankruptcy in two years' time.
His "big bang" fix, explored in his Irish Times piece, involved an immediate balancing of the books – instead of eliminating our multi-billion budget deficit over four or five years as the government currently plans, we would do so immediately.
I want to explore what that would mean in detail and ask whether Kelly can fix it?
Essentially, we'd have to get taxes to meet expenditure without any external help. We'd get no external help because we'd have given two fingers to the European Central Bank and handed them our zombie banks. They would stop funding the government, because the government would have broken the bailout memorandum of understanding.
The fiscal problem is pretty clear. There is a big gap between what Ireland spends, and what she makes. Including promissory notes, the Irish government has been taking in roughly €53.3bn and spending close to €72.4bn with the difference of €19.1bn coming from borrowing, first from the international markets, and then from the EU, IMF, the UK, and Sweden.
Would it not be best to deal with a quick severe sharp shock and get it over and done with instead of dragging it out for years?
Also, if we go down the route that Prof Kelly suggests, what would happen to deposits in our banks?
At the end of the day the government over extended itself and spent money in ways that aren't possible to keep up with.
I scribbled at a blog entry this evening.
The observation I have made is that trade unions in Ireland appear to be particularly focussed on the public service as being some kind of engine for the rest of the economy. That point may still hold, and may even find some relationship with the point often advanced by Gurdgiev. But my instinct is, that neither party have moved further down the line, away from the engine block itself and towards other parts of the economic system.
A form of Land taxation is what is required in Ireland badly to smooth over some of the bumps and hollows in our cycle. I believe that Morgan Kelly instinctively looks at things from the point of view of fuel injection (and creation and sustainable management of debt levels), and the timing at which the same occurs. It is a huge part of the whole problem. It would be interesting though if a fully trained economist were to take the analogy of the automobile and the economy a little further.
Steering being the regulation, braking being the monetary controls etc, etc. Employment is really all about passenger comfort at the end of the day. Can this vehicle carry around the occupant(s) in comfort and safety.
It would be nice some day, if someone could put together a comprehensive paper to look at the finished product, with all of the system carefully integrated like a Toyota corolla. I could inform our debate about political intervention into the Irish economy, and the sequence it may occur to achieve best effect.
http://designcomment.blogspot.com/2011/05/connected-to-power.html
In a world of eye wateringly big numbers €19.1bn is pocket change and a manageable shortfall to deal with. The only lethal injection would be to the establishments there grip on power supporting their out-moded lifestyles who preside over an massively inequitable society and the euro. 20 years creeping death will bring everyone to the same point in slow motion. We are 4 years into talking in circles. I for one had hoped for a short sharp shock but the longer this do nothing approach by overpaid geriatrics who live in a rationalist bubble of pseudo impunity the less tenuous it becomes to stay here.
The solution lies outside of the box we have placed so much faith to protect us and stay in out of fear and nothing more.
Ireland is the financial equivalent of fukashima still smoldering irradiate materials and killing its population quietly and invisibly while all the time being told to remain calm everything is under control.
Finally, I'm being notified of comments on this blog.
@ Open Window, the nuclear analogy is apt, as the reverberations are set to last for at least one generation.
@Brian, I respect and admire Constantin's work, even if I don't agree with him on everything.
@Mossy the risk of a short sharp shock is to create a vicious cycle we can't get out of. Austerity programmes simply don't work to create growth.