George Osborne has said, often, that Ireland is the model the UK should follow in tackling its deficit. So it’s fascinating to read a paper by Michael Burke presented at a conference in Dublin last week. he said:
2009 is the decisive year regarding policy divergence, with the overwhelming majority of the Euro Area economies then adopting fiscal stimulus while the FF-led government adopted fiscal contraction. The cumulative effects of that policy divergence are shown in the table below.
So the 'fiscally responsible' Irish policies will have produced more than 4 times the drop in real output and 3 times the rise in percentage unemployment than the (limited) Euro area stimulus AND their deficit still deteriorated more than twice as badly!
And this is what George Osborne says we should take as a model for UK policy. Just absolutely crazy, and more proof that 'the cuts won't work'.
Hat tip to Howard Reed and Jonathan Rutherford
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Richard
Although I support the view that fiscal austerity is the wrong medicine for the patient, the analysis is weakened by commencing the period in 2008 when the cuts were implemented in 2009. Some element of the negative metrics will have taken place prior to the cuts.
on the other hand Burke makes the following powerful point:
“Unsurprisingly, and contrary to widespread claims none of this [fiscal austerity] has reassured financial markets. At the end of May 2010 Ireland’s benchmark 10-year government bond yield was 4.9 per cent. In early 2008 this yield was just 4.3 per cent. At the same time, the cumulative decline in the price level has been 5.4% with the result that real 10yr yields have risen by 6 per cent. … Ireland’s yields are among the highest in the Euro Area, below only Greece and Portugal, ahead of Spain, Italy and the rest.”
This is not surprising when fiscal austerity fails to reduce the debt/GDP ratio. Hawks don’t seem to consider the denominator in that measure.
Two points:
First, the figures are until the end of 2011 – so they aren’t definite results but OECD speculations.
Second, this is only half the story. 2000-2007, Irish GDP growth was 54% against a Eurozone average of just 16% (that’s nominal, but I’m sure someone can dig out the inflation-adjusted figures). Even if the OECD’s predicted drop actually happens, it still puts Ireland’s growth over the whole decade a long way ahead of the Eurozone average.
Yes, we can discuss whether low, stable growth is better than fluctuating but overall higher growth, but let’s at least have the full picture before deciding. 54% rather than 16% is a lot of extra jobs.
I see Ireland’s GDP fell 5%. I believe the UK’s fell by about 6% despite a huge splurge in government spending.
@Nick
Wrong comparator I think.
Britain’s Nominal GDP fell 6pc against Ireland’s 10.1pc.
@Richard Teather
I really think you should read this: http://www.amazon.co.uk/Ship-Fools-Stupidity-Corruption-Celtic/dp/0571260756/ref=sr_1_1?ie=UTF8&s=books&qid=1276680912&sr=1-1
It might increase your understanding of the Irish situation
You might also like to reflect on the fact that much of the GDP growth was wholly artificial relocation of profits into Ireland
The job losses are, however, real
Thank you for the book suggestion. Amazon says it’s out of print, so I shall have to wait for the paperback.
But surely what matters is the jobs created over the whole 10 years, boom and bust. Who did a better job at creating jobs – Ireland, or the rest of the Eurozone?
According to Eurostat, from 2000 to 2008 Ireland grew its employment by over 28%. Over the same period, the Eurozone excluding Ireland managed to grow employment by just under 10%.
So even if Ireland loses 5% more jobs than the rest of the Eurozone (as you say the OECD are predicting), they are still a long way ahead of the Eurozone.
That’s a lot of extra people in work. And still in work.
Isn’t that a good thing?
Richard, do you understand the concept of ‘fallacy of composition’?
NB My comment was for Richard Teather not Murphy.
@Richard Teather
I admit I find your comment faintly ludicrous, and so typical of an accountant whose belief that any bigger number is automatically better than a smaller one
The truth is Ireland started from a low point – it basically jumped from 1960 to about 1995 in one go. So growth was bound the be ludicrously high
Second, it built growth on two things – stealing jobs by offering low tax. And a building boom
There are now 100,000 new houses sitting empty in Ireland and untold offices and ample bust banks. If you call that a success I call it tax driven madness
And it cannot go below zero tax – which is what too many corporations already pay there – so now the jobs are going to where the labour is cheaper – proving low tax is not the basis for an economy]]
These are policies you and your friends espouse and they have bankrupted the place
You call that a success? I’d like to see your failures
Except I can – Eastern Europe is littered with them
And then there’s Iceland
And on, and on
You rally got this all very wrong
And you don;t even seem to have appreciated the fact
Richard, sometimes your comments give the impression that you would rather those people had remained unemployed, if that were the cost of equalising taxes.
And as for Ireland starting from a low point in employment, the facts don’t support you.
Even in 2000 it had a higher percentage of its population in employment than France, Italy and Spain.
@Richard Teather
What complete rubbish – and total “straw man” argumentation
If you carry on in this absurd way you will – like your libertarian friends (for whom I presume you are acting as stooge at present)- be banned from here
Please just go and do your reading first of all – and stop plucking figures out of the air – as is so typical of libertarian economic pedantry
Second – why not address real economic issues like sustainable work – rather than the promotion of financial engineering – the consequences of which we have all seen?
Unless you can raise your game in other words – please don’t bother to comment
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