Colbert Show guest Dr. Paul Krugman observed that if the United States adopts the “austerity” model response to our economy, we could end up looking like the Republic of Ireland. So, what’s the situation on the Emerald Isle?
Austerity. The Republic of Ireland slashed its budget by €4 billion, and public employees accepted 5% pay cuts. Its VAT (a form of sales tax) has been increased to 23%. 31 Garda Stations (police) have been closed as of December 2011, 10 others were open on a part time basis. [BelTel] A second wave of closure has been announced for next year. [BelTel] Child benefits have been reduced: “The first of these is a reduction in child benefit, which will save 45 million euro. Payment for third child cut to 148 euro per month, with fourth and subsequent children down to 160 euro per month.” [BelTel] The fuel assistance program has been cut; public service overtime payrolls cut by 10%; and, there’s more:
“Changes to the one-parent family payment will save 20.7 million euro, and the age limit of the youngest child for receipt of payment reduces to seven by 2014.
Weekly carer’s allowance and carer’s benefit rates will not change. Meanwhile, third-level student registration fees will rise by 250 euro, securing savings of 18.5 million euro.
Changes to fee and maintenance support for new postgraduate students, and reducing maintenance grants generally, will deliver savings of 12.6 million euro.
The employer redundancy rebate will also be cut from 60% to 15%, saving 81 million euro. The monthly threshold for the Drug Payment Scheme will jump from 120 euro to 132 euro, saving 12 million euro. And a total of 50 million euro will be saved by securing efficiencies of 2% in disability, mental health and children’s services.” [BelTel]
Now, there’s some austerity! So, what has all this gotten them?
High unemployment. The Irish Times reports:
“Unemployment will remain high next year but the economy is expected to grow, albeit weakly, according to a new forecast from the Economic and Social Research Institute (ESRI). […]
The institute estimates that job losses will continue to mount in 2012 with the unemployment rate hitting 14.9 per cent before easing slightly next year to 14.7 per cent.” (June 18, 2012)
Youth unemployment stood at 29.1% in 2011. [PAI] and the long term unemployment rate increased YOY from 7.8% to 8.9&. [CSO pdf] Repeating an all too familiar motif — emigration is expected to “relieve” some of the unemployment pressure.
Stagnant Growth. Again, from the Irish Times:
“The ESRI forecasts that gross domestic produce (GDP) will grow by 0.6 per cent this year but remain unchanged when measured by gross national product (GNP) – a narrower measure of economic activity which excludes multinational firms.
GDP is expected to rise by 2.2 per cent in 2013 with GNP increasing by 0.5 per cent.
The ESRI says with domestic demand still expected to act as a drag on the economy this year, exports will again likely be the principal factor determining growth in the Irish economy.” (emphasis added)
Notice the part wherein the “domestic demand” will be a drag. When unemployment is high, long term unemployment is high, public sector employment is cut by 5.4% [COS pdf] and all the “austerity” measures like increasing the VAT kick in — what would a rational person think would happen to aggregate domestic demand levels? The ESRI report didn’t mince words about the future, “It adds that household consumption is likely to weaken further this year and next year as disposable incomes continue to decline.”
Weak housing market. Does this sound familiar?
“The institute says that with house prices weak and demand levels remaining low, it is unlikely that there will be growth in the volume of house building in the near future.
“It is difficult to be more precise as to when the bottom of the cycle will be reached but an important factor in any stabilisation will be price expectations. Continued uncertainty about prices, combined with a desire to see a sustained stabilisation before people enter the market means that housing demand is likely to remain weak in 2013.” [Irish Times]
Incredibly enough, the report cited by the IT recommends NO domestic stimulus, without explaining why this wouldn’t work other than to say that money spent on imports won’t do the domestic economy any good, and the nation needs to be “competitive” and increase its exports. Unmentioned in the previous report is any indication that the Republic could do with some improvement in infrastructure — as in the case of its outmoded communications networks. [SiliRp] The U.S. isn’t the only nation on the planet with a very skeptical engineering community.
Infrastructure needs. Engineers Ireland, a nonpartisan association of engineers, issues their own domestic report card. The engineers cite rail lines and seaports as being in need of improvement, upgrades, and maintenance. Rural roadways are in need of improvement, as are airports outside the Dublin area. [EI pdf]
Romney’s Blarney
Governor Romney has been vague to the point of opacity on specific suggestions concerning the economy, but we do have some partial views of his program, and one thing he hasn’t ruled out is the VAT.
“He says he doesn’t “like the idea” of layering a VAT onto the current income tax system. But he adds that, philosophically speaking, a VAT might work as a replacement for some part of the tax code, “particularly at the corporate level,” as Paul Ryan proposed several years ago. What he doesn’t do is rule a VAT out.” [Forbes]
Even the arch-conservative Cato Institute doesn’t care for the VAT idea.
Cutting public employees. Governor Romney tried to slide out from the “we don’t need more teachers, etc.” flap by saying that these individuals are employed locally, and therefore the federal government doesn’t have anything to do with their employment. [MSNBC] [WaPo] Actually, the federal government has been supporting educational, first responder, and police programs at least since the 1980s, and much before if we count the National Defense Education Act.
Hands Off Housing. This one hits close to home: “Romney turned off some Nevada residents when a housing-related comment he made to the Las Vegas Review-Journal editorial board went public. “As to what to do for the housing industry specifically and are there things that you can do to encourage housing: One is, don’t try to stop the foreclosure process. Let it run its course and hit the bottom,” said Romney. ” [MoneyMorn] [Zillow] Ouch. The GOP candidate has been very critical of the housing market situation under the Obama Administration, but has yet to offer specific solutions — other than to let the market sort it out — which would assist underwater homeowners.
Hands off employment. Mr. Romney recently “promised” a 6% unemployment rate but that’s not all that hard to come by. We simply continue the current growth under the Obama Administration and the non-partisan CBO projects that’s just about where we’ll be:
“Though 6 percent unemployment is significantly lower than the current 8.1 percent rate, the feat isn’t all that remarkable. In fact, it is exactly where multiple government agencies project unemployment will be at the end of that time frame. The Congressional Budget Office predicts that unemployment will average 6.3 percent in 2016; the Office of Management and Budget, meanwhile, projects unemployment will hit 6.1 percent and ultimately fall below 6 percent the same year.” [TP]
With Liberty and Austerity for all. Governor Romney does have a tax plan: “Mitt Romney has proposed permanently extending the 2001-03 tax cuts, further cutting individual income tax rates, broadening the tax base by reducing tax preferences, eliminating taxation of investment income of most individual taxpayers, reducing the corporate income tax, eliminating the estate tax, and repealing the alternative minimum tax (AMT) and the taxes enacted in 2010’s health reform legislation.” [TPC pdf] The program results would be about as follows:
Professor Krugman may indeed have a point — if we’re interested in regressive taxation, a hands off approach to the housing market, no increased spending for infrastructure, and a “market” solution to employment — then we could easily end up looking very much like the Republic of Ireland with high unemployment, domestic demand dragging the economy down, and a mired housing market. Perhaps the places to which we might emigrate would be so kind as to not allow NANA signs in shop windows?
Desert Beacon 