The Folly of Current Economic Policy

We have been fed the argument of stability and recovery on repeat since long before the general election campaign, and it’s the same story pushed by the Tories in the UK. Stability and recovery, stability and recovery. Much of the media jumps in on the chorus uncritically, and much of the opposition challenges it without directly taking it on. It’s a hard narrative to break, but the reality poses a stark contrast to the accepted government line.

We can highlight the absolute failure of the government to tackle the crisis in the health service, which is now at a worse point than it was in 2011, or the dire state of housing, with the much praised Fine Gael proposals for social housing construction for the next three years actually being worse than the last 5. In the period 2011-2015 fewer social housing units were provided than in 2008. In this period over 1,100 units were produced a month. The proposals for the next three years are for approximately 600 units a month. We could talk about how our education system functions very much like a production line for exams, or how our higher education institutions are near buckling point under the debt loaded on them as a result of government spending cuts and poor governance. We could also talk about how, despite the construction of a new Luas line in Dublin, Ireland’s transport system isn’t fit for purpose in the slightest, and the construction of a new ‘express’ line from Cork to Dublin, which will cut a mighty 10 minutes off travel time, simply isn’t enough to make up for the many holes, both literally and figuratively, plaguing our roads, railways and public transport. We could challenge the government’s record on all of this, and the Left already does so, quite well in fact, but this isn’t enough to radically change the narrative.

What is the government’s strongest point? Economic growth. GDP figures have for the last three years been strongly in the government’s favour. They have reinforced the story of a strong and stable recovery, but this simply isn’t what the figures show. GDP entirely excludes overseas income and income earned in Ireland by people abroad, yet this is a huge factor in our country’s economy. GNP is what measures this, but it’s a figure that is ignored, and for good reason. It doesn’t support the narrative of stability and recovery. GNP can fluctuate much more than GDP, and in the most recent quarterly statistics for 2015 we can see that the annual rate of growth is down significantly for GNP, meaning more money is leaving the country in 2015 than in 2014. Not only was the economy growing at a slower rate in 2015, but quarterly releases show that there has been a significant slow-down in economic growth since quarter 3 of 2014, over a year and a half ago.

The country’s balance of payments, the net of money leaving the country and money entering the country, has been highly volatile throughout Fine Gael/Labour’s time in power. At times it has even seen high negatives, with large amounts of money leaving the country. This isn’t a good sign for an already struggling economy, and it in no way fits in with the myth of a stable recovery. Add to this the fact that the country is experiencing deflation and things begin to look much less promising. This deflation is most seriously affecting those in the agricultural sector, who have been almost entirely ignored by politicians across the spectrum. According to the quarter four (2015) agricultural output price index, agricultural prices have dropped 6.2%. In other industries this may be a good thing as lower prices would encourage more demand, but agricultural products see little fluctuation in demand, so a drop in prices also means a drop in income. The already decimated rural Ireland is facing an even more difficult future as the claimed recovery leaves them behind.

Where have Fine Gael and Labour gone wrong with their economic policy? Well, the very nature of it right from the beginning was fundamentally flawed. The governing parties, for all their talk of a great recovery and economic stability, fail to highlight any policy or action of theirs that has actually achieved this, presuming their claims are true. This is because they aren’t responsible for the limited recovery that there has been. Fluctuating exchange rates have created a more beneficial environment for Irish exports to the UK and the USA. Interest rates, actually all monetary policy, are controlled by the European Central Bank, not the Irish government. The impact of these policies on Eurozone economies are significant, but they aren’t policies that Fine Gael or Labour can take credit for as they have little or no power over them.

In fact, the recovery has happened not because of Fine Gael/Labour’s economic policy, but in spite of it. The government economic programme has been one of contractionary fiscal policy, policy designed to slow down economic growth and the economy in general, not stimulate growth. It removes any flexibility to deal with an economic crisis if and when one occurs. This is why there has been an increase in homelessness, and an increase in repossession proceedings, a deterioration of healthcare and education, and mounting debt for universities. Farmers and small business owners are suffering because the government has failed to take action in those areas, instead opting for higher taxes and less spending, while at the same time allowing larger corporations to avoid almost all of their tax obligations. This wouldn’t create an environment for increased employment because it is small businesses that create the vast majority of jobs in Ireland, not multi-national corporations, and it is our domestic economy that is most important, not exports, which is what many multi-nationals are geared towards.

The government’s contractionary fiscal policy has also resulted in a massive drop off in provision of social housing. With fewer people able to afford private rent as a result of the out-of control housing market, and almost no social housing provided to meet the demand for it, a housing crisis has emerged and intensified. House prices are even rapidly approaching 2005 levels, and only two years ago Fine Gael was pushing for a new housing boom, despite the fact that there are 200,000 empty homes, many of which aren’t fit for habitation.

The financial crisis is still an open wound for many people who remember the chaos and heartbreak, but one thing that has gone almost entirely under the radar is that banks are once again on the brink of collapse, and according to some experts are now in a more vulnerable position than they were in 2007. Deutsche Bank’s rating has dropped to BBB+, lower than the pre-collapse rating or Lehman Brothers. It lost 40% of its value in the first six weeks of 2016, and 2015 saw its worst annual earnings report in seven years, with net losses of €6.8bn. Its share prices also fell by 50% in March, with Barclays and RBS facing a 40% drop in their share prices. Barclays has also been selling off its highly profitable African assets and preparing to lay off thousands of employees in its investment bank, particularly in Asia, all in an attempt to create a capital buffer for its home market in Europe in the expectation of a possible financial crisis. This looming crisis is even apparent closer to home, with a Dublin-based (down the road from a pub frequented by Enda Kenny) Russian bank, VPB Funding Ltd. collapsing in February 2016, just days before the general election. The failure of European governments, Ireland included, to regulate and reform the financial sector, and also manage the economy effectively has created an environment of high quantity but poor quality, whether that be jobs or bank loans and notes. This is what should be challenged. Not just the symptoms of the problem, but the problem itself.

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