The Irish Economy

Morgan Kelly, of University College Dublin, said the government is almost powerless to stop the downturn becoming a severe slump. "We\’re in a classic post-bubble recession, yet we can\’t do anything that a country would normally do in this situation because we\’re inside the eurozone," Prof Kelly said. "We can\’t cut interest rates, we can\’t devalue, and there is a lot less room for fiscal stimulus than people think. We\’re stuck.

It\’s that pesky euro again.

5 thoughts on “The Irish Economy”

  1. “We can’t cut interest rates, we can’t devalue”

    Translation: we can’t rob asset owners of their property. Terrible, ain’t it?

  2. Kay Tie, I agree about the effects of a devaluation. Unfortunately they couldn’t raise interest rates to avoid the bubble in the first place either. Whether they would have done so, if they had been able to, is another matter – others sadly didn’t (e.g. Greenspan).

  3. “they couldn’t raise interest rates to avoid the bubble in the first place either”

    They could have raised taxes to pay off debt, to lower them again (and borrow if needed) when times are bad. All that Joseph, his coat of dreams, seven good years, seven bad, you know how it goes.

  4. They could have raised taxes…

    I’m in two minds on this. Paying off debt is a very good idea, as would be building up a sovereign wealth fund for the future. Ireland in particularly should do this now, as it has a relatively young population.

    However, can we trust the politicans to not spend it? (You would think that Gordon Brown would have heard the Joseph story growing up in the manse, but maybe not). Also, Ireland already has quite high income and VAT tax rates. Maybe higher property taxes, e.g. a LVT, would have been a good idea.

    In general I would prefer low taxes and high interest rates, as this suits my somewhat old-fashioned attitudes to income and debt.

  5. “However, can we trust the politicans to not spend it?”

    One technique is to create an independent trust. The Swedish Government did this with an R&D fund, created by a levy on industry. The incoming socialists tried to prop up the pension scheme with the money, but the courts stopped them: the ECHR prevents confiscation of private property without compensation.

    Of course, the lottery is a trust yet New Labour just packed the board of trustees with cronies, and now the fund is filling in NHS funding gaps, and similar other worthless causes. Some careful drafting of the trust deeds is required.

Leave a Reply

Your email address will not be published. Required fields are marked *