Lost confidence must be restored
Sunday July 25 2010
Confidence is elusive. But it is not an illusion. It is real and it has to be engendered, inspired even. Blaming the people or the media for the widespread lack of confidence does not inspire anyone.
Taoiseach Brian Cowen castigated journalists last week for generating negativity and concentrating on too much bad news about the economy. How could they not? There is so much of it -- reports from the IMF, the ESRI, the Department of Finance, Patrick Honohan, Regling and Watson, documents released by the Department of Finance, the dramatic rise in debts and insolvency cases, and downgrading by international rating agencies.
Nor is it sufficient to say, as Justice Minister Dermot Ahern did last week, that people should stop saving and start spending. The marked increase in savings is an indication of a lack of confidence by the people in the immediate future of the economy. It indicates real fear about jobs and mortgages and pensions and possible budgetary measures at the end of the year. These fears cannot be dispelled easily. They certainly cannot be allayed by simply telling people to snap out of it.
The ECB's Jean-Claude Trichet seemed almost to take some pleasure in the discomfort of President Barack Obama last week when he said: "With the benefit of hindsight, we see how unfortunate was the over-simplified message of fiscal stimulus given to all industrial economies under the motto 'stimulate', 'activate', 'spend'." But nobody has ever suggested that the Irish Government should, or even could, follow such a policy. Those who have advocated stimulus here never did so at the expense of cutting State spending. In fact, the Government has been urged time after time to stick to the task of cost cutting and if there has been slippage, it has been on the part of the Government.
The McCarthy report provided a menu for saving €5bn but very little of it was acted upon. Finance Minister Brian Lenihan explained last week that many of the McCarthy proposals had political consequences. If that is a barrier to finding solutions then the options are narrowed to an impossible degree and Colm McCarthy -- who has now undertaken to examine State assets -- is wasting his time.
This exercise is being undertaken with a view to possible sell-offs and/or streamlining for efficiency so that those State bodies we keep can become revenue earners, as they are in other countries, and not a drain on our resources. But just as any proposal to cut the cost of the public payroll is now off the agenda thanks to the politically expedient Croke Park deal, any suggestion by McCarthy to sell off State bodies or force them into efficiency seems bound to founder on political consequences.
At least tax increases and new taxes seem to be off the agenda and it will be interesting to see how the Government can come up with savings of €3bn (and a further €4bn next year if the ESRI recommendation is accepted) without adding to the stagnation that is the inevitable by-product of the current deflationary government policy. But Mr Lenihan has only now begun, with his colleagues, this exercise and it might be fairer to suspend judgement until there is some more definitive indication of where exactly the axe will fall.
It would be a mistake, however, to fixate on the cuts in Budget 2011 at the expense of the rest of the economy. And it would be a disaster to continue to think that as long as we appear to be keeping Mr Trichet happy with our efforts to bridge the gap between public income and spending, we need do no more.
Hand in hand with this approach must come some bold moves that will stimulate growth -- real growth with jobs, created by investment from home and abroad and not 'make-work' schemes paid for by the taxpayer. Exports are important -- we cannot keep passing our own money among ourselves. As the American commentator Morris Dees said recently: "You can't run a country on consumerism." But you can't run it without a healthy consumer market either, because that is where the immediate potential for maintaining and creating employment lies. And extra jobs mean extra taxation revenue.
The aversion to a genuine stimulus package by the Government has been based on the belief that there is no money available for this purpose. Yet any and every demand for extra billions by the most down-at-heel financial institution brings out the cheque book with indecent haste. Cutting costs is important. Cutting costs with the minimum impact on acceptable living standards is important, too. But the approach must be even handed. Cost-cutting cannot be the be-all. There must be real, considered, effective and substantial stimulus package that will contribute in a meaningful way to job creation. That is an approach that the people will respond to. That is an approach that will begin to restore confidence.
Originally published in
