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We should bail out the people as well as banks

By giving the cash-strapped public a helping hand we will stimulate the economy into moving forwards again, writes Brendan O'Connor

SO IT seems that one third of us, at least, are confused. And that's no surprise. The people on the 'Yes' side promise austerity if we vote 'No', and the people on the 'No' side promise austerity if we vote 'Yes'. To make matters more confusing, they are both also claiming to stand for growth. Indeed, the people on the 'Yes' side are promising a heady, some would say impossible, cocktail of austerity and growth.

Both sides seem to be united on the need for a stimulus package, and while neither is telling us exactly what they mean by a stimulus package, both seem to have the same worrying idea of how to stimulate an economy -- which is to use more of our money to create more government jobs. They will apparently be using our pensions and the proceeds of selling off any State assets that are any good to create this stimulus package.

Confused yet?

The Left's conversion to the holy grail of economic growth -- which was never a big thing with the Left (they were about fairer redistribution of what is already there) -- is confusing, until you take into account what they mean by growth, which is apparently growth of the State sector, because, apparently, we don't have enough of a State sector already.

The fact that those who are more towards the centre or the centre right seem to agree roughly with this form of stimulus is even more baffling and worrying. So they are planning on selling off State assets in order to pay for what are being called "shovel-ready" new State projects. New lamps for old.

I was talking to a bunch of restaurateurs from all over the country at the Santa Rita/Life magazine Irish Restaurant Awards the other night and it struck me that all of them in their own way are mini stimulus packages. All of them employ not only their own staff but buy from local butchers, bakers, farmers. They use local electricians, plumbers, painters, printers. And of course they create buzz and focal points in communities.

For example, the guys that won best gastropub in Ireland were people who took over a pub at the top of Bath Avenue in Dublin 4. These guys started doing nice food there and created a nice buzz.

This was complemented by the fact that two other lads set up a little place across the road called Juniors, which is a small New York-style place, unassuming, with one cook and one helper in an open kitchen and a couple of people front of house. Again, there's a buzz there.

The guys behind Juniors have now also opened a pizza and pasta place around the corner, called Paulie's. So now you have a little food hub around one junction, and people who mightn't have eaten out locally in that area before, do now. And while they're at it they maybe go for a few pints in Slattery's pub on the corner, And suddenly you have this foodie cluster stimulating a whole little area.

Two other cafe/artisany food stores have opened up there now and I see one of the lads from Krystle nightclub has revamped another pub down the road. There are probably 50 direct jobs between all of these businesses, and plenty more jobs being indirectly supported. And it's a great example of how dynamic risk-takers can stimulate a whole community. And what the Government did to get all these enterprises off the ground is probably negligible.

One thing the Government did do for restaurateurs, and the restaurateurs the other night seemed very grateful for it, was to cut taxes. And the low VAT rate on wining and dining has now been retained for another while, and it is clearly helping the hospitality trade a lot.

But you can be guaranteed that when our friends on the Left talk about a stimulus package, cutting taxes is the last thing they have in mind. Joan Burton certainly seemed to speak highly of the retention of the lower VAT rate at the Restaurant Awards. Which suggests that she, and perhaps the Government, understands that a stimulus is not always about the Government spending more money. In fact, it is often about a government collecting less money in the short term, which can often lead to greater long-terms gains.

So you take a small hit on VAT to encourage people out to restaurants, and in the long run people are encouraged to spend money. You give them a little incentive to overcome their fear of spending

and the insecurity that is paralysing everything, and thus jobs are created.

Speaking of people's fear of spending, perhaps the greatest stimulus package the Government could offer would be to do something about personal debt. The personal debt crisis is probably the greatest single factor within our control that is paralysing this economy and preventing growth.

And the Government knows this and has talked about dealing with it urgently. But nothing seems to be happening. The personal insolvency legislation doesn't seem to be in any great hurry and most people, even some Government ministers, aren't even very confident it will do its job as currently framed, given that any kind of mortgage-debt restructuring will still be left up to the banks, and the banks are not willing to forgive personal debt for the little people.

If you are in Nama, you are really only expected to do your best, or maybe cover the discounted cost of your debts. If you are a bank, you will get all your bad debts paid for you by us the people. But it's different for ordinary people.

And remember too that all of that large-scale debt forgiveness has done nothing to stimulate the economy. Despite the founding promises of Nama, credit is not flowing. Why not then forgive directly, to the actual actors in the economy? Just as Patrick Honohan has suggested banks be bailed out directly, bypassing governments, why not bail out people directly too? Why not bypass the banks? Because you can give money to the banks til the cows come home, as we have seen, and all they will do is hoard it, or "deleverage" as it's known. Bail the people out directly, and suddenly the economy starts moving again.

The argument made against bailing individuals out of their debt is that we can't afford it, despite the fact that it is as critical to growth in its own way as bailing out banks, and secondly that people would take advantage of it.

In fact, Michael Torpey, a senior official in the Department of Finance, punctured the myth of so-called strategic defaults or "won't pay" defaulters last week when he pointed out that strategic defaults represent a very small proportion of overall mortgage defaults.

As people are asked to vote 'Yes 'to the treaty in case we need "another bailout", many of those people, crippled with debt, might find themselves thinking that they never got a bailout in the first place, that everyone, from the big developers to the banks, to the Greeks, seems to have been bailed out, but that all ordinary mortgage-holders are being asked to do is to pay for everyone else's bailout.

Confused now?

Sunday Independent