Monday 21 October 2019

Bank on it

• It seems to be generally accepted that the one way Europe can solve its present financial crisis is to have people spending money on goods and services.

To do that people have to have money available which, in turn, means the relative governments upping their expenditure thereby encouraging the private expenditure of ordinary citizens.

Unfortunately, because governments have no money to spend in this way, they have to borrow. As we all know now, this borrowing comes at too high a cost. Governments have gone too often to the economic well and borrowers are not sure they'll get their money back. Hence the present situation in Europe where there is an economic logjam.

Many sages, like Mary Lou McDonald and Pearse Doherty of Sinn Fein, are shooting the line that all that has to be done is tax the rich and use the resultant proceeds to build roads, schools, etc, to get things moving again. Let the Government bear the risk and the cost.

This is often called Keynesian economics -- governments should spend to get the economy moving again. Unfortunately, people always forget the second and painful part of the Keynesian prescription -- the money so spent should be recovered in taxes when times are good.

In democracies, politicians conveniently forget this fact, especially around election time. No less an authority than John Kenneth Galbraith has stated that the only true Keynesian was Adolf Hitler who spent on armaments and autobahns when first elected and then recovered the expenditure from the German economy sometime later. Can one imagine Merkozy and Kenny/Gilmore adopting a similar approach?

Unless there is debt forgiveness for economies like Ireland, Greece, Portugal, Spain, and Italy, those countries are likely to be in the economic doldrums for a long, long, time.

Liam Cooke
Coolock, Dublin 17

Irish Independent

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