Central bankers around the world have become ostriches, hiding their heads in the sand. They continue to espouse "austerity," as though that will cure the world's economic ills.
And yet, and yet . . . Ireland.
Nearly two years ago, an economic collapse forced Ireland to cut public spending and raise taxes, the type of austerity measures that financial markets are now pressing on most advanced industrial nations.[snip]
Rather than being rewarded for its actions, though, Ireland is being penalized. Its downturn has certainly been sharper than if the government had spent more to keep people working. Lacking stimulus money, the Irish economy shrank 7.1 percent last year and remains in recession.
Joblessness in this country of 4.5 million is above 13 percent, and the ranks of the long-term unemployed — those out of work for a year or more — have more than doubled, to 5.3 percent.
Now, I can hear the naysayers: "Ireland is different! It's an itty-bitty country! That wouldn't happen in Europe and America!" No, it probably wouldn't, not to the degree it has in Ireland. But is that what we want to be saying when we're still mired in recession a year from now? "At least we're not as badly off as Ireland?"
That’s why the Irish debacle is so important. All that savage austerity was supposed to bring rewards; the conventional wisdom that this would happen is so strong that one often reads news reports claiming that it has, in fact, happened, that Ireland’s resolve has impressed and reassured the financial markets. But the reality is that nothing of the sort has taken place: virtuous, suffering Ireland is gaining nothing.Of course, I know what will happen next: we’ll hear that the Irish just aren’t doing enough, and must do more. If we’ve been bleeding the patient, and he has nonetheless gotten sicker, well, we clearly need to bleed him some more.
What is needed now is stimulus to get the world's economies growing again, not tax hikes and job cuts which take money out of the hands of consumers. Unfortunately, central bankers aren't listening.
Posted by Linkmeister at June 29, 2010 12:09 PM | TrackBack