Irish Economic Collapse Accelerates; Other States Following it Down
July 22nd, 2009Via: Telegraph:
For a glimpse of what awaits Britain, Europe, and America as budget deficits spiral to war-time levels, look at what is happening to the Irish welfare state.
Events have already forced Premier Brian Cowen to carry out the harshest assault yet seen on the public services of a modern Western state. He has passed two emergency budgets to stop the deficit soaring to 15pc of GDP. They have not been enough. The expert An Bord Snip report said last week that Dublin must cut deeper, or risk a disastrous debt compound trap.
A further 17,000 state jobs must go (equal to 1.25m in the US), though unemployment is already 12pc and heading for 16pc next year.
Education must be cut 8pc. Scores of rural schools must close, and 6,900 teachers must go. “The attacks outlined in this report would represent an education disaster and light a short fuse on a social timebomb”, said the Teachers Union of Ireland.
Nobody is spared. Social welfare payments must be cut 5pc, child benefit by 20pc. The Garda (police), already smarting from a 7pc pay cut, may have to buy their own uniforms. Hospital visits could cost £107 a day, etc, etc.
“Something has to give,” said Professor Colm McCarthy, the report’s author. “We’re borrowing €400m (£345m) a week at a penalty interest.”
No doubt Ireland has been the victim of a savagely tight monetary policy – given its specific needs. But the deeper truth is that Britain, Spain, France, Germany, Italy, the US, and Japan are in varying states of fiscal ruin, and those tipping into demographic decline (unlike young Ireland) have an underlying cancer that is even more deadly. The West cannot support its gold-plated state structures from an aging workforce and depleted tax base.
As the International Monetary Fund made clear last week, Britain is lucky that markets have not yet imposed a “penalty interest” on British Gilts, given the trajectory of UK national debt – now vaulting towards 100pc of GDP – and the scandalous refusal of this Government to map out any path back to solvency.
“The UK has been getting the benefit of the doubt, both in the Government bond market and also the foreign exchange market. This benefit of the doubt is not going to last forever,” said the Fund.
disagree with part of what he’s saying. Gains in worker productivity and efficiency should far outpace the longer lifespan. I think this intuitive idea that everything (healthcare, housing) should be getting more and more expensive is false. For example, the US and europe went to the 40 hr week back in the 20s and 30s. Ignoring classes of exploited minorities and our unsustainable dependence on oil, why was my grandfather able to support 5 kids, nonemployed spouse, and have a house and car, send kids to college in the 40s on a salesman income. People did laundry by hand and there was no television, much less other productivity increases. Likewise friends have reported supporting a spouse and living in Manhattan in the 60s/70s with blue collar salary. The transition to women working in most households did not result in doubled household wealth as most of the productivity gain was absorbed by increased prices. I hold that the relative ratio of rich vs. middle class causes a price distortion which is the real problem. There is plenty of food for the retirees if we find an effective mechanism to distribute goods and services, i.e. reducing profits by keeping prices at a reasonable level.
i am fascinated by the way this is playing out in different countries. the dividing line i see is between those that can keep their unemployment situation manageable and those that cannot.
the major difference between now and 1932 is mass unemployment. if 20-30% of households have no steady income, either the government steps in with relief work schemes or you get social breakdown. everything now is more leveraged and way more interlocking (complex) than in the 1930s. so the risks are exponential. maybe it was in Orlov’s book where he talks about avalanches and red zones?