Skip to content

Michael Taft : Straight Keynesian Solution to Irish Crisis

Michale Taft writing in progressiveeconomics@tasc takes a shot at where the money might come from for a stimulus plan.  This is harder for a Keynesian than for a MMT follower but useful none the less.  Could do with some figures to back up the statements.

3. Where’s the Money? Here’s the Money

How do we get our hands on the investment to get these output, productivity and employment-raising activities going? The Government’s deflationary strategy has ended in tears in the international markets (our 10-year spreads vie with Portugal to be the worst in the EU-14). Resort to international borrowing, possible at the start of the recession, is now being closed off.

These are five areas in which we can start to access the resources for investment without the Exchequer resorting to the international markets. I’m sure others have more ideas. And with growth comes more resources for investment through increased revenue. This is how we get a virtuous cycle happening.

There are five areas we can identify for investment resources:

Public enterprise: they have the ability to leverage investment for commercial return projects. Take Next Generation Broadband: IBEC estimates the cost of a network to be €2.2 billion with a 12-year ROI time horizon. A model outlined by Donal Palcic shows how a public enterprise-private investment partnership can work. And rather than costing the state, it would be a beneficiary in the short-term as two-thirds of the cost is made up in civil engineering work (more tax revenue, reduced unemployment costs). And afterwards, we have a real revenue-raising asset in place.

Use our Savings: The ESRI estimates we will have nearly €50 billion (or nearly 40 percent of our GNP) by next year in Exchequer cash balances and Pension Reserve Fund assets. Not all of this can or should be accessed (billions are tied up in bank recapitalisation while we need to retain liquidity on our balance sheet). Still, can it be argued that we need this entire savings at a time when our economy desperately needs investment capital? Put some of it to work, boost output and, so, reduce long-term debt.

Redirect Pension Fund Contributions: The Government intends to put nearly €4 billion into the Pension Fund between 2012 and 2014. Redirect some, most, all of that into investment now. It doesn’t alter the Exchequer Balance Sheet output, but it will boost inputs (e.g. tax revenue, reduced unemployment costs) meaning lower debt.

Taxation: The ESRI has shown that taxation is less harmful to the economy than spending cuts. Raise taxation, particularly on the ‘savers’ (that is, high-income groups); this will have the least deflationary impact. Some of this money can be diverted into productive investment.

Public Sector Productivity Gains: if there are efficiencies to be had in the public sector (and not the Government’s Transformation Agenda which is just a cover for cutting public services, employment and working conditions), then redirect those savings into investment.  (link for full article)

Posted in News.

Tagged with , , .