The theory is fine, but ignores one practical issue;
The cuts were necessary, not because the government was attempting to cool or shrink the economy, but because there was not enough money in the government reserves available to continue spending at the previous rate.
The alternative was for the government to borrow even more money to maintain the levels of spending.
In essence, it would have been the same as a family, maxed out on a couple of credit cards, with a 10x income mortgage that they took out in 2006, an “investment” property interest only loan on a pile in Bulgaria, a couple of young kids, two car loans and some debt to the credit union for last years trip to Disney World, deciding that because the consumer is an important part of the economy they were going to do their bit by continuing to spend at mid 2000’s levels, applying for a couple of new credit cards, seeking a pay rise and looking to borrow more to keep it all ticking over.
The theory of how government, and indeed consumer, spending impacts on an economy is fine, but theory has to tempered with the realities of the situation.
The theory of catabolic collapse works in the same way. Less economic activity bites the hand that feeds the surplus wealth needed to maintain the system and is self reinforcing, creating a downward spiral. Of course that theory goes a little further: government induced stimulus eventually makes things worse not better, if it cannot be put to use for genuine wealth creation as opposed to make work pork barrel project. Do you think they can? energybulletin.net/node/16649
How much of the fall in economic activity can you blame directly on the cuts given that the economy was already in a deep recession?
On a related point. The working population is aware of the growing public debt burden. If you continually add to this debt consumers will consumer less in anticipation of higher taxes in the future.
Furthermore, even though most posters here do not think that the budget cuts went far enough (or perhaps that the right cuts were not made) - the international bond markets seem to have been convinced. Just look at what Greece is paying for new debt vs Ireland (6.5% vs 4.7%). Have you factored lower financing costs into your numbers?
Eh…? The game was up, Rock3r. The Emperor had been declared naked. We have to start tackling the waste/inefficiency and get our economy competitive again. I’m not really sure what alternative you suggested (a link to a previous thread would help), but sooner or later the Bond market was going to say ‘no thanks’ to more debt. I feel more comfortable defending a currency than trying to maintain inflated asset prices.
Its not a mistake . If you listen to what Cowen and Lenihan are saying " We have turned a corner " " we have stabilised the economy " etc you will hear them only talking about Irelands ability to borrow and not the economy . They have given up on the economy , have battoned down the hatches and the only show in town is Irelands ability to borrow .
In the 80’s we just borrowed but now whenever Ireland raises a bond on the international markets it actually makes the papers .
The economy is dying and there is nothing they can do about it as all their focus is on impressing ’ international markets ’ to keep the show on the road . Making those cuts was done to try and balance the books and to show the bond market that while we are a basket case we are at least credit worthy ( although at higher interest rates )
We are like a ship that is holed below the waterline . We can just about keep afloat if we keep on bailing , but we are not sailing anywhere .
I’m having a hard time reconciling all the deflationistas on this forum with their love of gold. Seems like people are advocating belt tightening, but actually expecting massive stimulus and hence inflation, which can only be defended with gold, no?