| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

Home 
 
 News
 Irish
 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 International
 Property
 Innovation
 
 Analysis/Comment
 
 Asia Economy

RSS FEED


How to use our RSS feed

Follow Finfacts on Twitter

 
Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.

Welcome

Finfacts is Ireland's leading business information site and you are in its business news section.

Links

Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Irish Economy

Global Income Per Capita

Global Cost of Living

Irish Tax - Income/Corporate

Global News

Bloomberg News

CNN Money

Cnet Tech News

Newspapers

Irish Independent

Irish Times

Irish Examiner

New York Times

Financial Times

Technology News

 

Feedback

 

Content Management by interactivetools.com.

News : Irish Economy Last Updated: May 9, 2011 - 7:14 AM


Irish Economy 2011: Alternatives​ to debt and austerity?
By Michael Hennigan, Founder and Editor of Finfacts
May 6, 2011 - 5:55 AM

Email this article
 Printer friendly page
Taoiseach Enda Kenny with IDA Ireland CEO Barry O'Leary, after his visit to the New York Stock Exchange (in background), May 5, 2011.

Irish Economy 2011: It's good to have a reasoned debate on alternatives to debt and austerity as the focus in recent times in Ireland has been to seek foreign scapegoats for our woes, which is driven by a cocktail of questionable motives.

In The Irish Times today, a former civil servant in the Department of Finance, writes that a "self-appointed and well-concealed elite who run Brussels will continue to siphon off the wealth and sovereignty of the Irish people until they awake, throw off the appalling shroud of apathy that envelops them and shout, 'Enough!'"

Robert Pye warns from the safety net of a lavish public pension: "At least the Vikings focused mainly on coastal areas, but their latter-day counterparts are ransacking the nation from end to end. And unless we stand our ground – a modern equivalent of the Battle of Clontarf – they will take everything that’s worth taking."

Pye has no prescriptions; no proposals or advocacy of reform or how struggling firms or their workers in the private sector would survive the fallout from an ultimatum to the "sharks and jackals who control the international banking system" to continue funding Europe's top earning lawyers, medical consultants and senior public servants.

On Thursday in The Irish Independent, Prof. Gary O'Callaghan wrote: “First, the causes of the crisis include the nefarious activities of a few individuals but are mainly comprised of mistakes by honest people who were lulled into complacency by an incomplete understanding of the new European monetary system.”

The poor honest people were out of their depth, God help us! See: Irish Economy blog thread

SEE: Finfacts article, March 2011; Ireland, an Béal Bocht and a freshly varnished Victims' Cross

What is striking is that burning bondholders evokes a huge amount of anger but support for reform of broken domestic systems is muted, to say the least.

Besides,  it can pay to sell cost-free bromides to the confused public: See: Ireland's anti-banker chameleons: Shane Ross and David McWilliams 

The Smart Taxes project says the dawning realisation that conventional economic thinking, that did not foresee the crisis, cannot help solve the problems we now face means that we must be open to exploring new economic ideas.

It is time to move beyond criticizing the clear shortcomings of our country’s economists and politicians and consider – with open minds – economic ideas that are being developed outside of the mainstream.

Such a new macroeconomic model has been developed by a pioneering community of heterodox economists based in the University of Missouri, Kansas. Their Modern Money Theory (MMT) approach predicted the current crisis and so unsurprisingly, their analysis and economic solutions have attracted intense interest amongst economic commentators including Nobel Prize winning, Paul Krugmann.

MMT will inform a number of economic policies to be presented and debated in a conference entitled “Lessons from the Crisis: Money, Taxes and Saving in a Changing World” co-hosted by Smart Taxes, (Fiscal Policy for Sustainability Network) and TASC (Think Tank for Action on Social Change) on the 9th May 2011 at Croke Park, Dublin.  There will be a public lecture at 6pm in the Westwood House Hotel in Galway at 6pm on Wednesday 11th May.

See smattaxes.org for  more information.

Proposals such as the European Central Bank funding a Job Guarantee Programme, are unlikely to gain traction. But make up your own mind from Smart Taxes outline of its approach: 

What does Modern Money Theory have to offer us that is different?

Although Modern Money Theory describes the money creation and management system of a fully sovereign (i.e. currency issuing) state, MMT is still relevant to Ireland in formulating strategy and its negotiating stance with the European Central Bank and European Parliament to address the debt crisis.

MMT tells us that the ECB can issue currency or liquidity at no cost to itself, nor to its constituent central banks, nor to the national economies of the Eurozone. The ECB already tacitly acknowledges this fact because it has declined to turn its liquidity support to the Irish banks – currently at €70b – into a medium term loan. Such a loan is actually unnecessary and not in Ireland’s interest as it would carry a substantially higher interest rate than the current 1% charged for the liquidity. The ECB provides the liquidity by simply crediting it in the accounts of the banks. The pretence that the liquidity given to Irish banks was provided in exchange for valuable assets has been shown up to be a non-essential requirement and notional fiction because the ECB has permitted the Irish central bank (a subsidiary of the EEB) to also credit the Irish banks without a matching transfer of bank assets of equal or greater value.

Under the MMT perspective, a central bank should not be concerned per se by the mounting sum in the sovereign government’s deficit account as it does not, despite ‘common sense’ claims to the contrary, represent a debt analogous to that of a household, business or bank debt. Instead the central bank should watch intently for signs of inflation – of which there are few at present in our struggling economies – as its overarching guide for money creation and taxation levels. Taxation both destroys money – by removing it from circulation – and gives it value – as only a national currency is ever accepted in payment of taxes. Once it is understood that money can be safely issued by a central bank without repayment of capital and interest and does not have to be first borrowed in the bond market or raised in taxes (yes, that means given free) new policy options open to tackle unemployment and inflation – not forgetting resource peak and climate change.

Furthermore, MMT suggests that, instead of making liquidity available to the banks, the ECB could just as easily and probably more safely, give it directly to member state governments. It can write a metaphorical cheque for immediate and annual distributions of for instance, 10% of GDP on a per-capita-basis to pay down member state outstanding debts. It should, at the same time impose national deficit ceilings sufficiently high to promote desired levels of aggregate demand.

This positive attitude to government deficits is another counter intuitive aspect of MMT compared to conventional analysis and goes beyond promoting deficits to counter liquidity traps in a depression. Once you accept that all non-government money i.e. bank money is matched by liabilities it follows then, for the private sector to net save, the government has to be in net debt. Even though a sovereign government does not have to sell bonds to raise money, MMT tells us it should still do so to a certain extent, in order to provide secure interest-bearing saving vehicles for its citizens.

Another important policy of most MMT economists is the Job Guarantee, i.e. that the government should act as an ‘Employer of Last Resort’. A job guarantee is a permanent job offer from the government to all citizens of a certain age who are ready, willing, and able to work, for a basic wage. Some MMT economists suggest that the ECB could directly fund a Job Guarantee Programme in Ireland and in any other EMU state that requested it. Or if general EU agreement cannot be got, a national government could fund a Job Guarantee out of their allocation of EEB issued liquidity.

The banks of Member States would still benefit from an ECB directly or indirectly funded Job Guarantee as the newly employed lodged their salaries in their accounts and paid off their mortgages. The exchequer would benefit as people came off social supports and paid income and indirect taxes out of their wages. The resulting increase in circulating money would transfuse the economy to provide the confidence that is so lacking and which no amount of direct liquidity injection into the banks appears to be able to create.

The Irish Environmental Pillar contends that the jobs provided in the Job Guarantee programme should ideally be Green Jobs and should address the most important challenges of our time : resource peak- especially fossil fuels, climate change and biodiversity loss. In addition to the obvious need to tackle these issues, a Green Job Guarantee programme would have no real impact on the public or private sectors as these environmental resources and systems are not yet priced (i.e. are accounted as externalities) in the marketplace.

Who will Present Papers at “Learning from the Crisis” Conference?

In “Learning from the Crisis” US based MMT economists from the University of Missouri, Kansas Dr. Randall Wray, Dr. Stephanie Kelton and Roosevelt Scholar and fellow presenters Richard Douthwaite and David Korowicz from Feasta; The Foundation for Sustainability, and Prof Gerry Hughes from TCD Pension Policy Research Group, Sinéad Pentony and Tom McDonnell from TASC and Michael Taft from Unite Trade Union. The conference is free and open to anyone whose mind is also open. 

Email TASC to book your place:contact@tascnet.ie  see smarttaxes.org for more information.

Related Articles
403 Forbidden

Forbidden

Execute access is denied.


© Copyright 2011 by Finfacts.com

Top of Page

Irish Economy
Latest Headlines
Irish Economy 2014: Live Register + Public Scheme numbers at 452,000 in September
Irish manufacturing PMI eased slightly in September
European Commission: Apple given special tax deals by Ireland
Irish Economy: Davy foresees big bounce-back in coming years; European Commission has doubts
Irish Economy: Retail sales fell in August; Ex-cars up 0.3%
Apple's foreign tax rate tumbled after 2007 Irish 'advanced opinion'
Low pay in expensive Ireland; Labour productivity rockets?
Irish firms over-dependent on banks; Slow to adopt newer financial products
America and Ireland have highest percentages of low-paying jobs in developed world
Focus on Irish food industry's bigger potential than chemicals or high tech
Irish Budget 2015: Nevin Institute calls for maximum €800m change; Rise in public investment
Government in search of new strategy for Dublin's offshore financial centre
Global Financial Centres: Dublin tumbles to 70 rank from 13 in 2008; Time for Bruton to go?
G20 finance ministers reaffirm commitment to tax reform; Ibec takes Finfacts' advice
Irish Budget 2015: Fiscal advisory council says keep the champagne on ice
Irish Economy 2014: Exports fell, imports rose in July
Irish Economy 2014: GDP up 1.5% in Q2; GNP up 0.6% - personal spending weak
OECD & Tax: Everything grand in Ireland's Republic of Spin?
OECD to publish first proposals on tax avoidance; Big tech on backfoot
Irish mainstream media in times of boom and bust
Irish Economy 2014: Annual consumer price inflation up 0.4% in August
Overseas trips to Ireland rose 12.3% in period April to June 2014
Kenny opens new Guinness brewhouse in Dublin
Irish Economy: Bruton announces 26 jobs from Australia trade mission
Irish Budget 2015: Ibec back in boomtime mode; McKinsey warns of FDI challenges
Bord Gáis Irish Energy Index unchanged in August - up 28% from December 2009
Irish Economy: Drugs production up 38.4% in July; Not material for growth
Consumers warned about counterfeit clothes and scam websites
The idiot/ eejit's guide to distorted Irish national economic data
Irish pension managed funds delivered further positive returns during August
Irish manufacturing PMI at 42-month high; Official data up 3.4% since 2010
Irish Economy: Cars boost retail sales in July; Ex-cars sales dip
Irish economic performance since 1922 and Scottish independence
Ireland: Recovery on track but fantasy economics endure
Net emigration by Irish nationals at 124,000 in 2009-2014
Q1 2011-Q2 2014: Irish employee jobs up 21,000; 130,000 part-timers seeking full-time work
Irish Economy: Job numbers & workforce fell in H1 2014; Finfacts proved right
Irish Economy: In 4 years to Q2 2014 average hourly earnings fell by 1.5%
Irish Budget 2015 & Economy: More demand for tax cuts
At least one fifth of Irish SMEs have direct exposure to property debt