Is Ireland committing economic suicide?

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Irish Financial Services Centre, Dublin 1

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Standard multiplier effect

Multipliers can be calculated to analyze the effects of  economic  policy or other exogenous changes in income and spending, on the  output of an economy. For example, if an increase in German government spending by €100, with no change in taxes, causes German GDP to increase by €150, then the spending multiplier is 1.5. Other types of fiscal multipliers can also be calculated, like multipliers that describe the effects of changing taxes. Multipliers work on the downside in the same manner as they operate on the upside. Figure 1 below present’s estimates for the historical effects of shocks to government purchases on output and growth.

Brussels rules

Forced by mandarins in Brussels, the headquarters of the European Union and the European Central Bank, Ireland’s current Fianna Fail government are actually contemplating introducing tax cuts that will see 15 billion Euros cut out of the economy over the next 4 years. Using an average multiplier of 2 this means that Irish GDP could fall by 30 billion. Thus in 2014 Ireland’s GDP probably will be 90 billion, a drop of  25%. This “collapse” of an economy  that is already weak will turn a “recession into a “depression”. The end result of this “policy” will be higher unemployment, lower VAT, lower corporation tax receipts, major business , lower local government and city rate collections and stressed social services.

The alternative to this policy is for the Irish government to introduce some imitative that will manage to get credit moving again in the stalled economy. Many see the introduction of a new National Commercial Bank as one way to balance fiscal rectitude with smart economic strategy. Ireland has a young workforce, a first world educational system, an envious location straddling the USA and Europe and a modern infrastructure. Instead of thinking of the future the hapless government of Prime Minister Brian Cowan is stuck in the past. Rather than being a powerful statesman he has become nothing but a loan collector for reckless banks.  surely deserves better.

Note: Ireland’s GDP

Ireland’s GDP ( Gross Domestic Product). Source CIA World Book).

$172.5 billion (2009 est.)

$186.7 billion (2008 est.)

$193.4 billion (2007 est.)

note: data are in 2009 US dollars

Euro conversion rate @ .74 (Approx) Means Irish GDP is currently Euro 120 Billion.

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