Ray Kinsella is suggesting that Whitakers economic vision in the 1950s is contradictory to austerity policies of the Trokia. irishtimes/business/economy/a-blast-from-the-past-lessons-from-the-1950s-1.1858402?page=1 Yet, it turns out that Whitakers vision, or a reading of it, is the model for policies imposed by the Trokia Here is then President of the ECB, Jean Claude Triche, speaking in Dublin in 2004, praising Whitaker: ecb.europa.eu/press/key/date/2004/html/sp040531.en.html Firstly, in doing so I have the satisfaction of honouring a great man, a great European and a great Central Banker. Dr. Whitaker is a man whose inspiration and efforts were used at a critical time in Irish history to bring Ireland on a journey of transformation from economic stagnation to a position of stunning and exemplary economic success. Secondly, you, Dr. Whitaker, deserve to take the satisfaction and pride of knowing that your contribution to the success of the Irish economy has not been bounded by Ireland’s shores. Rather the process of transformation that you began over four decades ago has become a model for the millions of new citizens of the European Union. The new Member States of the EU have had to confront economic challenges whose magnitude and long-term importance are similar to those that faced Ireland when you began your work. Thanks to Ireland’s economic success, to which you devoted your life, we can be confident that economic reform works. And here are some of the details of that model. For example, in this part of the speech he is saying that fiscal consolidation - austerity - is the way forward in the event of an asymmetrical shock - central bank speak for an economic bust. He does so using bog-standard Ricardian equivalence, which is thoroughly discredited within modern mainstream economics. Some people argue that fiscal consolidation is detrimental to demand and economic activity. I would maintain that wealth and expectational effects of well-designed consolidation programmes might very much reduce and possibly even outweigh the traditional Keynesian multiplier effects of fiscal policy on demand and activity. If fiscal consolidation is perceived by the private sector as a credible sign that public spending will be permanently lower in future years, households will revise upwards their expected permanent income in anticipation of lower future taxes. Therefore, current and planned consumption will also increase. In addition, fiscal consolidation might improve long-term financing conditions by way of less demand on the savings pool (reducing crowding out) and lower risk premia on government paper. Hence, wealth effects prompted by lower nominal and real interest rates would support larger consumption. Furthermore, following more favourable financing conditions, private investment is also likely to increase. If fiscal consolidation can induce moderating effects on wage demand, relative unit labour costs might decrease, with positive medium-term effects on real GDP growth through a greater competitiveness of the productive sector. Such effects are buoyed if lower expected tax rates and more efficient public expenditure enhance the working incentives and the investment environment. And here he is arguing that Irelands example of fiscal consolidation - again, austerity - proves that it doesnt have to have a deflationary effect: In this respect, the dramatic acceleration of output in Ireland in the post 1987 period can be associated with a vigorous and successful project of fiscal consolidation starting in 1987. This programme was based on tight expenditure control via subsidy cuts, social security reform and a streamlining of the public sector and control of public expenditure. Ireland’s experience, similar to the Danish experience in 1983-89, clearly shows how policies geared to fiscal consolidation do not necessarily entail contractionary effects on real aggregate demand and economic activity. On the contrary, in these two countries, in spite of the tightening policies undertaken, the rate of growth showed a significant increase in relation to previous years. In particular, in these countries, significant budget consolidation based on spending reduction enhanced the long term fiscal sustainability and increased the policy credibility of a more favourable tax regime. Regarding Ireland, the budget deficit was reduced from 10.1 % of GDP in 1986 to 1.7 % in 1989, while the debt ratio declined from 113 % of GDP to 100.4 % of GDP; over the same period GDP growth accelerated from 0.3 % to 6.2 %; the overall consolidation effort, as measured through the structural fiscal balance, amounted to 5.1% of GDP over these three years. In the years afterwards, Ireland continued to enjoy high rates of GDP growth and kept large structural fiscal surpluses (almost always above 5 % of GDP), thus allowing for a steady and rapid decline of the debt ratio (which reached 32.4 % of GDP in 2003). The Irish and Danish experience brings evidence that expansionary expectation effects may dominate on the contractionary effects of a fiscal consolidation. In both cases there is a considerable evidence that the consumer boom was prompted by the wealth effects of cuts in public spending, as a signal of lower future taxes, concomitantly to the wealth effects implied by the fall in interest rates. On the supply side, a low tax environment has underpinned the pick up in economic activity in Ireland. So we can see that rather than Whitakers so-called vision in the 50s being contradictory to Troikanmics, as Ray Kinsella suggests, Triches complete and utter (ideological) mis-reading of economic history uses the clapped out nonsense about Whitaker as a model for austerity or fiscal consolidation when a country within the European Union gets into trouble. As it turns out, the move to attract foreign exporting firms to build industry in the 50s - in order to increase the amount of dollars the government held, which was required to pay back loans from the US - was only a tiny part of Whitakers report. The majority of it had to do with Irelands main sector, agriculture. Anyway, the policy had been knocking around the various Dept of the Irish government for the previous 10 years and was initated by Sean McBride: As Minister for External Affairs in 1950 he noted, in a memo to government, that ‘tremendous scientific and technical developments have been taking place in industry in the last ten years, of which we have little knowledge. Our failure to make use of the Technical Assistance Programme [under Marshall Aid] is regrettable.’ In 1951 US consultants Irish Business and Employers Confederation. Technical Services Corporation, or IBEC prepared a detailed report which decried the preference of selling cattle on the hoof rather than trying to create employment and build firms that would create finished products from them. The Departments of Agriculture and Finance opposed the publication of the report, while Lemass wished to use it as a White Paper on industrial development. The government actually rejected these wide policy recommendations, many of which, however, eventually resurfaced in Economic development in 1958. historyireland/volume-22/sean-lemass-laurence-kettle-agents-technical-change-industrial-research/ While I personally disagree with many of Frank Barry conclusions, he does say: Costello’s plan [for economic expansion prior to those of Lemass] was based on the incorrect assumption that agriculture would be the main driving force of expansion – but so was Whitaker’s.” tcd.ie/business/staff/fbarry/papers/Foreign%20Investment%20and%20the%20Politics%20of%20Export%20Profits%20Tax%20Relief%201956%20_FINAL%20REV%20Feb%202011_.pdf And in response to the report which was discussed at a symposium dedicated to it in 1959, Dr. L. ONuallain said this: tara.tcd.ie/bitstream/handle/2262/4521/jssisiVolXXPart2_112148.pdf;jsessionid=86FE0850991632299A1D426B0B2B8945?sequence=1 With the leading role in the proposed development programme alloted to grassland management nad to increased cattle production we come full circle back to the agricultural policy favoured by our first native government andby our first Minister for Agriculture, Mr. P. Hogan. This is understandable, of course, in view of the predominant position that cattle and cattle products still occupy in our total of domestic exports. It is only common sense that so long as we are engaged in cattle raising and to the extent that we do, we should endeavour to do so in the most efficient manner open to us.
Posted on: Tue, 08 Jul 2014 13:42:11 +0000
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