Tuesday, June 29, 2010

Ireland: A scary example of what fiscal austerity does to a country

A frightening portrait of Ireland after the government decided to tighten its belt, from Liz Alderman in The New York Times.

...the once thriving nation is struggling, with no sign of a rapid turnaround in sight.

Nearly two years ago, an economic collapse forced Ireland to cut public spending and raise taxes, the type of austerity measures that financial markets are now pressing on most advanced industrial nations.

“When our public finance situation blew wide open, the dominant consideration was ensuring that there was international investor confidence in Ireland so we could continue to borrow,” said Alan Barrett, chief economist at the Economic and Social Research Institute of Ireland. “A lot of the argument was, ‘Let’s get this over with quickly.’ ”

Rather than being rewarded for its actions, though, Ireland is being penalized. Its downturn has certainly been sharper than if the government had spent more to keep people working. (Emphasis added.) Lacking stimulus money, the Irish economy shrank 7.1 percent last year and remains in recession.

Joblessness in this country of 4.5 million is above 13 percent, and the ranks of the long-term unemployed — those out of work for a year or more — have more than doubled, to 5.3 percent.

Some members of Congress adopted the same argument that it's more important to pay down debt than to spend money on economic stimulus. That's why a bill to extend unemployment benefits is stalled.

Here's Sen. Bob Corker, a Tennessee Republican: "I cannot in good conscience continue voting for bills that aren’t paid for.” Tennessee's official unemployment rate is 10.4 percent.

According to the National Employment Law Project,

More than 1.2 million Americans will exhaust their unemployment benefits by the end of June if Congress fails to work out a deal on an extension of unemployment