*Celtic Kitten: The Failure of Intervention in Ireland
http://mises.org/articles.aspx?AuthorId=1213
4/21/2009
The current financial crisis is a textbook example of the destructive nature
of interventionist government policy. A case in point is the present state
of Ireland. It suffers from extreme overgovernance. In particular, a
horrendously bloated public sector weighs down the Irish economy, stifling
entrepreneurship, and building a welfare state.
With the advent of the Celtic Tiger<http://en.wikipedia.org/wiki/Celtic_Tiger>,
Ireland's economy has grown at an exponential rate. Unfortunately, this has
precipitated an unprecedented degree of government involvement in the
economic and social sphere. The Irish government now has a controlling
interest in such industries as public transport,[1] electricity generation
and transmission,[2] and broadcasting media (radio and television).[3]
Government controls have largely stifled independent providers of key
services, though some private sources do exist, precipitating the tremendous
size of the public and civil services.
The welfare-state system stretches further still, into education ("free"
primary, secondary, and university education), state pensions, and
public-health assistance.[4] All of these services make for a massive
budget.
These massive government services and programs have resulted in enormous
taxation, disproportionately distributed. The wealthiest in the society pay
an uneven amount of taxes. According to Brian Lenihan, the finance minister,
the government's policy is to shift "the incidence and focus of taxation to
those better able to contribute."[5] In other words, those with more money
should be obligated to contribute disproportionately more of their wealth to
the government's gaping coffers. Income-tax rates are ridiculously
stratified, with the lowest earners exempt from income tax and the
wealthiest paying more than 40% of their income. In addition to this, the
government is now calling for an additional income levy of 1% from those
earning up to ?100,000; 2% from those earning up to ?250,000; and 3% from
those earning more than ?250,000.[6] This unequal and unfair taxation has
helped to smother free enterprise and hobble Ireland's prospects for
recovery from the current recession.
The recent downturn has thrown the Irish economy into a tailspin, as years
of surpluses and gluttonous government spending has dried up, leaving a
gaping deficit. The Irish government has followed the majority of nations
and begun a massive stimulus package in an attempt to jumpstart its economy.
The collapsing Bank of Ireland and Allied Irish Banks (AIB) face
nationalization by an overzealous, interfering government. The government
has already paid out ?7 billion to these banks and has established itself as
a powerful influence on the banks' boards.[7] This recapitalization may just
be the beginning however, as full nationalization remains an ever-menacing
possibility, especially in light of recent talks in the United States about
nationalizing American banks.
The housing market is also facing an unprecedented degree of government
involvement and interference. The 2009 budget calls for ?1.65 billion in
funding for housing programs.[8] The government intends to guarantee bad
mortgages and has called for banks to institute moratoriums on house
payments.
Social-welfare programs are also slated for expansion in this year's budget.
According to the budget, social-welfare spending will increase this year by
8.4% to ?19.6 billion.[9] The government also intends to hand out a further
social-welfare package of ?515 million.[10] Apparently the cure to the
social ills brought on by insatiable public spending is simply more public
spending. Only now, the money being frivolously dithered away is not from a
surplus but borrowing from the future.
Evidently, the strategy of the Irish government is to increase its own
involvement in the economic sphere, a mere intensification of the very
strategy that has brought about the volatile business cycle and the current
recession. The government's only remedy seems to be even further government
involvement in the economy. Already it is on the way to nationalizing its
major banks and the aforementioned artificial propping up of the housing
market.
The Irish economy rests on the precipice of devastation. Government
interventionism has left Ireland with little room to maneuver in this
difficult economic climate. The answer to Ireland's economic woes is not
further government intervention in the economy, but a return to economic
liberalism, small government, and sound monetary policy. Ireland needs to
look closely at Austrian economic theory and take a step back from the
dissolving, failed Keynesian model. Ireland needs to return to a firm base:
it must eliminate, or at the very least curtail, its leviathan public
sector; it must bring inflation under control through responsible monetary
and fiscal policy; and it must cut down government economic controls in
order to bring lasting stability to its economy. The only sound plan can be
to cut public spending, eliminate social-welfare programs, and cease
propping up failing sectors of the market.
A drastic turn to responsible economics is the only legitimate way to escape
the deep rut Ireland finds itself in. If the Celtic Tiger is to sharpen its
claws once more, it will need to grind them on the whetstone of the free
market.
[VIEW THIS ARTICLE ONLINE] <http://mises.org/story/3405>
______________________
John Engle is a Hawaiian student studying economics at Trinity College
Dublin. See his article archives<http://mises.org/articles.aspx?AuthorId=1213>
*Notes*[1] "Role of Public
Transport,"<http://www.cie.ie/about_us/role_of_public_transport.asp>
*CIE Group* (accessed March 10, 2009).
[2] "ESB Annual Report
2007,"<http://www.esb.ie/main/about_esb/annual_report_2007.jsp>
*Electricity Supply Board* (accessed March 12, 2009).
[3] "What We Do," <http://www.rte.ie/about/index2.html> *RTE* (accessed
March 10, 2009).
[4] Brian Lenihan. "General Policy," *Financial Statement of the Minister
for Finance*, October 14, 2008.
[5] Brian Lenihan. "Order and Stability in Public Finance," *Financial
Statement of the Minister for Finance*, October 14, 2008.
[6] Ibid.
[7] "AIB, Bank of Ireland Agree of Government
Bailout,"<http://uk.reuters.com/article%20/allBreakingNews/idUKL729898920090207>
*Reuters* (accessed March 10, 2008).
[8] Brian Lenihan. "Housing," Financial Statement of the Minister for
Finance, October 14, 2008.
[9] Brian Lenihan. "General Policy," *Financial Statement of the Minister
for Finance*, October 14, 2008.
[10] Brian Lenihan. "Order and Stability in Public Finance," *Financial
Statement of the Minister for Finance*, October 14, 2008.
4/21/2009
The current financial crisis is a textbook example of the destructive nature
of interventionist government policy. A case in point is the present state
of Ireland. It suffers from extreme overgovernance. In particular, a
horrendously bloated public sector weighs down the Irish economy, stifling
entrepreneurship, and building a welfare state.
With the advent of the Celtic Tiger<http://en.wikipedia.org/wiki/Celtic_Tiger>,
Ireland's economy has grown at an exponential rate. Unfortunately, this has
precipitated an unprecedented degree of government involvement in the
economic and social sphere. The Irish government now has a controlling
interest in such industries as public transport,[1] electricity generation
and transmission,[2] and broadcasting media (radio and television).[3]
Government controls have largely stifled independent providers of key
services, though some private sources do exist, precipitating the tremendous
size of the public and civil services.
The welfare-state system stretches further still, into education ("free"
primary, secondary, and university education), state pensions, and
public-health assistance.[4] All of these services make for a massive
budget.
These massive government services and programs have resulted in enormous
taxation, disproportionately distributed. The wealthiest in the society pay
an uneven amount of taxes. According to Brian Lenihan, the finance minister,
the government's policy is to shift "the incidence and focus of taxation to
those better able to contribute."[5] In other words, those with more money
should be obligated to contribute disproportionately more of their wealth to
the government's gaping coffers. Income-tax rates are ridiculously
stratified, with the lowest earners exempt from income tax and the
wealthiest paying more than 40% of their income. In addition to this, the
government is now calling for an additional income levy of 1% from those
earning up to ?100,000; 2% from those earning up to ?250,000; and 3% from
those earning more than ?250,000.[6] This unequal and unfair taxation has
helped to smother free enterprise and hobble Ireland's prospects for
recovery from the current recession.
The recent downturn has thrown the Irish economy into a tailspin, as years
of surpluses and gluttonous government spending has dried up, leaving a
gaping deficit. The Irish government has followed the majority of nations
and begun a massive stimulus package in an attempt to jumpstart its economy.
The collapsing Bank of Ireland and Allied Irish Banks (AIB) face
nationalization by an overzealous, interfering government. The government
has already paid out ?7 billion to these banks and has established itself as
a powerful influence on the banks' boards.[7] This recapitalization may just
be the beginning however, as full nationalization remains an ever-menacing
possibility, especially in light of recent talks in the United States about
nationalizing American banks.
The housing market is also facing an unprecedented degree of government
involvement and interference. The 2009 budget calls for ?1.65 billion in
funding for housing programs.[8] The government intends to guarantee bad
mortgages and has called for banks to institute moratoriums on house
payments.
Social-welfare programs are also slated for expansion in this year's budget.
According to the budget, social-welfare spending will increase this year by
8.4% to ?19.6 billion.[9] The government also intends to hand out a further
social-welfare package of ?515 million.[10] Apparently the cure to the
social ills brought on by insatiable public spending is simply more public
spending. Only now, the money being frivolously dithered away is not from a
surplus but borrowing from the future.
Evidently, the strategy of the Irish government is to increase its own
involvement in the economic sphere, a mere intensification of the very
strategy that has brought about the volatile business cycle and the current
recession. The government's only remedy seems to be even further government
involvement in the economy. Already it is on the way to nationalizing its
major banks and the aforementioned artificial propping up of the housing
market.
The Irish economy rests on the precipice of devastation. Government
interventionism has left Ireland with little room to maneuver in this
difficult economic climate. The answer to Ireland's economic woes is not
further government intervention in the economy, but a return to economic
liberalism, small government, and sound monetary policy. Ireland needs to
look closely at Austrian economic theory and take a step back from the
dissolving, failed Keynesian model. Ireland needs to return to a firm base:
it must eliminate, or at the very least curtail, its leviathan public
sector; it must bring inflation under control through responsible monetary
and fiscal policy; and it must cut down government economic controls in
order to bring lasting stability to its economy. The only sound plan can be
to cut public spending, eliminate social-welfare programs, and cease
propping up failing sectors of the market.
A drastic turn to responsible economics is the only legitimate way to escape
the deep rut Ireland finds itself in. If the Celtic Tiger is to sharpen its
claws once more, it will need to grind them on the whetstone of the free
market.
[VIEW THIS ARTICLE ONLINE] <http://mises.org/story/3405>
______________________
John Engle is a Hawaiian student studying economics at Trinity College
Dublin. See his article archives<http://mises.org/articles.aspx?AuthorId=1213>
*Notes*[1] "Role of Public
Transport,"<http://www.cie.ie/about_us/role_of_public_transport.asp>
*CIE Group* (accessed March 10, 2009).
[2] "ESB Annual Report
2007,"<http://www.esb.ie/main/about_esb/annual_report_2007.jsp>
*Electricity Supply Board* (accessed March 12, 2009).
[3] "What We Do," <http://www.rte.ie/about/index2.html> *RTE* (accessed
March 10, 2009).
[4] Brian Lenihan. "General Policy," *Financial Statement of the Minister
for Finance*, October 14, 2008.
[5] Brian Lenihan. "Order and Stability in Public Finance," *Financial
Statement of the Minister for Finance*, October 14, 2008.
[6] Ibid.
[7] "AIB, Bank of Ireland Agree of Government
Bailout,"<http://uk.reuters.com/article%20/allBreakingNews/idUKL729898920090207>
*Reuters* (accessed March 10, 2008).
[8] Brian Lenihan. "Housing," Financial Statement of the Minister for
Finance, October 14, 2008.
[9] Brian Lenihan. "General Policy," *Financial Statement of the Minister
for Finance*, October 14, 2008.
[10] Brian Lenihan. "Order and Stability in Public Finance," *Financial
Statement of the Minister for Finance*, October 14, 2008.
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