Austerity will fail

The Government and opposition parties have signed up to reducing the budget deficit to 3% by 2014. The government has now settled on the figure of €15 billion in cuts over the course of four years in order to achieve this stated goal.

Every orifice of the media is expounding, what they have deemed, the unfortunate but clear need for cuts. Even ICTU, while noting the potentially deflationary impact of ‘too much, too soon’, has quite literally signed up to this cutback agenda via the Croke Park deal that is a trade union sanctioned mass shedding of public sector jobs and acceptance of pay cuts.

The horror of the impact of such cuts aside, there must be some truth in the need for cuts, or workers and their families taking some pain, right? Not so. Austerity measures have failed. Austerity measures will fail. Austerity measures will bring the state closer to insolvency as opposed to reducing the state deficit and encourage economic growth.

The two lies

Since the crisis hit, two major myths have been propagated by the government – both hinge around the latter’s toady kowtowing to the greed, speculation and profiteering that’s at the core of international capitalism.  The first myth is that the speculators that made losses in Anglo and their ilk had to be bailed out. The second myth is that the harsh medicine of cuts had to be swallowed. The reasons cited for both are that these measures are necessary in order to keep up market confidence in Ireland and therefore will engender a recovery.

Without focusing on it, the bank bailout is going to push Ireland’s deficit this year into the biggest recorded in a nation-state during peace-time. Even mouthpieces of big business like the Financial Times have questioned the necessity of the government’s generous bailouts of bondholders.

With regard to austerity – we have had austerity for more than two years and austerity has made the crisis worse. Cuts that affect workers are deflationary. They have a knock-on effect on spending that leads to job-losses in the service sector. Unemployment and the criminal waste of talent and potential that it is, increases the social welfare bill. The government itself admits this conundrum for capitalism and is working off estimates that every €1 billion taken out of the economy will lead to a quarter to a half a per cent drop in growth. The reality is that cutting public spending does not result in a corresponding cut in the deficit.

Spiralling deterioration

€9 billion has already been cut from public spending by the government and yet the government finances have been deteriorating apace. Such cuts lead to a spiralling deterioration in the economy and an increase in the deficit. GNP has contracted for nine quarters in a row. GNP is a better indicator of the real economy than GDP, as figures for the latter get artificially boosted by multinational corporations that take their profits abroad.

Government projections have constantly been wrong. Only weeks ago, they were working off a figure of €7.5 billion in cuts and tax increases in order to meet their 2014 target. The fact that it was promptly doubled is indicative of the fact that their cold, calculating arithmetic as they tot up their swingeing cuts that will have devastating and deadly consequences, simply doesn’t take into account the living processes at work in the economy – and the living processes at work are sucking the economy inevitably downwards.

Workers working and in particular engaging in productive wealth creation must be a key element of a growing economy. The historic weakness of Irish capitalism means that the indigenous capitalist class is weak. Talk of innovation and the knowledge economy is hollow rhetoric. Given this historic weakness of the indigenous private sector (the Celtic Tiger boom, for example, originated through foreign direct investment in the main), the public sector and public sector employment in the South take on particular importance. The devastation of the latter, not only in terms of the loss of PAYE workers’ tax payments, but also of tens of thousands of jobs that the private sector haven’t a hope in hell of replacing, will cause and is causing untold damage to the economy. For example, according to the ESRI, a €1 billion cut in public sector employment (approximately 17,000 jobs) reduces GNP growth by 1%.

Underpinning all the myths that the government has been propagating is the question of market confidence. The cost of insuring Irish sovereign debt against default rose to an all-time high the same week that the €6 billion figure for Budget 2011 was announced, as credit default swaps on AIB’s subordinated debt indicated a 63% likelihood of default within 5 years. Not only are the markets “losing confidence”, many speculators are actively gambling on the state defaulting on its debts. As the cost of borrowing increases, the slide towards insolvency continues, and the austerity measures are making it slippery.

€15 billion in cuts, taxes and charges mean that virtually every nasty and odious notion that would affect the working and middle classes that has been floated since the crisis hit – from college fees, to water charges, to privatisation of state assets, to decimation of health and education – is a possibility. It’s mass immiseration and it’s going to set the country back decades. Every single attack on working class people, from cuts, to taxes and charges, to pay cuts, to job losses, must be resisted. Building mass, active opposition to the Budget that rejects the failed and despicable policy of austerity and opposes all cuts is a start. Ordinary workers reclaiming the trade unions and therefore building a new leadership that fights all cuts and attacks on workers is a vital necessity in building an alternative to the failed policies of austerity and failed system of capitalism.