
By analogy it seems to me that the government is facing a similar 'timing' problem right now. They want to increase taxes without turning the current consumer spending retrenchment into a rout; and they want to maintain a high level of public spending without blowing the targeted 10% budget deficit to GDP ratio and frightening international markets. Come to think of it they're trying to catch falling knives ... tricky.
As I note in a comment on a post over at Progressive-Economy@Tasc, my worry frankly is that we are nowhere near the bottom of the economic cycle (or cliff dive if you prefer more literal descriptions) and that borrowing-fuelled spending now will leave us in an even deeper hole as we face into a continuing economic contraction in 2010. It might work in the United States (a big 'might'), or Switzerland or Canada or Norway: but in Ireland's case we are severely stymied by the absence of a currency depreciation option and the disastrous situation in our banking sector.
To make matters worse, the income shock we are experiencing as GDP contracts is but a temporary glitch relative to the wealth shock that will reverberate for decades to come. With Irish equities down by more that the Dow Jones following the 1929 Wall Street Crash at the same point after the fall started, and house prices probably only half-way to their ultimate contraction of 40% or more, the last thing we need is a huge surge in government debt to add to our long term liabilities.
I wonder what is the economic equivalent of chain mail gloves?
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