Jason OMahony - Irish political blogger, Irish politics, EU politics
 

Time for some Keynes Consumerism?

Posted by Jason O on Apr 7, 2009 in Irish Politics |

Time to shop our way out of recession!

Time to shop our way out of recession!

Here’s the problem. We’ve a massive gap between the money the state is taking in, and what it is spending. The classical response is to increase the former (Through tax rises) whilst reducing the latter (Through spending cuts). Makes sense, right?

In theory, yes. Except that it does not take account of the psychological effect of the policy. We all know people who have relatively stable jobs, a few quid in the bank, and even they are terrified to spend. That’s what is causing the recession’s severity, a complete lack of confidence to spend. Now add in a reduction in household income caused by paycuts in the wealth-producing private sector and tax rises effecting all sectors, and people are afraid to get out of bed, never mind spend.

The US Republicans are saying that tax cuts are the answer. Give everyone a rebate to help prime spending. Not the worst idea, except for the fact that in the current climate, the Irish people might actually think rationally (Something they rarely do in the polling booth) and save the money for the proverbial rainy day, thus stopping in getting into the economy.

No, the country needs vouchers. A couple of billion euro in vouchers for shops, bought up by the government and distributed to taxpayers to spend directly, with the hope that they might throw a few of their own euro in on top of it, and get us all going again. Yes, there are pitfalls. How do we stop consumers saving the vouchers or just using them to substitute spending they would have done anyway? We can figure that out.

A bit mad? Possibly. But no more mad than the state squandering it on  “schemes” and “initatives”. And at least it confronts the deflationary tornado spiralling towards us.  

 

 

1 Comment

The Toy Man
Apr 7, 2009 at 9:51 am

This is on the mark. Just had a discussion with a neighbour the other day about cars and how, if it was 5 years ago, we would both have changed our cars. Neither of our income situations have changed – in fact, they’ve probably improved. But neither of us are even considering changing our cars… just because we don’t need to. You’re right – the psychological impact of this recession is crippling and needs to be addressed.


 

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