Stop public borrowing now!

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cremeegg

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Irish society is currently borrowing approx. €1 billion a month to support our lifestyle. This will have to be repaid by our children. Together with the approx. €64 billion borrowed to support the banks.

I believe that this is fundamentally wrong and should stop.

There is a widespread belief that state borrowing is not like other borrowing and that it can be rolled over indefinitely.

This belief arose since the war during a period of rising population, rising productivity and significant inflation.

These things may not occur in future to erode away the burden of debt.

Irelands working population at 2 million people has nearly doubled in the last 20 years, this is most unlikely to recur over the next 20 or more years.

Inflation tools are well developed and the political will to fight inflation is very strong in those countries particularly Germany which dominate our economic future.

Our children will immigrate not to earn a living for themselves as happened in the past but to avoid paying for our lifestyles today.

My rock the boat proposal is that we have a constitutional amendment to prohibit state borrowing.
 
One would have to make a distinction between borrowing for capital purposes and borrowing for current expenditure. Borrowing for capital purposes makes good sense both for governments and individuals.

I would agree with you generally on the principle of not borrowing for current expenditure. However, some economists will argue that borrowing is self-financing. In other words, if we cut our current expenditure by €1 billion a month, the damage to our economy would be well in excess of €1 billion a month. I don't accept that, but a lot of economists believe it.
 
Borrowing for capital expenditure yes. If government can identify capital projects that will generate an economic return that exceeds the cost of capital then borrowing to finance them makes sense.

However as I understand it we are borrowing €1 billion a month to finance current expenditure.

Cutting public expenditure is usually discussed in terms of taxing to spend, but in our case at present we are borrowing to spend. Therefore every euro less that we borrow would indeed reduce the size of the economy by a euro or perhaps more through a multiplier effect.

However every euro borrowed today reduces public expenditure in the future.

If you were hungry would take the food off your child's plate for your self. That is exactly what we are doing today except that at least would be more honest.
 
cremeegg said:
Borrowing for capital expenditure yes. If government can identify capital projects that will generate an economic return that exceeds the cost of capital then borrowing to finance them makes sense.

However as I understand it we are borrowing €1 billion a month to finance current expenditure.

Cutting public expenditure is usually discussed in terms of taxing to spend, but in our case at present we are borrowing to spend. Therefore every euro less that we borrow would indeed reduce the size of the economy by a euro or perhaps more through a multiplier effect.

However every euro borrowed today reduces public expenditure in the future.

If you were hungry would take the food off your child's plate for your self. That is exactly what we are doing today except that at least would be more honest.
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Poor choice of analogy, since if the parents starve to death then the children are screwed anyway (particularly when we're living in a state without the ability to borrow money to feed orphans!).

And returning to the real world, how would you propose this sudden brake to spending should occur?

Cut spending on health by X%, cut all public sector employees' pay by Y%, and cut all social welfare payments by Z%, and voila, problem solved?
 
Did I see somewhere recently that Britain has finally paid off its Napoleonic Wars debt?

State borrowing is fact of life ...
 
mandelbrot said:
And returning to the real world, how would you propose this sudden brake to spending should occur?

Cut spending on health by X%, cut all public sector employees' pay by Y%, and cut all social welfare payments by Z%, and voila, problem solved?
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Before we think about applying a brake to current spending, we need to take our foot off the accelerator. Current expenditure has been on the rise for at least the last two years. Meanwhile we have been slashing the capital expenditure that might provide a Keynesian stimulus (if, as BB pointed out above, you believe in such things).

Those who are vocally opposed to austerity in Ireland might want to wait until we actually have some.
 
Mandelbrot: Can you explain why you think it is a poor choice of analogy. We are borrowing one third of every thing we spend. It is the next generation that will have to repay our borrowings. I think the comparison with taking food from a child's plate is very appropriate.

As for the real world I think it is I who am looking at the real world. From the UK to Greece huge cuts are being made in public expenditure, in Ireland it is increasing.

You also say."Cut spending on health by X%, cut all public sector employees' pay by Y%, and cut all social welfare payments by Z%, and voila, problem solved?"

Firstly I don't accept that in order to point out that our present borrowing is unconscionable I need to have a fully worked out alternative prepared. To identify that our present borrowing is wrong is the first step to economic sanity.

Kildavin: To recognise that the things which eroded public debt in the past are unlikely to apply in the future is my key point.

In the long term or probably just the medium term Ireland cannot live beyond its means.
 
I agree with the OP, and with what dub_nerd said above. In the end inflation will more than likely be used to bring down debt. But borrowing to finance current expenditure in this country won't go on forever, and the longer we accept it, the worse the eventual pain is going to be.
The problem lies with Ireland being set up politically as a short term thinking nation. We need to alter our electoral system to encourage long term thinking.
 
dub_nerd said:
Before we think about applying a brake to current spending, we need to take our foot off the accelerator. Current expenditure has been on the rise for at least the last two years. Meanwhile we have been slashing the capital expenditure that might provide a Keynesian stimulus (if, as BB pointed out above, you believe in such things).

Those who are vocally opposed to austerity in Ireland might want to wait until we actually have some.
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What accelerator?!

It's all well and good to point to a single headline figure like your link above, but that can lead to false conclusions - for example if you told someone a single piece of information - that Govt expenditure on Social Welfare & Health had increased by 25% proportionately between 2008 & 2011 (
http://3.bp.blogspot.com/-_7U8PHMlQz4/Twf4I2iGebI/AAAAAAAAF8Y/FZiMUqX-ArU/s1600/Screen+shot+2012-01-07+at+07.16.50.png
), without taking into account any other information one would think our welfare state was throwing money at people.

However that fact is meaningless unless a context is applied, such as the fact that the number of people unemployed or on very low incomes and therefore dependent on the State to provide both Social services and state funded healthcare, has increased enormously.

I think it is disingenuous to suggest there is no austerity simply because aggregate Govt expenditure has gone up, when the reality is that the ratio of net contributors to net recipients has fallen so drastically.

If you break down the different heads of expenditure, I'd expect that these 2 areas (Social Welfare and Health) are the only ones increasing, but by a sufficient amount to distort the decreased spending in all other areas.

So let's be clear about where the money being borrowed is going and whose "lifestyles" it's being borrowed to fund, and then we can have a discussion about how to reduce the borrowing further.
 
cremeegg said:
Mandelbrot: Can you explain why you think it is a poor choice of analogy. We are borrowing one third of every thing we spend. It is the next generation that will have to repay our borrowings. I think the comparison with taking food from a child's plate is very appropriate.
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I already explained why it's a poor analogy - if the parent starves the children starve too. Couldn't be simpler.
 
Without wanting to get too worked up about the parent child thing.

If Ireland backs itself into a corner where we are no longer able to borrow there would be no money available to pay for any aspect of government spending and starving might be less metaphor and more like reality.

The issue isn't whose lifestyle we are borrowing to support or whether we spend too much or too little on social welfare.

The issue is that we should not be borrowing at all, because it will all have to be paid back in real terms and that will affect our children's lives not ours. That is not equable.
 
cremeegg said:
If Ireland backs itself into a corner where we are no longer able to borrow there would be no money available to pay for any aspect of government spending and starving might be less metaphor and more like reality.
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Surely you'd prefer if that was the case, since it would achieve your stated objective of an end to Government borrowing. It would also mean a default (since we wouldn't be able to borrow to service pre-existing debt).

Whatever way I look at it your very black and white solution results in a massive shock to the economy (and the increased likelihood of real starvation), whether the borrowing stops because of internal or external forces.
 
cremeegg said:
The issue isn't whose lifestyle we are borrowing to support or whether we spend too much or too little on social welfare.
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I'm going to make an argument that I reckon is fairly analogous to your original post above:

"Pollution from the burning of fossil fuels damages the environment and will cause serious problems for future generations - so we should amend the constitution to prohibit the burning of fossil fuels."

The fact that people (and the wider economy) depend on fossil fuels, in the exact same way that they currently depend on borrowed public money, and I can't provide a viable suggested alternative to the use of fossil fuels (or borrowed state money), pretty much negates what is in theory a good idea.

The bottom line for me is that State borrowing should be minimised - that's just common sense and hardly boat rocking.
 
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mandelbrot said:
I'm going to make an argument that I reckon is fairly analogous to your original post above:

"Pollution from the burining of fossil fuels damages the environment and will cause serious problems for future generations - so we should amend the constitution to prohibit the burining of fossil fuels."

The fact that people (and the wider economy) depend on fossil fuels, in the exact same way that they currently depend on borrowed public money, and I can't provide a viable suggested alternative to the use of fossil fuels (or borrowed state money), pretty much negates what is in theory a good idea.

The bottom line for me is that State borrowing should be minimised - that's just common sense and hardly boat rocking.
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Good analogy, lets expand it; The fact that cars are far more efficient than they used to be, we have carbon taxes and internationally we have carbon credits, and that we are much more aware of not wasting energy shows that while we can't stop burning them we are doing lots increase the yield and reduce the waste from what we do burn. We also seek alternative energy sources.
 
mandelbrot said:
I'm going to make an argument that I reckon is fairly analogous to your original post above:

"Pollution from the burining of fossil fuels damages the environment and will cause serious problems for future generations - so we should amend the constitution to prohibit the burining of fossil fuels."

The fact that people (and the wider economy) depend on fossil fuels, in the exact same way that they currently depend on borrowed public money, and I can't provide a viable suggested alternative to the use of fossil fuels (or borrowed state money), pretty much negates what is in theory a good idea.

The bottom line for me is that State borrowing should be minimised - that's just common sense and hardly boat rocking.
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I like the above, eg in theory Fianna Fail could keep borrowing on the basis that growth was ahead of Debt increase and see were that theory got us !!!
Trying to cut back in a recession is a bit like only giving the patient one dose of chemotherapy instead of four. He will die , only slower.
We have to HOPE that our leaders show wisdom and balance.
Otherwise Chaos ensues.

I very much take on board borrowing should be minimal.
 
mandelbrot said:
I'm going to make an argument that I reckon is fairly analogous to your original post above:

"Pollution from the burning of fossil fuels damages the environment and will cause serious problems for future generations - so we should amend the constitution to prohibit the burning of fossil fuels."

The fact that people (and the wider economy) depend on fossil fuels, in the exact same way that they currently depend on borrowed public money, and I can't provide a viable suggested alternative to the use of fossil fuels (or borrowed state money), pretty much negates what is in theory a good idea.

The bottom line for me is that State borrowing should be minimised - that's just common sense and hardly boat rocking.
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That seems a reasonable analogy. The issue of increased green house gases is something new and as Purple points out there may be several possibilities to deal with it, these are not well understood yet.

Methods for dealing with debt are well understood. There are only three ways, increased productivity, increased workforce or inflation.

None of these are likely to be available to Ireland over the next generation on anything like the scale that is needed.

-We already have productivity levels near the highest in the world, any increase can only be marginal,

-we already have workforce participation rates near the highest in the world,

-prospects for future population movements don't augur well for a workforce increase.

-there is very strong political will in Germany and other Eurozone countries to resist inflation

We may figure out a way to resolve the green house gas issue. We know the ways to resolve debt and they are not going to be available to us
 
cremeegg said:
That seems a reasonable analogy. The issue of increased green house gases is something new and as Purple points out there may be several possibilities to deal with it, these are not well understood yet.

Methods for dealing with debt are well understood. There are only three ways, increased productivity, increased workforce or inflation.

None of these are likely to be available to Ireland over the next generation on anything like the scale that is needed.

-We already have productivity levels near the highest in the world, any increase can only be marginal,

-we already have workforce participation rates near the highest in the world,

-prospects for future population movements don't augur well for a workforce increase.

-there is very strong political will in Germany and other Eurozone countries to resist inflation

We may figure out a way to resolve the green house gas issue. We know the ways to resolve debt and they are not going to be available to us
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While our labour productivity levels are good they are not exceptional and we are still well behind the USA.

The big factor for me is that I suspect that our capital productivity is significantly lower. Both are important.
Unemployment is the major cause of the reduction we have seem in the labour force participation rate. If we can fix that then we'll sort out a lot of problems. The issue is that it's a long term fix; maybe 10 to 15 years.
 
celebtastic;
We did not bribe ourselves with our own money. Had it been our own money we would be in a better place.
If you dig into what is called Private Sector , quite a lot of the Private Sector has their business from the Public Sector.
It does look like future generations are on the hook for this (largesse)

Cavan man does not (sit on the Dole).
Your use of language is unhelpful and very hurtful to those who would love real work.
There are valid reasons why Cavan Man gets more in Roi. One might just be a thing called equity. Another might be he has paid good taxes for years and is caught in this recession.
More (benchmarking) could lead to unintended consequencs eg cut Guards pay , he can,t afford mortgage?

I think we are stuck in a mess for a few years and our future to a large degree is in the lap of circumstance ; if you are religious , get out the Prayer Mat !!
 
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