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, 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.
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Notes
[1] “Role of Public Transport,” CIE Group (accessed March 10, 2009).
[2] “ESB Annual Report 2007,” Electricity Supply Board (accessed March 12, 2009).
[3] “What We Do,” 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,” 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.
