Is the budget deficit a problem for the Irish Economy?

national | worker & community struggles and protests | opinion/analysis Friday April 17, 2009 12:21 by PADDY HACKETT rasherrs at eircom dot net

Must the budget deficit be eliminated

The Irish budget deficit has rapidly grown to an enormous size. The growing budget deficit is a symptom of the deepening global economic crisis. It is not the cause of it. The crisis can only be solved by eliminating its cause --capitalism.

Is the budget deficit a problem for the Irish Economy?

Paddy Hackett
Friday, 17 April 2009

The Irish budget deficit has rapidly grown to an enormous size. The growing budget deficit is a symptom of the deepening global economic crisis. It is not the cause of it. The crisis can only be solved by eliminating its cause. But a budget deficit, in itself, is not necessarily a problem for a particular capitalist economy. It largely depends on the economic circumstances embedding it. It is not unthinkable for a relatively strong and vibrant economy to have a budget deficit. There is no absolute prescription engraved in stone dictating that the state must, as promptly as is possible, eliminate its economy's deficit on the shoulders of the working class.

There have been two policies advanced as to how to deal with the growing Irish deficit. Both policies are advocated as ways to solve the problems of capitalism. Ultimately both policies serve the class interests of the bourgeoisie. The first policy seeks to rapidly balance the budget through a mixture of severe tax increases and spending cuts. The other argues that the best policy is to reduce taxes and spend more. It suggests that the deficit can be compensated for by increased borrowing. This policy suggests that the outstanding national debt can be largely cleaned up when recovery gets under way.

The first policy is being pursued by the Fianna Fail dominated government. In the short term it will inflict considerable pain on the working class and may even lead to an even bigger hole in the state finances. It may even lead to increased civil conflict. Demand may fall as a result of increased taxation and spending cuts. This reduced demand may lead to greater unemployment. This in turn may increase the size of the deficit. Therefore the policy of balancing the budget does not necessarily solve problems.

The growing Irish budget deficit is a manifestation of an acute global profitability crisis. It is only when this crisis is solved can budget deficits such as the Irish one be eliminated (not that this necessarily needs to be done). To think that the Irish budget deficit can be solved by balancing the budget is to promote a forced separation between the world depression and specific problems of the Irish economy. Specific economic problems are a product of contradictions within the world capitalist economic system. Generally speaking they are not a product of subjective factors such as what the government did or did not do. The budget deficit and many other economic problems are not independent of each other. The deficit in the Irish finances will only be “solved” as a result of ongoing world economic recovery. This is because it is inseparably connected with the current world wide depression.

The present strategy of the Fianna Fail led government is inflicting great pain on the Irish working class. It is a strategy not intended to eliminate the deficit. The deficit is the pretext for reducing the living standards of the working class and generally worsening its conditions of work. This, it is hoped, will make for a leaner and meaner capital that is more profitable. If Mr Cowan succeeds in achieving this he will have been a very successful Taoiseach (prime minister).

The second policy is advocated by elements within the Irish Left. It suggests that reducing taxes may tend to increase demand thereby partly compensating for the falling demand due to depression itself. It calls for increased spending, public works, as a means of providing a stimulus to the economy in a time of contraction. It claims that the resulting deficit can be made up for by borrowing from, say, the European Union. It also claims that in the period of recovery the deficit will tend to shrink and can more easily be paid out of state revenues.

Despite its plausible nature this policy is no more a solution than the previous one. In the short term it will tend to lessen the intensity of suffering inflicted on the working class. However it may tend to prolong the pain by lengthening the time over which the deficit is to be, supposedly, paid for by the working class. But there is a limit to borrowing. If this were not the case there would never be any need to be concerned over deficits. They could grow at any rate and to any size because borrowing can adequately compensate for both rate and size. The same understanding can apply to spending. Under these conditions there need never be depressions because money or credit can be flushed into economies to prevent the crisis from occurring.

Such an economic ideology fetishises money and credit. It falsely suggests that the quantity of money or credit is the panacea for economic evils. Money then is presented as the determinant of economic expansion. Production is mistakenly presented as the derivative of money –not the reverse. This is to mistake the appearance of capital for its essence. The valorisation process, the production of surplus value, is the source of economic expansion --not money and credit. This policy represents a more disguised way of increasing the oppression of the working class since borrowing and the interest on it is a form of future taxation. This means that the working class will be forced to yield more revenue in the form of taxation than straightforward taxation that is, say, independent of borrowing.

There are only two solutions to the economic crisis: The capitalist solution which is at the expense of the working class or the communist one which is at the expense of the capitalist class. There is no in between solution just as there is no such woman as a half-pregnant woman. The abolition of capital through social revolution is the only way in which the present economic depression can be solved that is not at the expense of the working class. Such revolution cannot be realised if confined to Ireland. It must have an international dimension.