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Criticism and praise in the run up to the 2020 General Election

2020 will see an election held in Ireland. By all accounts the election is imminent. The 2020 election will be fought, as all elections are, on the basis of promises. That part of the electorate who show up to the polling stations gets to decide the next government, and it will do so partly on how much credibility it chooses to attach to the promises of the various parties. 

The electorate will also make its decision in a markedly different macroeconomic context to 2011, and even to 2016. Given where the current government started from, the macroeconomic situation could not really be much better.

The number of people in employment has never been higher. Inflation is relatively low, growth in incomes is a feature of many workers’ experiences, personal consumption is up, house prices seem to be finally moderating, and the government is spending the proceeds of a taxation exercise that has actually doubled in under a decade. The state’s spending on current, capital, and pay has rarely been higher in any category. The latest figures from the Department of Finance show the government choosing to move quickly towards a surplus, while clearly showing their understanding of the risk to corporation tax revenue arising from changes at the EU and OECD levels coming down the line. Bullet point 4 of the press release, which is repeated elsewhere in the latest Finance discussions, is particularly interesting. It simply says:

Implementation of OECD BEPS initiative will likely result in a decline in corporation taxation receipts, making the need to account for reduced revenue essential. 

Department of Finance

An electorate looking only at the macro aggregates would most likely return some version of the current government, or another coalition version with an almost identical policy mix. So why doesn’t the government get some measure of praise for its handling of the economy? Paschal Donohoe and his colleagues have chosen to tighten before an election. To call that rare is an understatement. 

Over on Twitter, IBEC’s Gerard Brady posed the question below, and the echo chamber podcast posed it as well. Obviously these polls aren’t statistically significant, twitter is not reality, and it is just a small indicator, but it’s roughly what you’d expect at the higher end. The likelihood of the government getting a fair crack of the whip for its work seems relatively low.

One might argue that fiscal tightening like this is mere posturing ahead of an election, but the fact is that the opposite behaviour—spending like it was going out of fashion–would be far more advantageous electorally. Also, fiscal tightening is behaviour economists would praise any finance minister for at this point in an economic cycle, absent an electoral contest. 

There is a curious lack of symmetry in the public commentary on the economy between praise and criticism, and this is something I’d like to remedy. 

Let’s be real about it: the 2016 election showed voters don’t really connect with positive macroeconomic measures like GDP (or its newer cousin GNI*) the way readers of this blog might. Issues at a more micro level dominate, and that is completely fair.

It is also fair to say macroeconomic figures obviously matter. How much they matter, the credit working on getting the macro issues right, to the public is a testable hypothesis, and the election might well provide us the answer.

Naysayers can, will, and should point to the plethora of cock ups and plain old policy failures that have happened since 2016. Lord knows I have, in the pages of the Sunday Business Post and now The Currency. The health and housing situations have not improved at the speed the public want them to. Some large capital spending projects have been poorly executed. All of those are true, all are important. The country’s emergency rooms are bursting. Homelessness remains a scandal. It is not for me to defend the government’s record on these matters. I’m not a strategist for them, or for any other party. 

I would however like us to acknowledge that spending more on housing, health, or education or at a faster rate would imply more deficit spending, and further endanger the economy at a moment when the risks from corporation tax falling off a cliff are high, not to mention Brexit and a host of other macro risks might take a chunk of our growth with them, should they come to pass. In this context, choosing not to do some things and to focus on attaining some class of a surplus should be praised. And it is not. I have a problem with that.

Anyone wanting credibility in the forthcoming election should be prepared to talk about the trade-offs inherent in governing an economy like ours, and justify their choices. The trade-off doesn’t quite boil down to “invest by borrowing and spending on infrastructure to increase quality of life” vs “prepare for future shocks by driving increased budget surpluses”, but it’s not far off. Whichever vision the electorate plumbs for is fine, but the trade-off has to be explicit. Journalists and commentators should be prepared to call out parties advocating vast spending increases and lowering taxes just to attain high office. I want to believe we live in a country where endlessly repeated stupid three-word slogans and unsustainable fiscal phantasies have no place. 

Musgrave’s 1959 framework applies to the Irish economy. It says that any government must make sure its finances are in reasonable shape, have some view towards resource allocation, and have a stance on resource redistribution. Undeniably, the first objective has been met. The resource allocation and resource distribution pieces seem to me to be where the arguments are going to be during the next general election. Here again the parties of government can make their arguments for themselves. 

I’m all for robust criticism where it is warranted, but I think where praise is justified, it should be given.

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

3 replies on “Criticism and praise in the run up to the 2020 General Election”

Good article Stephen. Problem is, as you note, the micro is where people live. The lived experience – of long commutes, overcrowded A and E, overcrowded and underresourced schools, overpriced and undersupplied housing – of many many people is at variance with the stated experience of a solid economy.

Thanks Brian—I guess the micro part comes in around resource allocation and redistribution. The allocation part is about capital spending in my view, which addresses a lot of the issues you rightly raise. The redistribution part is surely going ok-ish, given our pre and post tax gini numbers. My main motivation in writing this on the blog (as opposed to the currency, which is gated) is not to ignore these issues, of course they matter, but to put out a plea for rigour in assessing the trade offs each party will presumably want to ignore.

Thank you, Stephen, for kicking off this badly required discussion. You’re hitting a number of both explicit and implicit issues, but all salient, that rarely get an airing.

Economic issues will play a part in determining the outcome of the up-coming election, but they may not be the key determinant. At the last election a sufficient number of voters, whether intentionally or not, decided that the sequence over the last 60 years (of stagnation in the ’50s, considerable progress in the 60’s through the ’70s (but constrained by the response to the ’70s stagflation), the unsustainable giveaways in ’77 followed by serious economic underperformance and risk to national solvency in the ’80s, the retrenchment, recovery and increasing prosperity from the late ’80s through the ’90s and the triple bubble economy of the early 2000s whose bursting required external support) needed to be brought to an end and that this sequence, in no small part, was caused by over-mighty governments commanding a secure majority in the Dáil who were suborned by various combinations of special interests. As a result, neither of the main parties ended up in a position to form a government without the acquiesence of the other. As a system of governance, it has worked quite well and seems to run with the grain of the small ‘c’ conservative instincts of a majority of the electorate, given that there is a broad consensus on macroeconomic policy issues. I wouldn’t be surprised if a sufficient number of voters were to decide to maintain this arrangement but to switch FF for FG. It doesn’t eliminate the baleful impact of the various powerful special interests, both FF and FG are and can be too easily suborned, but it does work to constrain their influence.

On the micro (where, as Brian Lucey rightly points out, most people live), I suspect most voters reckon there isn’t an iota of difference between FG and FF when it comes to policy formulation and implementation. The institutions, agencies, public servants and special interests will all remain in place. Yes, there may be some optical alterations in terms of redistribution and allocation to address the inevitable sectional grievances that arise during a period of government, but there will not, and cannot, be any fundamental change. However, enough voters may decide to give FF a go instead of FG, but locked in to the current ‘no-majority’ arrangement.

I don’t think it will have anything very much to do with praise for, or criticism of, FG’s economic performance. It’ll be: “why not give the other lads and lassies a crack at the job; they seem reasonably sensible and competent now and appear to have learned lessons from the last time when they f**cked up big time.”

But the cost of living remains far too high and is squeezing hundreds of thousands of households. (For example, per capita and as a percent of GNI* Irish people pay more than enough to have a single provider health service free at the point of use of a better quality than the British NHS, but we can’t be having that.) However, it seems people treat the excessive cost of living like the rain, even though it is fundamentally determined by powerful special interests enforcing their “property rights” to land, jobs and economic rents. And no government, incoming, outgoing, majority or minority, will curtail the enjoyment and exploitation of these unjustified “property rights” in the public interest. But, eventually, enough voters will wake up to the reality, as they are in other jurisdictions.

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