As tightly controlled as it was on Thursday and Friday, still the 2012 Budget debate was not without its moments of levity, one of which was contributed by the dapper MP for Castries East, Philip J. Pierre. A firm believer in the notion that circulating money, however acquired, is always good for the economy, Pierre was echoing the predictable supportive noises for “our esteemed and generous leader the finance minister” when a heckling opposition horsefly attracted his wrath.
“Have you read End This Depression Now?” he asked, predator eyes unsoftened
by his photochromic
lenses. “It’s by Paul Krugman. Do you know who Paul Krugman is? Do you?” For all the reverence in his tone, the MP might just as well have been citing the Sermon on the Mount.
Alas, with the NTN camera focused in close-up mode to his face, it was impossible from my living-room vantage to identify Pierre’s target. If his silence suggested anything, however, it was that he had never heard of the “17th most cited economist in the world.”
Pierre’s current economics poster-boy was cited yet again last Sunday, this time by CNN’s Fareed Zakaria, while referring to Europe’s worsening economic problems and their widespread effects. “Economists like Paul Krugman urge: abandon
the austerity program, spend more and get budgets in order once the economy has recovered. The problem, in the mind of Keynesians like Krugman,” said Zakaria, “is that European elites, particularly in Germany, have embraced the wrong economic doctrine.”
It wasn’t so much that the “elites,” especially in Germany, have not embraced “some alternative view of economics,” Zakaria observed. “Most of them understand that cutting spending during a recession slows down the economy further. What they don’t believe is that any of the governments in question would ever get their budgets in order once the economy recovered. They believe that many of these countries in trouble have economies that are uncompetitive, hobbled by bad regulatory and tax frameworks and also by large and inefficient governments, with ever-increasing entitlements doled out to their citizens.” Many Germans and northern Europeans he had spoken to “seem to understand that,
economically, the smart
thing to do might be to spend now and to cut later. But many in Europe, in Germany especially, believe later will never come.”
Zakaria saw the crisis as an opportunity to start wholesale reform. “Markets have signaled that they will not lend to these governments unless they take measures to get their houses in order,” he said, “so this is the golden opportunity to get this reform process going.”
Additionally: “In reality governments spend in bad times and then spend more in good times. So the disagreement may not really be over economics but over politics. After all, politicians have gotten elected over the last four decades in the West by promising voters more benefits, more pensions and more health care. The question is: can they get elected offering less?”
Ah, yes, those election promises! Would the French have elected Francois Hollande but for his pledge to bring back from Afghanistan all of France’s 3,000 troops by year’s end, create 30,000 new public sector jobs while battling the German-led austerity approach to Europe’s fiscal problems?
Would the St. Lucia Labour Party, without its repeated promise of “jobs, jobs, jobs” and an expanded STEP just in time for Christmas? There was even a New-Year’s-Eve-type countdown to better days: ten, nine, eight, seven . . . remember?
Would the UWP be in office today, had it promised to pardon convicted drug offenders and decriminalize marijuana and prostitution—not to mention more jobs than had been offered in 2006? More important: Will the present government, in its determination not to pay the price the UWP had suffered last November, do whatever it takes to deliver on its own 2011 campaign promises?
During their Budget presentations last week, at least four government MPs read carefully selected passages from the SLP’s election manifesto relating to “better days” (now unscheduled!), the imminent if regrettable implementation of VAT and the coming of NICE and LEAP and YEP and SMILES for single mothers. Ah, but they stayed away from their Santa Claus promise to invest in the private sector—“immediately upon taking office”—$100 million for job creation.
Not that the private sector had been altogether forgotten upon the party’s return to office last November. The fundamental question was: “Given the comatose state of the economy”—and the concomitant problems of the private sector—“what strategy should the government employ to stimulate the economy?”
In the prime minister’s telling: “The reality we face is as follows. Tourism has held its own but . . . The agriculture sector has potential but . . . The manufacturing sector has survived but . . .”
But! But! But! Let us cut to the chase and agree with him that the fiscal situation had “deteriorated sharply in the recent past.” So now, what to do? Well, said the prime minister, there was always construction, “a highly labor absorptive sector and, given our post-Tomas realities and the need to improve and expand our housing stock, it presents a very attractive option for improving quality of life and economic reposition while creating jobs.”
Therefore, the government “will introduce measures to encourage investment in construction and housing aimed at creating further jobs and restoring our social and economic infrastructure.” The government will introduce a set of fiscal measures to improve its “revenue base, reduce the deficit and achieve fiscal strengthening.”
By “measures to encourage investment in construction and housing,” the government referred to a stimulus with four components, in the hope that “emphasis on construction will allow us to buy sufficient time and space” until the return of things to normal. If only life were made only of perfect storms!
“You may recall,” said the prime minister sticking to his Budget script, “the booming construction sector in 2006/2007 which resulted from the hosting of ICC Cricket World Cup matches in Saint Lucia. During that time unemployment was recorded at 14.6 percent, while the economic growth rate was one of the highest for that decade.” Perhaps, but what most Saint Lucians will undoubtedly recall was that the anticipated tens of thousands of big spenders never materialized. Which is not to say there were no benefits from the proffered World Cup incentives. There were, if for some more than others!
In all events 2006 was a far, far better time than today, at home and abroad. If back then many Saint Lucians profited the opportunity to expand and improve their premises, for whatever reasons, does that mean, stimulus or not, they will now rush to the bank for new-construction loans? The inescapable truth is that businesses are barely
able to hold on, suffering
as are most from the
same fiscal problems that for some time now has been afflicting Greece, Italy, Spain and even in the great United States.
The local private sector, particularly manufacturing, starved of orders, can barely pay its basic expenses—whether suppliers of
imported raw material, or for water and electricity—let alone salaries for workers. With much regret some have been let go or required to take pay cuts. With many once thriving establishments dangerously behind on their mortgage payments, the banks are at this point
hardly in a mood to be generous. (By the way,
when the prime minister speaks of “the need to improve and expand our housing stock,” might he be referring to public housing?
Another hard truth: greatly reduced prices do not always mean higher sales figures. Never before have so many been up against the wall economically and risk-averse. The government’s intentions are undoubtedly good. But then, as I’ve had cause to remind readers before, good intentions pave the road to hell. Or so say those in a position to know!
The government obviously assumes that just because it is in this country at liberty to take more and more loans in the name of the people, regardless of interest rates or projects, the rest of us can do likewise. Actually our banks are not nearly as accommodating of the people’s needs as they are of government demands. STEP, SMILE, LEAP and the rest of the welfare-state projects featured in the prime minister’s Budget are not without merit. Still, they have to be paid for. And not from our politiians’ private accounts.
To return to Fareed Zakaria: “Everyone is looking at Europe these days as economic and political protests mount across the continent. The downward spiral has produced a great debate about the virtues of ‘austerity,’ the idea that governments with large budget deficits must reduce these deficits, mainly by cutting spending. If they don’t get their budgets in order, so the idea goes, they won’t be able to borrow money and will face a fiscal nightmare of ever-rising interest rates. The problem is that as these governments cut spending in very depressed economies, it has caused growth to slow even further—government workers who have been fired tend to buy fewer goods and services, for example—and all this means falling tax receipts and thus even bigger deficits.”
The opposing view is that the depressed countries Zakaria speaks of—Greece, Italy, France, Spain—countries with “very depressed economies, large and inefficient governments, with ever-increasing entitlements doled out to their citizens”—that is to say, countries like Saint Lucia!—“also raised taxes to try to balance their budgets, and the mixture of higher taxes and reduced spending is what further damaged these economies.”
As for the idea of spending now and cutting later, those who consider Paul Krugman “one of our most dishonest economists” observe that “after Obama’s massive spending increase in 2009 and 2010, those levels became the baseline from which future budgets are calculated.”
So again, the question: Is democracy the problem? Or is the problem one we have all known for a long time but will do nothing to cure: our politicians who notoriously will do and say whatever it takes to get elected, even if in consequence we all end up bankrupt? Consider this from the prime minister’s most recent Budget: “Unquestionably, government needs to build back confidence in the state and the ability of the state to act responsibly. Government must be able to pay its sovereign debts, protect the rule of law, ensure that revenues collected in the name of the people are spent as best as they can be spent, and promote investor confidence. These elements of good governance and confidence in a fair and caring state gives pride to its people, gives security to the investor, gives freedom of mind and energy to the youth, gives a level of trust to all actors, residents and non-residents. This is a social contract that we have signed and must deliver!”
Oh, but as Jack Grynberg knows only too well, it’s one thing to sign a contract and altogether something else when it comes to delivering on its promises.
Bearing in mind the prime minister’s somewhat shocking revelation that “71 cents of every dollar of recurrent expenses go to salaries, wages and debt,” the government’s last quoted undertaking sounds a lot like wishful thinking. As already successive finance ministers have reminded us over the years, our tax base is by far too small to accommodate the needs and aspirations of a population as large and
as deprived as ours. Add
to this near Sisyphean problem the circumstances of the world economy, and it is small wonder that our government’s expressed expectations from its latest Budget ring as hollow as only desperate politicians with their backs against the wall can sound.
Meanwhile, there are the lessons of France, Spain and Greece. As I write the debt-racked last named country has until Thursday to come up with a government or call new elections. As Bank of America/Merrill Lynch
wrote in a report released
last Friday: “If no
government is in place before June when the next installment of loan money from the European Union and International Monetary Fund is due, we estimate that Greece will run out of money sometime between the end of June and the beginning of July, at which point a return to the drachma would seem inevitable.”
While President Karalos Papoulias fights his uphill battle to get political leaders to form a new government, the head of Greece’s second largest party says he will not attend. The anti-austerity Syriza party that Alexis Tsipras leads campaigned against the tough restrictions on government spending that international leaders imposed in exchange for their financial backing. Now polls show two in five Greeks blame Tsipras for the current political deadlock. Last Sunday, following the poll, he
said the other parties
wanted Syriza to be “their partners in crime and we can’t do that.”
For her part, and despite growing pressure, German chancellor Angela Merkel has warned that European Union countries that have signed the fiscal pact for tighter budgetary policy must stay committed to the agreement. “Debt reduction and
boosting competitiveness need to go hand in hand,” she insists. “They are not contradictory; they belong together. Everyone must stick to the things we have agreed. Twenty-five countries have already signed the fiscal pact.”
A final quote from the prime minister: “This year’s Budget seeks to move us away from the pathways to the edge, while not in any way being austere. We can see the effects of austerity in Europe as we speak. We should ensure we do not cause ourselves to get to that point. We are confident that our socio-economic path is the right one in order for us to be more responsible for our affairs while maintaining social peace.”
From what pathways to what edge? The rainbow’s? Hopefully, the pneumonia we inevitably catch whenever the big countries sneeze will not be the killer variety. It wouldn’t be the first time a miracle has saved us!
