Tuesday, May 5, 2009

We are in denial over the economic crisis

Of all the half truths, misnomers and falsities propagated during this economic crisis – and, indeed, there have been many – the notion that the public are willing to ‘share the pain’ in terms of tax hikes, wage cuts and redundancies is surely one of the most risible. While there is a general acceptance that we are in dire straits as a country and that tough decisions have to be made, no one, predictably enough, wants these tough calls to affect their lives. Almost everyone wants someone else to take the hit: take from the other guy, sure, but keep your hands of my pile, if you will. Marches or disruptions held by the Gardai, teachers, bus drivers and others have all shown that people are far from willing to under go the sacrifices necessary to restore a semblance of fiscal order. This should come as no surprise, self-interest being such a large part human nature. Self-interest, in itself, need not be automatically reviled either; it is, after all, the motivating factor behind so much progress and endeavour.

The problem, however, is that in the time since the economic tsunami hit our shores, a self-serving myopia has plagued the public’s view of the situation. Most people don’t grasp the gravity of the mess we are in and seem to believe that other people aside from themselves both can and should pay our way out of the abyss. These ‘other people’ are chiefly the vaguely defined ‘fat cats’, the politicians and, of course, the utterly despised bankers. The only trouble is, though, that the notion of these groups being able to shoulder the entire burden of economic correction, therefore leaving the average worker unscathed, is nothing but an attractive myth. The myth is compounded by the incorrect belief that normal workers are the only ones suffering while the rich are getting off scot-free.

In reality, most of the rich have suffered greatly, just like everyone else. Sympathy for the rich is always going to be thin on the ground, but nonetheless, many have seen their fortunes decimated. At least €350bn has been lost in financial and property assets in the last two years, meaning that the majority of our Celtic Tiger-created millionaires no longer exist. The pot of wealth generated during the boom years has dried up and simply taxing the wealthiest severely will never generate anything like the amount of revenue necessary to keep us afloat. The negative effect that punitively taxing the wealthiest would have on the economy is also disregarded by quasi-socialists, such as Vincent Browne and the Labour party, who perpetuate a myth that stokes the flames of class resentment. Taking more than half of a millionaire’s income will simply make it not worth his or her while to earn more, spend or invest, the very things we need to stimulate the economy.

Moreover, the popular refrain that normal workers didn’t create the mess and so shouldn’t have to pay for it is meaningless. The fact is that we our now in free fall, and, simply because ‘ordinary’ workers make up most of the economy, ordinary workers will have to pay their share. There is no way around this, and to say otherwise is nothing but denial. Despite this, since the much-maligned emergency budget, an increasing level of hysteria has prevailed over how the ‘pain’ is spread. Despite the fact that they are the best paid in Europe, our teachers are outraged over the pension levy and hikes in the income levy. We even hear the laughable story of a 51-year-old teacher earning €63,000 who, according to herself, will be financially insecure for the rest of her life. Raise a glass too to the bus driver who doesn’t like the new timetable on his route and decides to hold the city to ransom by striking with a hundred or so others drivers. And then, even though an incredible third of our overall spending - €20bn – goes on welfare, there is indignation over the removal of the Christmas bonus. We need to get real here and avoid the populist nonsense which has been dominating discussions thanks to the opposition parties and large sections of the media.

Before the budget, we had a choice: either trim the fat from the public service – and that means letting thousands of people go, forget the citizens of could land who say otherwise – and probably raise taxes slightly, or leave the bloated sector alone and raise taxes significantly across the board. Wrongly, the government went for the latter option, but only because the anger from the unions and thousands of laid-off public sector employees was obviously something it didn’t want to have to face. That said, while opting mainly for tax hikes rather than cuts was foolish, the average person’s tax burden here is quite low. Remember – despite what lefties will tell you – that before the budget 20 per cent of income earners paid 77 per cent of all income tax and an incredible third of earners paid no tax at all. The budget maintained this general pattern more or less, with high earners once again paying most.

If we cannot pull together, instead of creating divisions and blaming anyone and everyone for this mess, we will take all the longer to recover as a nation. We can take the knocks on the chin, or we can shirk away in denial – it depends on whether we want to be constructive or destructive. The fact is that everyone must pay their share, there is no alternative.