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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Ireland’s increased taxes and lowered spending

Posted by WARREN MOSLER on April 20th, 2009

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Right, seems the eurozone is toast until the rest of the world recovers and starts importing from them of their deficits get high enough via recession- the ugly way- without the national governments and banks defaulting.

Trying to keep deficits from rising with tax hikes only means the economy goes down more as it seeks the necessary higher level of deficit spending for recovery.

A tall order but not impossible.

Erin Go Broke

by Paul Krugman

Apr 19 (New York Times) — “What,” asked my interlocutor, “is the worst-case outlook for the world economy?” It wasn’t until the next day that I came up with the right answer: America could turn Irish.

What’s so bad about that? Well, the Irish government now predicts that this year G.D.P. will fall more than 10 percent from its peak, crossing the line that is sometimes used to distinguish between a recession and a depression.

But there’s more to it than that: to satisfy nervous lenders, Ireland is being forced to raise taxes and slash government spending in the face of an economic slump — policies that will further deepen the slump.


3 Responses to “Ireland’s increased taxes and lowered spending”

  1. RichW Says:

    Isn’t this precisely the way state govts operate also? In times such as these, they both increase taxes and cut spending which results in an enormous drain of wealth from state residents.


    warren mosler Reply:

    it’s happened more than once.

    and, unfortunately, much like the US states, ireland doesn’t have much choice with out help from higher up


  2. karl deeter Says:

    the reality of the situation is that our deficit came so suddenly and so strong that we had to take some painful steps, necessary medicine.

    On the other hand, we never made counter cyclical preparations, and surpluses were (in the last five years anyway) down to front loaded property taxes, when the transactions died the revenue raising did too.

    on one hand i think ireland is actually doing many of the right things, accepting deflation, getting competitive, allowing the market in labour to rebalance and going through the heavy lifting as required. unfortunately there is no magic pill available.


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