The propensity of Irish politicians to make the same mistakes over and over again is evident once more in the debate over how to deal with the emergence of inflation as a serious issue. It seems that the group think which prompted the country to sleep-walk into the crisis has now taken hold of the response to inflation.
The political debate over inflation is focused solely on the scale of the financial assistance that should be offered to all sectors of society to compensate for the loss of purchasing power, with the Government being berated by the Opposition for not handing out nearly enough in cash in supports and subsidies.
What is completely absent from the political discourse are any voices suggesting that large-scale State handouts to compensate everybody for inflation is akin to pouring petrol on the flames. A number of economists who have pointed to the reality that the measures will make the problem worse have been studiously ignored.
The absence of a coherent political debate about how to tackle inflation is so reminiscent of the years leading to the financial crisis when the Fianna Fáil-led government was attacked from all sides for not spending more to boost an economy and a housing market that was roaring out of control.
We all know what the outcome of that episode was, yet it seems that the political world has failed to learn the lesson. Yet again we have an Opposition attacking the Government for the wrong reasons and encouraging it to adopt even more irresponsible policies.
One of the features of Irish politics is that there is no constituency for those who favour a calm, considered approach to the great economic challenges of the day. Instead of reasoned political debate, politicians vie with each other to whip up short-term approval from voters by advocating all sorts of spending policies as if the exchequer was a bottomless pit.
In this world whatever the government does is never enough so the pressure is always for yet more costly, sticking-plaster solutions that are likely to make things worse in the longer run. It is some time ago since Michael Noonan remarked sagely that every TD in the Dáil seemed to be in favour of more spending with not a single voice urging restraint.
The government’s half-a-billion-euro inflation package is a case in point. A €200 energy credit for every household, a fuel allowance lump sum payment of €125, a cut in bus and rail fares, and a reduction in the drugs payment scheme threshold are just some of the items involved.
Hoary old claim
Naturally the measures have been denounced by Sinn Féin and the other Opposition parties for not going nearly far enough. The hoary old claim that the Taoiseach and his Ministers are cut off from the reality of life in Ireland is bandied about as if the same did not apply to Opposition TDs, who as well as their good salaries and very generous expenses, have the luxury of demanding action without having to worry about the consequences.
In the Dáil the Taoiseach vainly explained that what Sinn Féin was proposing would contribute significantly to inflation and make things far worse. He was absolutely correct but the only problem is that the Government set the process in motion itself by introducing a flawed package of measures that attempt to compensate everybody for the return of inflation after a long absence.
There is certainly a case to be made for carefully targeted supports to protect the most vulnerable from the worst effects of inflation, particularly energy costs. The extra resources being allocated to the fuel allowance scheme is a justified response to help people who will be hardest hit.
What is not justified, and will certainly be counter-productive, is a system of blanket payments to everybody, regardless of income as typified by the €200 subsidy to all households for rising energy costs. This is not only a waste of public money but will fuel inflation and in turn lead to yet more demands for compensation measures in the months ahead.
An important point that is generally absent from the argument is that everybody in the country has benefited from rising living standards in the years since the country emerged from the financial crisis. The only way inflation can be reined in is if most people accept the reality that they will have less money to spend at least in the short term.
The lessons of the past are clear. At regular intervals since the 1940s governments have attempted to cushion people from the worst impact of inflation with blanket supports like food subsidies which help rich and poor alike. In the 1970s another weapon was added to the war on inflation with the establishment of the National Prices Commission.
These measures did nothing to control the underlying causes of inflation, which mainly originated outside the country, but they made dealing with its consequences far more difficult. Price controls were ultimately abandoned and food subsidies abolished and the outcome was that the economy began to thrive. The lessons should be obvious to all, even politicians.