The Looming Spectre of Protectionism

The BBC reports on the efforts of international governments to save jobs. The current economic crisis provides an environment pursuant to protectionism, and policies that protect domestic employment at the expense of free trade.

There are ways of assuaging the harms imposed on society by the painful corrections necessary to return economies to full employment. They must be embraced, or the world will be plunged into further economic despair.

The Price of the Euro

David McWilliams offers his solution to Ireland’s problems by suggesting the abandonment of the Euro. It is true that Ireland can only become competitive again by repricing itself, whether through deflation or devaluation. However, the Maastricht Treaty outlines no route for countries to leave the monetary union.

The transition mechanism is the most difficult aspect of the debate, but a topic which has remained relatively untouched so far by any commentators. First of all though, note that devaluation is no panacea.

Transfer Taxing

The Irish Times reports that President Obama is set to implement sweeping tax changes to treatment of repatriated profits from overseas. The measure might seem politically expedient, but is questionably beneficial for the American economy. Meanwhile, Ireland seems exposed.

Minimum Wage, Maximum Unemployment

The days when the minimum wage didn’t significantly impact on employment levels are now long gone. By artificially raising wages, they are kept above the market clearing rate which would otherwise dominate. During the boom years, this effect was arguable insignificant. This is not the case in the current climate, and the government needs to take immediate action.

Considering how long full employment subsisted, clearly the legislation merely transferred returns from capital and enterprise to the worker. However, now firms are under substantially more pressure to cut costs. By keeping the minimum wage as high as it is now, the government is in danger of making jobs which could otherwise be created unviable. There is also the risk that workers will be laid off, but whom firms would have liked to keep for a lower wage. These people then accept social welfare payments, and the taxpayer suffers.

Paying People to Work

There has long been argument over whether the European Union constitutes what economists call an “optimal currency area”. The worsening economic conditions in the state are bringing the arguments against into sharp focus. Ireland has for long suffered wage inflation higher than the rest of the current monetary union. This increased the purchasing power of Irish consumers, and intially brought prosperity. Meanwhile, the country’s competitiveness was suffering as it became a more expensive place to do business. This is the major source of Ireland’s current employment crisis.