It’s the economy, stupid … again

The celeb-style race for the White House might be fun to watch, says Jason Somerville, but we’ll feel the effect of the economic policies across the pond too.

The celeb-style race for the White House might be fun to watch, says Jason Somerville, but we’ll feel the effect of the economic policies across the pond too.

The upcoming US presidential elections have fascinated the Irish population. Debates about Obama, McCain and Sarah Palin dominate the airwaves. However, from an Irish perspective, it is the effect the candidates’ economic policies could have on our own slumping economy that is most relevant. Historically, Ireland has performed better when the Republicans hold the reigns, but now it seems that either way, Ireland is looking at a serious fall in foreign investment for the coming years.

Over the past decade, the Irish economy has enjoyed the longest and most radical economic expansion in its history. However, the collapse of the construction sector amid a global slump has left our economy one of the most vulnerable in Europe. As graduates know, it is becoming increasingly difficult to find a job in some sectors, such a civil engineering. With domestic affairs in such poor shape, people are now turning to the upcoming US elections for a solution. The hope is that within either John McCain or Barack Obama’s rescue plan there is a formula that will restore the struggling US economy, which will have a knock-on effect closer to home.

Americans have now come to believe “it’s the economy, stupid” all over again.

“Even small differences on economic issues can affect millions of people.”

Despite the ongoing war in Iraq, the Iranian conflict and America’s fading influence on the world stage, it has become common wisdom that the battle for the US Presidency is all about the economy. In a recent survey, 52% of respondents cited the economy as the single greatest issue in the upcoming election, compared with the 16% who cited the Iraq war.

Of course, democracy is not a finely tuned mechanism of control that can be used to direct economic policy. Due to a political system of checks and balances any reforms sought by presidential candidates tend to be far less radical and less ambitious than originally promised. That said, even small differences on economic issues can affect millions of people and with those people now turning to the Presidential hopefuls for a solution, the debate is certainly heating up. Obama promotes a more ambitious version of former President Bill Clinton’s 1992 version of activist government, with a dose of belligerent trade talk added on. He wants to spend money on public investment (primarily on infrastructure and alternative fuels); he has an ambitious and expensive plan for near-universal health care coverage; he promises tax cuts for working Americans and sharply higher taxes for the rich. In contrast, Republican candidate John McCain is a staunch free trader arguing that America should be pushing for more trade deals, not shrinking away from existing ones. He offers a traditional Republican recipe for growth: tax cuts, freer markets and minimal government intervention.

From an Irish perspective, it is difficult to know which candidate’s policies would help boost our economy. Despite the general sentiment in Ireland being viewed as being hugely pro-Democratic, historically the Irish economy has performed better under the Republican administration polices that promoted free trade and open markets. As a small open economy that relies heavily on exports and foreign investment from American multinationals, it could be disastrous if Obama adopts more protectionist policies. However, McCain’s tax cuts add to the dilemma. Ireland’s low corporation tax rate of 12.5% has been a key factor in attracting US investment during the ‘Celtic Tiger’ era. When you consider that the current US rate is 35% it’s not surprising that Ireland has held such appeal. But, McCain now wants to cut the US corporation tax rate to 25%. While this is still double the Irish rate, the reality of the situation is that Ireland is already losing its appeal to investors. We have one of the highest minimum wages in Europe, high transport costs and social partnership agreements look increasingly under threat. If McCain lowers the corporation tax rate, the current recession could be amplified by a more pronounced fall in investment.

So where does that leave those of us in third level education? Well for those lawyers, doctors and psychologists in training among us, it’s probably a safe bet that you will find a job. Regardless of a recession people commit crimes, get sick and develop psychological disorders; if anything, business in these fields will probably pick up over the coming years. However across the board job opportunities will be more difficult to come by. Unemployment has been soaring in recent months and in sectors such as construction, where labour is mostly unskilled, falling immigration has already started to cushion the fall. Most of these industries have seen a huge inflow of workers from the EU in recent years and so will adjust accordingly once demand subsides. Worryingly, this doesn’t appear to be the case for the more specialised sectors of the economy. With the financial markets in such turmoil a major structural downturn is possible. That could change the very nature of the Irish economy. Our much-specialised workforce has developed in response to the demand for it, but when we emerge from the current recession we will find that that demand no longer exists.