The economy: Learning lessons of the crash

The challenge is to do what is possible to avoid a return to the old boom and bust cycle, while tackling the key investment and public service needs

Many of the legacies of the crash relate to the housing sector and the collapse in house-building. Photograph: Cyril Byrne /The Irish Times

Many of the legacies of the crash relate to the housing sector and the collapse in house-building. Photograph: Cyril Byrne /The Irish Times

 

The last decade has been an extraordinary one for the Irish economy, with an unprecedented economic crash followed by a remarkable recovery. It has left the Government facing particular challenges, some emerging from the pressures of rapid growth and others relating to the legacy of the crash. Managing both simultaneously will not be easy, but the leeway in the exchequer finances does create opportunities to do so.

It is important to learn the lessons of the crash, but also realise that things are different now. One challenge, for example, is to guard against the return of a credit-driven property bubble, as happened before the bust. But the more urgent task for policy now is to deal with the housing supply shortage, a complete reverse of the pre-2008 over-supply.

Indeed, many of the legacies of the crash relate to the housing sector and the collapse in house-building in both the private and public sectors. Rising rents and a lack of supply of social and affordable houses has pushed many into homelessness ; 8, 857 people according to the latest data for November.

It is stating the obvious to say that a key goal of Government, both national and local, is to deal with this blight on our society. Like some other major problems – the hospital trolley crisis, for example – much is promised, but progress is slow. One priority is to find ways to tackle these kind of complex problems more effectively and quickly; more resources are part of the answer, but there are other organisational and policy issues, too.

With more public resources available, there is a risk of spending being driven as much by short-term political considerations and vested interests as by economic and social priority. Also, the economy may soon reach capacity in some areas and our national debt burden remains high, both factors demanding caution. The threat of a hard Brexit as early as 2019 also remains.

It is important to recognise the progress that has been made in recent years and to do what we can to help it continue. More investment is vital to improve our infrastructure – in areas such as public transport,education and health, as well as housing. State-supported broadband investment will be vital for rural areas. One lesson from the crash is that under-investment takes a heavy toll in future years.

There is a good chance that the level of employment, one of the most important indicators, will hit a record level this year. Incomes are on the rise. For the first time since the crash, the Government looks likely to have significant additional resources . The challenge is to do what is possible to avoid a return to the old boom and bust cycle, while tackling the key investment and public service needs. Of course it won’t be easy. but the opportunity to make further progress is there.

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