October 22, 2020
News Opinion

MICHAEL WOLSEY: Carry on borrowing, there’s method in the madness

Neither a borrower nor a lender be, warned Shakespeare’s Polonius.

He was a counsellor to the king of Denmark. It’s well he is not advising our present Government. They are borrowing at a rate that would give the old bore a seizure.

My mother would have agreed entirely with Polonius. She had a horror of debt and liked to pay for services as soon as they had been delivered.

She was baffled at the lack of business sense displayed by some tradespeople who would deliver their bills at the end of the month, instead of demanding instant payment. My father, who took a more relaxed view of such matters, sometimes had to restrain her from calling at their premises to discover what was causing the delay.

Some of my mother’s principles must have rubbed off on me, for I tend to come down on the Polonius side of the debt debate.

But not in the case of present Government borrowing.

Borrow away, I say, and lose no sleep over how it will be repaid.  It could cause problems in the future, but if they don’t borrow now, we may have no future, or at least not one that most of us would care to contemplate.

In fact, I don’t think this borrowing really will cause problems in the future. Our grandchildren and great-grandchildren may still be paying off these loans but, on past experience, they won’t even be aware of it.

The government of the day borrowed heavily when the economy crashed  in 2009.  It borrowed, not to get out of recession, but just to keep the country afloat, and there were were dire warnings from economists and politicians about how the next generation would suffer.

It didn’t.

By clever management, the Department of Finance was able to swap high-interest loans for loans with a lower rate of repayment. Then interest rates fell everywhere, so repaying our debt became relatively painless.

The debt didn’t go away but it didn’t hit anyone in their pocket – and that’s what matters to ordinary families who budget in hundreds, not billions of euro.

Maybe if we hadn’t borrowed so much we could have spent a bit more health or housing.

Maybe. But we’ll never really know because lots of other things happened that also affected the government’s ability to spend and the tax it had to impose.

The State made money on its investment in Nama and its shareholding in Irish banks. It squandered money on the National Children’s Hospital and ridiculous transport schemes for Dublin that were scrapped before they ever got going.

It intervened when an insurance company went bust and wasted a fortune on trying to bring in water charges. But it stuck to its guns on the rate of corporation tax, yielding a bonanza from foreign companies that was way beyond predictions.

So some taxes went up and some came down, levies were imposed, a social charge was introduced. Did any of this flow from that initial government borrowing? Who knows?

What matters is not government borrowing but government competence and its ability to keep repayments at a tolerable level.

So borrow away, I say. We can do so because the last two governments got the Irish economy into reasonably good shape and we are trusted on world markets. And we can do so because we are being backed by the European Central Bank.  It won’t pay our debts but it will go guarantor for our loans, providing they are for sensible purposes aimed at restoring the economy.

We have never been in such a fortunate  position at any other time of crisis. And we will never be able to borrow so cheaply again.

It may seem a bit mad; my mother would certainly have thought so.

But since I opened this column on such a high cultural note,  let me finish with more from the wisdom of Polonius: “Though this be madness, yet there is method in it”.

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