The Wall Street Journal wrote an article yesterday about the austerity measures Ireland has imposed to deal with its burgeoning deficit in the wake of its massive housing bust. Ireland’s current deficit is 12% of GDP, just behind Greece’s 12.7%, and not that far from our 10.6%. So what did Ireland do to address its budget deficit? Cut teacher and police salaries 15%. Reduced civil servant pay. Increased taxes across the board. People are having to skimp and make do as a consequence, but Ireland was also able to issue debt with a yield 150 basis points below Greece’s recent issuance. Ireland did what needed to be done.
Contrast that with the US, which also has yawning deficits, at the federal, state and local levels. Can you imagine what would happen here if a politician suggested cutting police pay by 15%? The police unions would raise a shitstorm of fear about rising crime rates. Politicians would elbow each other out of the way to say who was “toughest on crime.” Hell, the police would probably end up with a raise. I’m not saying that cutting police pay is a panacea; what I’m saying is that spending is going to have to go down, and taxes are going to have to go up. And instead of posturing about being tough on crime, we need to do what is really tough: admit that the party is over and it’s time to cut back. If Ireland can do it, so can we.