David McWilliams: Ireland must spend money or risk social implosion as population grows

Ireland has set itself on a dangerous course. The combination of restrictive fiscal policy and high immigration increases the likelihood of a radical anti-migrant, nativist party. The reason is very simple. Ireland’s population has increased by 32 per cent over the past 20 years. This constitutes a massive demand shock to the country. More people means more personal spending, requiring more domestic services. Basic economics dictates that more demand necessitates more supply. More supply means more spending on everything, from houses to hospitals, schools, roads, railways, sewage, waste disposal and frontline workers.

Elevated demand without elevated supply leads directly to inflation, traffic, housing shortages, hospital bed crises and a falling quality of life for citizens whose standards of living are apparently increasing – but only on paper. In short, we need an expanded State to deal with an expanding country, and that implies spending. If we don’t spend faster than the population is increasing, our average citizen will become disgruntled. And disgruntled citizens tend to want to blame someone.

The parties of the centre are committed to sounding fiscally conservative, believing that restricting spending today makes tomorrow more secure. This is not the case. It is a mantra that is substituting any serious thinking. When you consider it – even for a minute – it is clear that not spending now imperils the future, particularly for the middle classes. Prudence today, far from making the future predictable for middle Ireland, renders the future more dangerous, and potentially toxic. The economics of low population growth, the economics of the 1980s, is not the answer to our 21st-century demographic demands.

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We have the money. The State is predicting surpluses of about €50 billion over the coming years but we are not going to spend this money, even though we are expecting to absorb more people, which will naturally increase aggregate demand. Refusing to increase supply in the face of increased demand is highly irresponsible. In fact, it is politically reckless. The Fiscal Advisory Council, the Government’s economic shaman, likes to portray itself – and its message of prudence – as responsible. It is not.

In reality, our present macroeconomic stance at a time of high immigration and the highest natural increase of population in Europe is highly incendiary, and our politicians, possibly bamboozled by balance sheet arithmetic, must understand this.

It’s not difficult to grasp, because demography is destiny.

If Ireland’s population were static or falling, as in many EU countries, not spending fiscal surpluses would be sensible. As the population falls the value of savings rises, and those savings can be deployed in the future to plug the gap created by loss of the retired workforce’s wages. This makes sense to anyone who takes a moment to think about the value of money today versus money in the future.

Ireland’s population is growing, and maintaining it costs money. Spend now or risk social implosion later. The choice is ours

But when the population is rising, government spending has to rise faster or else inflation emerges and bottlenecks arise in critical areas like housing, policing and transport, which undermine centrist politics. When the population and inflation are both rising, the value of savings deployed at some point in the future falls. This should be clear to anyone who has studied undergraduate economics.

Perplexingly, the parties of the centre are captured by static accountancy when they should be thinking about dynamic economics. They have been led to believe that saving today will be rewarded tomorrow. Anyone with a jot of prescience would see that saving today will be punished tomorrow and will be punished politically in a most ugly manner.

For the parties of the centre presiding over this inconsistent twin macroeconomic and immigration policy, the most urgent message is that true commitment to a diverse, multicultural, cosmopolitan, tolerant Ireland requires that the State spends today. Both immigrants and liberal Ireland will thank you for it tomorrow.

Let’s take a look at the demographics.

There are three major developments over the past 50 years. First, the late 1970s/early 1980s baby boom, the people I call the Pope’s Children. These people are in their 40s now and are responsible for the next baby boom, that surge in the birth rate between 2010 and 2015. These children are now in primary school, and they are the reason childcare – again a problem of not spending enough – has been such an issue in the past decade.

The third development has been immigration, particularly over the past five years, including a spike last year, largely as a result of the war in Ukraine.

These three developments create the following demographic picture.

The population is projected to be between 5.6 million and 6.7 million by 2051 and the share of foreign migrants in Ireland is projected to account for between 18.2 per cent and 19.7 per cent of the total population by 2051, according to Fiscal Council Ireland. The ratio of immigrants to ethnically Irish would look something like 1:5.

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The Central Statistics Office projects that Ireland is getting older, which has significant implications for the dependency ratio or the number of taxpayers paying for retirees. At the moment there are 4½ workers for every dependent. Only more immigrants or another Irish baby boom can keep this ratio steady. It is a matter of national debate as to whether people are prepared for this sort of demographic and ethnic change simply to maintain tax rates, pension payments and standards of living. However, what is clear is that without significant spending now, we won’t even get to the position where we have that discussion. Without a significant shift on the stance of macroeconomic policy at a time of a rapidly rising population, the likelihood of a surge in the nativist right is highly likely, for obvious reasons.

The current Government is committed to diversity and growth. The price of both of these objectives in looser budgetary policy and a move away from accountancy and a swing to economics – and in particular political economy.

Ireland’s population is growing, and maintaining it costs money. Spend now or risk social implosion later. The choice is ours.