Beyond 'so-80s' platitudes.

(From Business and Finance)

Our current economic problems have if revived dark memories of the last occasion when we had severe economic difficulties - the 1980s. There have been many soothing reassurances that things won't be as bad this time. I'm not so sure we'll get off so lightly. There are many differences between our current economic downturn and what we experienced in the 1980s.

One fundamental difference with that decade is that then a voracious and inefficient public sector caused a lack of domestic demand which generated mass unemployment and mass emigration. Today we face a fatted private sector with huge and structural overcapacity following a major investment binge. How many golf and spa resorts have been built here over the last decade? How many can the market actually carry? And what will become of the surplus?

During the 1970s and 1980s, Ireland saw a binge of investment in cold stores in response to the food intervention policies of the EU's Common Agricultural Policy. Huge amounts of beef were stored here in order to prop up the price of beef. Good money was to be made storing that beef.

Then, after the first Live Aid concert, political pressures built up to end the storage of vast amounts of food in Europe at a time when millions were threatened by hunger in Africa. The EU responded and large-scale EU storage of frozen beef came to an end. The consequence of that on the food storage industry was simple: with a massive surplus investment in cold stores, storage prices were competed down to just above the marginal cost of storage. Cold store owners were unable to recover the cost of building and equipping their stores. That is the fate which may face our golf and spa resorts and indeed our wider hotel sector. A market opportunity to purchase hotels and convert them into nursing homes is fast approaching.

A second difference between now and the 1980s is that then there was a single bullet needed to solve the problem. Once that bullet was shot, things were relatively easy. This time there is no easy panacea. In the four years (1987 to 1990 inclusive), real government current spending dropped by 11.5%, while real consumer spending grew by 15% and real gross national product by 16.7%. Today, we face a completely different problem: over-indebted consumers, over-indebted property companies and an overexposed banking system. The task of fixing these interlinked (and mutually exacerbating) problems will take many years, if other housing ...