Oscar Wilde, the Irish writer, was mercilessly witty in his day. Once he said, "In this world there are only two tragedies. One is not getting what one wants, and the other is getting it. The last is much the worst; the last is a real tragedy!"

Faced with the foul concoction of a declining economy, rising inflation and a depreciating currency, Prime Minister Bruce Golding might be inclined to agree with Wilde's conception of tragedy.

Among the promises made by the Jamaica Labour Party (JLP) in its election campaign was that of "growing the economy and putting the people to work".

In fact, Bruce Golding presented himself metaphorically as the 'Driver' - the man who would take the steering wheel of the economy and guide the country to a new path of prosperity. But 15 months after the Golding administration has taken office, the economy is stuck in rut. Yet it would be unfair, if not disingenuous, for even the Government's harshest critic to blame the problem on the management of the economy.

Turbulence inevitable

The reality is that in small, open, dependent economies like Jamaica's there is very little that can be done to insulate the country from the turbulence in the global economy. Fortunately, the toxic securities and the solvency that paralysed the American financial system did not contaminate Jamaican financial markets in any real way.

However, the problems with the American financial system could not be contained from leapfrogging into the real economy. After shedding some 1.9 million jobs since the start of the year, the unemployment rate in the USA now stands at 6.7 per cent, the highest level recorded in 15 years. In addition, the fate of the giants of the multibillion-dollar auto industry, General Motors, Ford and Chrysler, hangs in the balance as President Bush tries to pull together a US$13.4-billion emergency loan for their salvation.

So the economic turbulence originating in the US financial markets has engulfed the globe and the effects in Jamaica are increasingly becoming more evident. With falling global demand for aluminium, earlier this week the bauxite-alumina industry announced that 150 more jobs would be slashed.

Despite Tourism Minister Edmund Bartlett's irrepressible optimism about visitor arrivals there is fear in the hotel sector that its only a matter of time before the decline sets in. And, of course, menace of contracting exports and ebbing remittance is undeniable.

Prime Minister Golding in his address to the nation last Sunday night, urged us not "to curl up or panic", and he is right. The Driver might not choose the road, but certainly he should at least be able to control how hard the bus hits the pothole. The remedy he announced was what is known to economists as 'supply-side economics'.

Supply-side economics had its advent as a policy tool in the early 1980s under the Reagan administration. It came against the background of the 1970s in which the US economy suffered from falling output and spiralling inflation. One of the most prominent feature of supply-side policies is tax cuts. At the heart of this approach is the notion that heavy taxation and rigid regulation are disincentives to the supply of labour, savings and investment. Theoretically, supply-side economics should result in an expansion of output and a decline in inflation.

Supply-side policy

In addition, the advocates of supply-side policy argue that a reduction in the tax rate in the long term leads to high tax-revenue inflow for the government.

Prime Minister Golding, in his address to the nation, offered an assortment of tax cuts. The 8.25 per cent general consumption tax (GCT) paid by hotels is to be chopped in half; the transfer tax on property is to be pared down to five per cent from six and a half per cent; the threshold for exemption from GCT requirement for businesses is to be raised from $1 million annual sales revenue to $3 million; plus the income tax threshold is to be increased by approximately $20,000.

To provide cash-flow support to the tourist sector, the Government has made available $500 million through the Development Bank of Jamaica at an interest rate of 10 per cent. For investment purposes, another $500 million is to be made available to small businesses and micro enterprises at concessionary interest rates.

The package is good and defensible. However, there are several drawbacks. First, the tax cuts should deprive the Government, at least initially, of an estimated $862 million. As such an increase in the budget deficit is inevitable, this will raises questions about the country's credit and the Government's ability to borrow externally at reasonable interest rates.

Second, by offering loans at interest rates below the level of inflation the Government is literally transferring wealth from taxpayers to a select group of borrowers. Furthermore, while these funds are specifically intended for certain sectors, given the malleable nature of cash, there is no guarantee that the loans would be used for the purpose for which they were designed.

Expanding output and create employment

Third, at the centre of the strategy is the faith that the private sector will step forward, invest in the economy, expand output and create employment. Traditionally, the private sector, in most part, has been a bunch of gripers that show very little creativity and capacity to drive the economy ahead. It would be good to see them shed that image this time around.

Finally, there is the distinct impression that the measures announced are short-term. However, the evidence suggests that for supply policies to be effective, they should be long-term.

Certainly, the success of the package is not just what the country wants, but what it needs. Indeed this is one time the prime minister would agree that getting what one wants is infinitely better than not getting what one wants.

Cedric Wilson is an economics consultant who specialises in market regulations. Send your comments to conoswil@hotmail.com or columns@gleanerjm.com.