The large picture how the government is managing the economy in these times of recession is now getting clearer.

Like far bigger economies, the first months of the worldwide recession in late 2008 when the economic system was shockingly near to total collapse were spent in panic mode, expecting the worst to happen from one moment to the next.

Then things started to clear up, but still the world lurched from crisis in one area to another, from banks to states back to banks again.

A similar mental blockage took place within governments, each trying in its own way to seek the best way forward. Barack Obama in the US believed that the way forward was to stimulate the economy, while following the Greek crisis this Spring, most governments in Europe focused on cutting expenditure and reducing the deficits. Our government keeps repeating Malta does not need any austerity measures, as the Prime Minister himself said only last Saturday.

This paper and this writer have long argued this is quite the wrong tack and that it is only a foolhardy government that thinks only of stimulating the economy without keeping a steady eye on the bottom line, the deficit figures.

Of course, our government is not so foolish. In fact, while it is proclaiming it sees no need for any austerity measures, it is allowing, as we said yesterday, some quite heavy price increases, the latest being the gas prices, in defiance of what was promised just a few months ago. And price increases are, in a way, austerity measures in that they cut down on the money required for subsidies. Also, our government is keeping a steady eye on the deficit figures which seem to be coming along quite nicely.

Yet the government continues to choose the spend and stimulate path rather than any alternative.

Over the past year, it ploughed money into manufacturing industries which were thinking of closing down, relocating or shedding workers. As a result, jobs were saved and investment attracted to Malta, the latest being the quite attractive investment in STMicro.

Then the government moved to help the hotel industry, which took quite a beating last year as tourist numbers dwindled and electricity rates spiked. However, the help here, for all the hype that has been spent, is rather different from the help proffered to manufacturing industries: funds were found to help hotels restructure, change over to more environmentally advanced technologies.

But this is not exactly what the hoteliers wanted: they still have to overcome last year’s losses before they can move ahead to make investments which the hotel owners themselves know they must do. As for the government saying, as Dr Gonzi said on Sunday, that it helps the industry by getting in more tourists, that rather begs the question for it also means that low-cost airlines have been getting substantial government and industry help, which is as it should be, but what then about the hotels themselves?

Anyway, we are now in the third stage of the government’s stimulus measures: over the past months we have all seen the many projects announced by the government, mostly outside parliamentary scrutiny, such as the Valletta entrance, the MCAST masterplan, and then the less clear projects such as the Mriehel office centre, and the White Rocks mega-project.

All of these carry stimulus of a sort, and all of these are based on the construction industry. So here we have it at last – the government’s idea of stimulating the economy is through stimulating the construction industry.

On the one hand, as we all know, the construction industry has perhaps the widest spillover impact on the rest of the Maltese economy, whether black or white. So by stimulating the industry one would be stimulating as well the ancillary industries. On the other hand, as always, politics and government is the art of choosing between alternatives: if you choose one way, you choose not to go the other way. So what is the alternative, nay alternatives, to this stimulus?

It could be the government cutting down on its expenses and giving what it saves through this to the citizens as tax cuts. It could be the government helping more the people at the lower end of the social scales. It could be, as GRTU has been making itself hoarse in demanding, coming up with the promised stimulus plan for the SMEs and the self-employed. The government keeps blaming ERDF procedures and lateness to find the funds, but then it did not go to the ERDF for the funds it gave the manufacturing industry.

There are still many other issues to consider, such as which is the best way to get the stimulus to affect the economy. In this case, it would seem that stimulating the construction and related industries has far more spin-off effects that percolate through the various levels of the economy, something which, for instance, just giving money to people would not do, for that would erupt into a consumer binge which would mean that most of the money ends up abroad.

On the other hand, as has been stated elsewhere, the construction industry may now have grown far too big for Malta and will only survive if it is continually fed. A long-term assessment is thus required – something which the present political and economic scenario do not seem to be doing.