Thursday, 4 November 2010
Information Note on Economic and Budgetary Outlook
The Govenrment's Information Note on the Economic and Budgetary Outlook 2011-2014 is now available for download here.
Has Unemployment Stabilised?
Nat O'Connor: Unemployed decreased by 6,600 (seasonally adjusted) if you compare October 2010 figures with those of September 2010. Yet, October’s figures are an increase of 17,400 (also seasonally adjusted) from 2009. (CSO source here). Stablising or not, it clearly remains essential to bring as many ideas as possible on the table to maximise job creation.
The Government has welcomed the fall in unemployment, calling it signs of a “stabilising economy”, however they recognise the ongoing jobs challenge.
“Minister Ó Cuív referred to number of key strategic initiatives to create new jobs and to get people back to work; the five-year integrated plan for trade, tourism and investment, aimed at generating 300,000 jobs and boosting exports by one third, and the €500 million Innovation Fund-Ireland which aims to draw top venture capitalists to Ireland.”
The Government is also welcoming a decline in redundancies.
Labour spokesperson on Enterprise, Trade and Employment Willie Penrose has provided a longer list of measures to “generate the conditions where job creation can flourish”.
These include:
- Using €2 billion from the pension reserve fund to establish a strategic investment bank to get credit to the SME sector and to invest in infrastructure;
- Targetting clean technology, food, tourism, cultural and creative industries for job creation;
- Banning of upward only rent reviews;
- Reforming the PRSI exemption scheme to incentivise employers to take on extra staff;
- Creating 20,000 places on a six-month placement scheme in both the public and private sector;
- Reducing the qualifying period for Back to Education and Back to Work Enterprise Allowance to three months, and allow far greater access to post-graduate courses;
- Increasing the Back to Education Initiative by 6,000 places;
- Lifting the cap on VEC further education places and create an additional 10,000 places;
- Expanding VTOS by 20%. Create one thousand extra places for young jobseekers;
- Creating a skills exchange in VECs, FAS training Colleges, and Institutes of Technology;
- Providing more support services for jobseekers through the amalgamation of FAS employment services with the Department of Social Protection, and through integration with other key training and education agencies.
Labour's proposals point towards expanding or reforming existing schemes. These are policies that can be rolled out quickly, which is vital. The question of eliminating all remaining 'upward only' rent contracts is also worth serious consideration.
Meanwhile, Fine Gael have proposals under the heading of Getting Ireland Working Again.
They would:
- Immediately cut taxes on jobs and struggling sectors of the economy;
- Start a new National Recovery Bank to ease credit conditions for families and small businesses;
- Create 105,000 jobs through an €18 billion upgrading of water, broadband and energy, paid for in part by selling assets that the State no longer needs (i.e. their NewERA plan);
- Use the social welfare budget to expand second chance education, training and internship opportunities;
- Help small businesses, exporters and inward investors by forcing down high prices for rent, electricity, transport and professional services.
Fine Gael add one specific policy to the jobs debate: doubling Ireland’s sector that provides education to international students. This is perhaps a useful reminder that job creation requires a focus on the ‘micro’ economy; industry-by-industry, sub-sector-by-sub-sector.
It is important to note deep differences underlying the Labour and Fine Gael approaches. Labour want to use the NPRF to get credit to SMEs. They also call for higher taxes. And they focus on reforming the links between the welfare system and employment support services. Whereas Fine Gael are talking about tax cuts, and their policy on social welfare is more menacing, where they state: "instead of encouraging idleness, dependency and poverty for younger unemployed people, we would use the social welfare budget to expand second chance education, training and internship opportunities." This suggests cutting welfare rates to 'incentivise' employment - regardless of the hardship or the deflationary decrease in aggregate demand in the economy it would cause.
The Government has welcomed the fall in unemployment, calling it signs of a “stabilising economy”, however they recognise the ongoing jobs challenge.
“Minister Ó Cuív referred to number of key strategic initiatives to create new jobs and to get people back to work; the five-year integrated plan for trade, tourism and investment, aimed at generating 300,000 jobs and boosting exports by one third, and the €500 million Innovation Fund-Ireland which aims to draw top venture capitalists to Ireland.”
The Government is also welcoming a decline in redundancies.
Labour spokesperson on Enterprise, Trade and Employment Willie Penrose has provided a longer list of measures to “generate the conditions where job creation can flourish”.
These include:
- Using €2 billion from the pension reserve fund to establish a strategic investment bank to get credit to the SME sector and to invest in infrastructure;
- Targetting clean technology, food, tourism, cultural and creative industries for job creation;
- Banning of upward only rent reviews;
- Reforming the PRSI exemption scheme to incentivise employers to take on extra staff;
- Creating 20,000 places on a six-month placement scheme in both the public and private sector;
- Reducing the qualifying period for Back to Education and Back to Work Enterprise Allowance to three months, and allow far greater access to post-graduate courses;
- Increasing the Back to Education Initiative by 6,000 places;
- Lifting the cap on VEC further education places and create an additional 10,000 places;
- Expanding VTOS by 20%. Create one thousand extra places for young jobseekers;
- Creating a skills exchange in VECs, FAS training Colleges, and Institutes of Technology;
- Providing more support services for jobseekers through the amalgamation of FAS employment services with the Department of Social Protection, and through integration with other key training and education agencies.
Labour's proposals point towards expanding or reforming existing schemes. These are policies that can be rolled out quickly, which is vital. The question of eliminating all remaining 'upward only' rent contracts is also worth serious consideration.
Meanwhile, Fine Gael have proposals under the heading of Getting Ireland Working Again.
They would:
- Immediately cut taxes on jobs and struggling sectors of the economy;
- Start a new National Recovery Bank to ease credit conditions for families and small businesses;
- Create 105,000 jobs through an €18 billion upgrading of water, broadband and energy, paid for in part by selling assets that the State no longer needs (i.e. their NewERA plan);
- Use the social welfare budget to expand second chance education, training and internship opportunities;
- Help small businesses, exporters and inward investors by forcing down high prices for rent, electricity, transport and professional services.
Fine Gael add one specific policy to the jobs debate: doubling Ireland’s sector that provides education to international students. This is perhaps a useful reminder that job creation requires a focus on the ‘micro’ economy; industry-by-industry, sub-sector-by-sub-sector.
It is important to note deep differences underlying the Labour and Fine Gael approaches. Labour want to use the NPRF to get credit to SMEs. They also call for higher taxes. And they focus on reforming the links between the welfare system and employment support services. Whereas Fine Gael are talking about tax cuts, and their policy on social welfare is more menacing, where they state: "instead of encouraging idleness, dependency and poverty for younger unemployed people, we would use the social welfare budget to expand second chance education, training and internship opportunities." This suggests cutting welfare rates to 'incentivise' employment - regardless of the hardship or the deflationary decrease in aggregate demand in the economy it would cause.
A better way
Michael Burke: As the population braces itself for another round of swingeing cuts, the government and the overwhelming majority of the media continue to make this claim: That larger cuts will reassure financial markets, allow NTMA to resume borrowing once more and lead to lower interest rates.
Over at the Irish Economy, Colm McCarthy has been expounding his opinion that the government isn't cutting enough, and that more is needed to actually reassure the financial markets.
However, this market participant actually thinks the cuts are undermining Irish credit-worthiness, so making the situation worse: "Nick Stamenkovic, a fixed-income strategist at the Edinburgh-based RIA Capital Markets, told Bloomberg: "The biggest worry about Ireland is the growth picture. Investors are fretting that the actual growth implication of these fiscal consolidation measures may make it more difficult for budget deficit targets to be achieved".
Meanwhile, Sinn Féin leader in the Dáil Caoimhghín Ó Caoláin said at the launch of that party's pre-Budget submission: "The key to recovery is the provision of stimulus to get the economy moving again by protecting and creating jobs and ensuring that those on lower incomes are not pushed into poverty, thus further depressing the economy."
There you have it. Four competing views of the situation: how is any citizen supposed to arrive at an informed view? Well, perhaps recent history should be our guide.
Through those 5 budgetary packages €14.6bn has been withdrawn from the economy, each package larger than the previous one and increasingly loaded towards spending cuts. We will know soon enough how large the current package will be, and the obligation to report this to the EU means we will know (most of) the detail well before December 7. But it looks like being at least the equivalent of last year's 'last big push' of 4€bn.
Using Exchequer Statements (which are not complete, but widely aired) we know that total tax revenue fell by €7.8bn in 2009, while the deficit excluding bank bailouts and NPRF payments widened by €8.3bn. At the same time GDP fell by €20.3bn.
On this basis, we can test the four propositions. First up, the Government.
Let's call it the Lenihan Claim. It argues that its actions saved the economy from a far worse fate (despite the fact that every other Euro Area economy adopted measures to boost the economy in 2009, and they have been out of recession with deficits falling for over a year). But had they done nothing, this €10.6bn of tightening by 2009 would not have happened. In which case the deficit would have widened to €10.6bn + €8.3bn, which equals €18.9bn. Does anyone, even in the government believe that the government is responsible for nearly the entirety of output in this State? €18.9bn of a total €20.3bn. This is a nonsense.
Secondly, let's look at Mr Stamenkovic's view. We'll call it the Market Reality. His argument is that the markets believe that the fiscal policy are damaging growth to such a degree that it is counterproductive, the decline in activity hits both tax revenues and forces up welfare payments to outweigh the 'saving' made by the cuts. How can we test this? One way would be SF submission there is an annex dealing with precisely this question. It uses Philip Lane's first year multiplier of 1.24 and the DoF's 0.6 estimate of the sensitivity of government finances (that's how much both taxes and outlays are affected by changes in GDP). Now, these are estimates based on long-run behavior; this and the current crisis may push both of these estimates higher. But using these to illustrate the point:- this would mean that a €10.6bn fiscal contraction would lead to a €13.14bn decline in GDP, which in turn makes government finances €7.9bn worse off. The actual 'saving' is just €2.7bn- and the economy is much worse.
Surely, then the third bite-the-bullet option is correct?, to be known as McCarthy's Misconception. This is the advocacy of the ambulance-chasing attorney; Your Honour, my client says multipliers don't exist, even if they exist they are very small, even if they are not small it's too late now to deploy them. Having vociferously argued the first two points over a prolonged period (and brought us the priceless assertion in his cuts Report that the deficit, 'would be eliminated by 2011'), the case rests now on the last proposition: OK, maybe large cuts yield only small savings, but that only shows we need extremely large cuts. But this neglects one small point arising from the Lane (and other models). This is that the negative impact of the cuts accumulates over a prolonged period, 1.61 in Year 2, 1.13 in Year 3 and so on. Therefore the damage to government finances accumulates too over a prolonged period. It only begins to turn positive on a net basis when a decade has nearly passed, by using a series of questionable assumptions about private sector confidence and ‘crowding in’. In that case long after the IMF have been called in.
The fourth option recognises the reality, that cuts don't equal savings because they hurt the economy, which in turn hurts government finances. This is the Sinn Fein Appeal to the poor and the workers of Ireland, but also to all progressives and those who simply care about the plight of their fellow citizens and the country in which they live. It is credible because it is based on analysis of this economy from one of its leading economists and the DoF itself. This shows that investment combined with a tax reform which sees the rich making a greater contribution than the poor to financing recovery is not only fair, but the only practical approach. Michael Taft raised some criticisms here of the submission and they are certainly worthy of debate. But the political framework is the key.
As was the case with TASC's recent proposals for Budget 2011, the starting-point is that the current way of approaching this is unfair, increases unemployment and does nothing to promote recovery. There is a growing conviction that there is a better way.
Over at the Irish Economy, Colm McCarthy has been expounding his opinion that the government isn't cutting enough, and that more is needed to actually reassure the financial markets.
However, this market participant actually thinks the cuts are undermining Irish credit-worthiness, so making the situation worse: "Nick Stamenkovic, a fixed-income strategist at the Edinburgh-based RIA Capital Markets, told Bloomberg: "The biggest worry about Ireland is the growth picture. Investors are fretting that the actual growth implication of these fiscal consolidation measures may make it more difficult for budget deficit targets to be achieved".
Meanwhile, Sinn Féin leader in the Dáil Caoimhghín Ó Caoláin said at the launch of that party's pre-Budget submission: "The key to recovery is the provision of stimulus to get the economy moving again by protecting and creating jobs and ensuring that those on lower incomes are not pushed into poverty, thus further depressing the economy."
There you have it. Four competing views of the situation: how is any citizen supposed to arrive at an informed view? Well, perhaps recent history should be our guide.
Through those 5 budgetary packages €14.6bn has been withdrawn from the economy, each package larger than the previous one and increasingly loaded towards spending cuts. We will know soon enough how large the current package will be, and the obligation to report this to the EU means we will know (most of) the detail well before December 7. But it looks like being at least the equivalent of last year's 'last big push' of 4€bn.
Using Exchequer Statements (which are not complete, but widely aired) we know that total tax revenue fell by €7.8bn in 2009, while the deficit excluding bank bailouts and NPRF payments widened by €8.3bn. At the same time GDP fell by €20.3bn.
On this basis, we can test the four propositions. First up, the Government.
Let's call it the Lenihan Claim. It argues that its actions saved the economy from a far worse fate (despite the fact that every other Euro Area economy adopted measures to boost the economy in 2009, and they have been out of recession with deficits falling for over a year). But had they done nothing, this €10.6bn of tightening by 2009 would not have happened. In which case the deficit would have widened to €10.6bn + €8.3bn, which equals €18.9bn. Does anyone, even in the government believe that the government is responsible for nearly the entirety of output in this State? €18.9bn of a total €20.3bn. This is a nonsense.
Secondly, let's look at Mr Stamenkovic's view. We'll call it the Market Reality. His argument is that the markets believe that the fiscal policy are damaging growth to such a degree that it is counterproductive, the decline in activity hits both tax revenues and forces up welfare payments to outweigh the 'saving' made by the cuts. How can we test this? One way would be SF submission there is an annex dealing with precisely this question. It uses Philip Lane's first year multiplier of 1.24 and the DoF's 0.6 estimate of the sensitivity of government finances (that's how much both taxes and outlays are affected by changes in GDP). Now, these are estimates based on long-run behavior; this and the current crisis may push both of these estimates higher. But using these to illustrate the point:- this would mean that a €10.6bn fiscal contraction would lead to a €13.14bn decline in GDP, which in turn makes government finances €7.9bn worse off. The actual 'saving' is just €2.7bn- and the economy is much worse.
Surely, then the third bite-the-bullet option is correct?, to be known as McCarthy's Misconception. This is the advocacy of the ambulance-chasing attorney; Your Honour, my client says multipliers don't exist, even if they exist they are very small, even if they are not small it's too late now to deploy them. Having vociferously argued the first two points over a prolonged period (and brought us the priceless assertion in his cuts Report that the deficit, 'would be eliminated by 2011'), the case rests now on the last proposition: OK, maybe large cuts yield only small savings, but that only shows we need extremely large cuts. But this neglects one small point arising from the Lane (and other models). This is that the negative impact of the cuts accumulates over a prolonged period, 1.61 in Year 2, 1.13 in Year 3 and so on. Therefore the damage to government finances accumulates too over a prolonged period. It only begins to turn positive on a net basis when a decade has nearly passed, by using a series of questionable assumptions about private sector confidence and ‘crowding in’. In that case long after the IMF have been called in.
The fourth option recognises the reality, that cuts don't equal savings because they hurt the economy, which in turn hurts government finances. This is the Sinn Fein Appeal to the poor and the workers of Ireland, but also to all progressives and those who simply care about the plight of their fellow citizens and the country in which they live. It is credible because it is based on analysis of this economy from one of its leading economists and the DoF itself. This shows that investment combined with a tax reform which sees the rich making a greater contribution than the poor to financing recovery is not only fair, but the only practical approach. Michael Taft raised some criticisms here of the submission and they are certainly worthy of debate. But the political framework is the key.
As was the case with TASC's recent proposals for Budget 2011, the starting-point is that the current way of approaching this is unfair, increases unemployment and does nothing to promote recovery. There is a growing conviction that there is a better way.
View from the front line: impacts of cuts to community employment
Guest post by Dr Rory Hearne
In an effort to highlight what are the potential real human and economic impacts of some of the proposed December budget cuts I asked a few young women on the FAS-funded Community Employment scheme in the area where I work if they would tell me their approximate weekly income and expenditure.
One woman, with three young children, explained that her total weekly income is €517. That included a ‘double payment’ of €305 a week from FAS and €212 from Social Welfare. Her total weekly basic expenditure, at the minimum, is €461. This included €90 a week on the crèche, €25 on bus fare, €38 on rent, €30 on ESB, €30 on Gas, €200 on food shopping, not including kids lunches, €20 on mobile phones, €28 a week on football and other kid’s training costs. That leaves €56 at the end of the week. The other women were in similar situations. Another woman, for example, with two kids, had a weekly income of €405 (FAS and Social Welfare). Her basic expenditure was €385 including €60 a week on the crèche, €50 on rent, €30 on gas, €30 on ESB, €50 on travel, €150 on food shopping and €15 for mobile phone. Leaving her with a tiny sum of €20 euro to spare at the end of the week.
These people are finding it extremely difficult to survive at the moment on their low incomes. Just think about it. How do they afford additional costs of clothes, shoes, pharmacy medicines (not always covered under medical card), additional bus and rail travel, birthday parties, Christmas? Not to mind what many would consider basic things to do and have, such as going out for a meal or a trip to a leisureplex an odd time. They spoke similarly of the difficulty of paying for activities for their children - boxing clubs, dancing, football – which could cost anything from €40 to €50 a week. Even if these overall income and expenditure figures approximated to the truth, it demonstrates two things.
Firstly, further cuts in social welfare in the budget or increases in gas and ESB prices will have a terrible human impact. Those on such low incomes will ‘get by’ only with huge difficulty. As a result, and already we are witnessing as Christmas approaches, the use of money lenders is on the rise. Their grip of harassment and intimidation hanging over a family can be devastating.
Secondly, it provides strong supportive evidence to the argument that cutting welfare spending directly impacts on economic growth. Look at the areas of expenditure of these welfare recipients. It is on the local crèche, the local authority, Bord Gais, ESB, Dublin Bus, local and larger supermarkets, phone companies, local sports organisations etc. It is all being spent directly in the Irish economy. Indeed much is on the state and semi state sectors.
A notable double-edged sword for the Irish state is that the local authority rent is set according to the individual’s income so if their welfare payment is cut the local authority’s income will be reduced, requiring further subsidy from the state. The state thus cuts itself.
Another point that these figures raise is that the reduction in income will mean a reduced spend on the services being provided in the communities they live in – such as the crèche, local shops and sports organisations etc – so the retrenchment will hit the lower income sections of our society at two levels: as individuals experiencing a reduction in direct income and, as local areas, geographically. This is because lower income areas will have less spent in those areas after the budget as the individuals living in them experience income reductions. Thus the poor and vulnerable get disproportionally affected on multiple scales.
Interestingly it highlights also the important role of social housing. With significantly higher rents these people would simply not survive financially.
From a human perspective, how will children growing up in this household feel? The poverty causes depression. There is the stress of not being able to provide a ‘proper’ birthday party and presents or a ‘good’ Christmas. Where is the money to give to the teenagers for a new top or for the cinema? How stigmatised will those teenagers feel as a result? What social impacts will this have on mental health, on youth anti-social behaviour, crime, vandalism, education drop out? What wider costs will this have to Irish society and the economy?
The so called ‘double payment’ as part of FAS’ Community Employment scheme clearly plays a vital role in the lives of these individuals, and therefore, should not be cut in the budget. The schemes also provide much needed support in these communities in service provision providing employees for homework clubs, crèches, senior citizen support and others.
In an effort to highlight what are the potential real human and economic impacts of some of the proposed December budget cuts I asked a few young women on the FAS-funded Community Employment scheme in the area where I work if they would tell me their approximate weekly income and expenditure.
One woman, with three young children, explained that her total weekly income is €517. That included a ‘double payment’ of €305 a week from FAS and €212 from Social Welfare. Her total weekly basic expenditure, at the minimum, is €461. This included €90 a week on the crèche, €25 on bus fare, €38 on rent, €30 on ESB, €30 on Gas, €200 on food shopping, not including kids lunches, €20 on mobile phones, €28 a week on football and other kid’s training costs. That leaves €56 at the end of the week. The other women were in similar situations. Another woman, for example, with two kids, had a weekly income of €405 (FAS and Social Welfare). Her basic expenditure was €385 including €60 a week on the crèche, €50 on rent, €30 on gas, €30 on ESB, €50 on travel, €150 on food shopping and €15 for mobile phone. Leaving her with a tiny sum of €20 euro to spare at the end of the week.
These people are finding it extremely difficult to survive at the moment on their low incomes. Just think about it. How do they afford additional costs of clothes, shoes, pharmacy medicines (not always covered under medical card), additional bus and rail travel, birthday parties, Christmas? Not to mind what many would consider basic things to do and have, such as going out for a meal or a trip to a leisureplex an odd time. They spoke similarly of the difficulty of paying for activities for their children - boxing clubs, dancing, football – which could cost anything from €40 to €50 a week. Even if these overall income and expenditure figures approximated to the truth, it demonstrates two things.
Firstly, further cuts in social welfare in the budget or increases in gas and ESB prices will have a terrible human impact. Those on such low incomes will ‘get by’ only with huge difficulty. As a result, and already we are witnessing as Christmas approaches, the use of money lenders is on the rise. Their grip of harassment and intimidation hanging over a family can be devastating.
Secondly, it provides strong supportive evidence to the argument that cutting welfare spending directly impacts on economic growth. Look at the areas of expenditure of these welfare recipients. It is on the local crèche, the local authority, Bord Gais, ESB, Dublin Bus, local and larger supermarkets, phone companies, local sports organisations etc. It is all being spent directly in the Irish economy. Indeed much is on the state and semi state sectors.
A notable double-edged sword for the Irish state is that the local authority rent is set according to the individual’s income so if their welfare payment is cut the local authority’s income will be reduced, requiring further subsidy from the state. The state thus cuts itself.
Another point that these figures raise is that the reduction in income will mean a reduced spend on the services being provided in the communities they live in – such as the crèche, local shops and sports organisations etc – so the retrenchment will hit the lower income sections of our society at two levels: as individuals experiencing a reduction in direct income and, as local areas, geographically. This is because lower income areas will have less spent in those areas after the budget as the individuals living in them experience income reductions. Thus the poor and vulnerable get disproportionally affected on multiple scales.
Interestingly it highlights also the important role of social housing. With significantly higher rents these people would simply not survive financially.
From a human perspective, how will children growing up in this household feel? The poverty causes depression. There is the stress of not being able to provide a ‘proper’ birthday party and presents or a ‘good’ Christmas. Where is the money to give to the teenagers for a new top or for the cinema? How stigmatised will those teenagers feel as a result? What social impacts will this have on mental health, on youth anti-social behaviour, crime, vandalism, education drop out? What wider costs will this have to Irish society and the economy?
The so called ‘double payment’ as part of FAS’ Community Employment scheme clearly plays a vital role in the lives of these individuals, and therefore, should not be cut in the budget. The schemes also provide much needed support in these communities in service provision providing employees for homework clubs, crèches, senior citizen support and others.
Wednesday, 3 November 2010
ICTU's Pre-Budget submission
Paul Sweeney: Congress has warned that a continuation of the current austerity programme could literally destroy the Irish economy and kill off any prospects of recovery for many, many years.
Austerity had delivered nothing but higher unemployment and a bigger deficit.
Congress said that “We have tried austerity and it just hasn't worked - it has just made matters worse. There have been three deflationary budgets that have taken €14.5 billion out of the economy and the result is clear: unemployment has almost trebled, the deficit is actually bigger than when we started and the cost of borrowing is at record levels".
This is clearly failure.
The period of adjustment must to be extended. The target of reducing the deficit to 3% of GDP by 2014 is arbitrary and artificial. There was no impediment to extending the adjustment period, either at a national or an EU level.
The focus should be on jobs and growth and the Congress submission contained a number of innovative proposals in that regard.
The full document can be downloaded here and the executive summary here.
Austerity had delivered nothing but higher unemployment and a bigger deficit.
Congress said that “We have tried austerity and it just hasn't worked - it has just made matters worse. There have been three deflationary budgets that have taken €14.5 billion out of the economy and the result is clear: unemployment has almost trebled, the deficit is actually bigger than when we started and the cost of borrowing is at record levels".
This is clearly failure.
The period of adjustment must to be extended. The target of reducing the deficit to 3% of GDP by 2014 is arbitrary and artificial. There was no impediment to extending the adjustment period, either at a national or an EU level.
The focus should be on jobs and growth and the Congress submission contained a number of innovative proposals in that regard.
The full document can be downloaded here and the executive summary here.
Unemployment and paying for pensions
Andrew Watt of the European Trade Union Institute - who spoke at the recent FEPS/TASC Autumn Conference - has an interesting take on jobs and pensions over at the Social Europe Journal. He writes that: "The scare stories about the ‘demographic crisis’ and the threat it poses to pensions are almost always underpinned by numbers that set the size of the working age population against the number of elderly people. What is important, though, is the number of people who are actually working and supporting not only the elderly, but also children and those of working age not working, specially the unemployed.
Understanding this is important for the current austerity-versus-stimulus debate. Often calls for fiscal pain now are justified with reference to the need to ‘prepare for aging’ by reducing government debt. Yet evidently what is vital to achieve that same end is to reduce unemployment, and to do it now before it becomes ossified, as happened in previous European recessions". You can read the rest of Andrew's post here.
Understanding this is important for the current austerity-versus-stimulus debate. Often calls for fiscal pain now are justified with reference to the need to ‘prepare for aging’ by reducing government debt. Yet evidently what is vital to achieve that same end is to reduce unemployment, and to do it now before it becomes ossified, as happened in previous European recessions". You can read the rest of Andrew's post here.
INOU Pre-Budget Submission
"Popular media debate would have us all believe that the crisis in the public finances arises because public expenditure went out of control. Did it? It is very debatable whether Ireland used its new found wealth wisely but it should also be noted that Ireland’s population grew during the noughties; Ireland was playing catch-up on previous poor investment in public facilities and services; Irish people’s expectations of services and how they ought to be delivered also grew. Ireland’s efforts to address these issues were not undertaken on a sustainable tax base but one driven by consumption taxes." You can read the rest of the INOU's Pre-Budget Submission here. Comments?
Tuesday, 2 November 2010
At least one party gets it
Michael Taft: With the political consensus obsessed with a €15 billion deflationary juggernaut, it’s a relief that one party gets it. Sinn Fein’s pre-budget submission argues for a major stimulus programme combined with a growth-friendly consolidation package that, taken together, would increase growth and job creation. This would put deficit-reduction on a sustainable path, unlike the calls for contraction which could land the economy in what the ESRI calls a ‘deflationary cycle’.
Does that mean that every one of their proposals can’t be improved on? No. But let’s get this out of the way – put 100 progressives in a room, all working to the same strategy (an expansionary fiscal strategy) and they will come up with 100 different pre-budget submissions and a heated debate about some of the details. But as Franklin Roosevelt put it: ‘There are many ways to go forward, there’s only way to stand still.’ If one has a disagreement with the particulars of Sinn Fein’s submission, it is a disagreement within go-forward parameters. If only the national debate was so framed.
Let’s summarise: Sinn Fein aims to raise €4 billion in tax revenue through a range of reforming tax expenditures (pension contributions, mortgage interest for landlords, legacy property tax reliefs), increased capital taxes and, crucially a new wealth tax, etc.).
They are further seeking public spending savings of €1.2 billion. The biggest categories are capping public sector pay at €100,000, reduce professional fees, and charging private patients the full economic rate in public hospitals.
The main thrust of their submission, however, is the proposals for stimulus. In their main plank, they are seeking a €7 billion ‘employment/infrastructure’ stimulus over the next 3-5 years with €2 billion in 2011; all to be funded from National Pension Reserve Fund (NPRF). They are seeking to create 160,000 jobs. This is just a sample from their ambitious programme:
‘. . . focus on the more labour intensive and necessary infrastructure, such as schools, hospitals, conversion of appropriate vacant accommodation to social housing, improving energy efficiency in homes and public transport provision . . . remediating the leaking water network and extending the current pilot water collection scheme to all schools, thus saving costs on water and creating jobs; and rolling out broadband across the state.’
In addition, they are seeking a national childcare and pre-education network, a civillianisation scheme (whereby the public sector recruits to reduce administrative work currently undertaken by front-line workers), and an innovative one-stop-shop virtual helpdesk for business start-ups.
They are also seeking a ‘financial stimulus’ of €600 million for low-income households (restore Christmas bonus, introduce refundable tax credits, etc.) and to ease the public sector recruitment embargo. The financing of this would, not come from the NPRF, but from the consolidation package – effectively a progressive income distribution.
This is a bold programme to reinvigorate the economy, a programme that understands that employment is key and that the living conditions of low-income households are not an obstacle to growth but rather a pre-condition. In its broad outlines it is worthy of study, debate and support. But let’s see where it might be improved.
First, there is a danger that some of the taxation measures might impact on average income earners. The standardisation of tax expenditures – in particular, pension contributions – would increase tax liability on average income earners. This is not an argument against such standardisation – just that it should only be considered for (a) high income earners initially and (b) extended to everyone once a 2nd tier earnings-related pension is introduced through the social insurance system.
Second, the capping of public sector pay at €100,000 sounds egalitarian but it could undermine the state’s ability to compete for specialist labour (tax specialists in Revenue, financial specialists in the NTMA). The ‘savings’ of €350 million would actually result in considerably less – more than half of that would be lost in reduced tax revenue/PRSI/pension levy.
These are questions regarding details that don’t undermine the progressive thrust of the overall proposals.
Sinn Fein provides a detailed and well-argued appendix on the impact of its stimulus plans on public finances –showing how stimulus acts as the best platform for deficit-reduction.
They argue from the basis of the Lane-Benetrix multipliers and a tax-sensitivity of 60 percent (that is, an increase of GDP from investment results in a tax increase of 60% of the GDP rise). From this, they assume that a €7 billion stimulus will raise an additional €16 billion in tax revenue. This is a correct but I have two concerns:
First, Sinn Fein presents its capital stimulus as permanent increases in expenditure. I wonder how sustainable this is going into the medium-term. They acknowledge this issue when they state: ‘. . .the state might have to continue with some form of stimulus in later years . . .’.
Second, there is a strong argument that tax revenue would rise at a higher ratio than the current 33 percent tax take as a percentage of GDP when coming out of a recession – especially as Sinn Fein’s proposals would directly impact on the domestic economy. However, to what extent that 60 percent sensitivity, evidenced during the fall in output, would hold in subsequent years as the stimulus puts the economy back on a strong growth-path is something worth discussing more.
My concerns are not fatal to the economics of the party’s stimulus. For instance, were the stimulus made temporary with provision for easing in permanent increases in capital spending down the line, we might get over the problem of ‘stimulus withdrawal’. It would still retain the benefits while smoothing out the fiscal adjustments.
Sinn Fein provides a sound basis for which to construct stimulus strategies – in terms of their cost and their returns. My real concern is that their robust analysis will be largely unread and ignored in the wider debate. This is a problem that all progressives have when trying to get the national debate to understand that you can ‘invest your way to fiscal stability’. It’s far more fun (apparently) to debate how many classrooms or hospital wards we’re going to close or how much disposable income we’re going to take off low-income households – such is the degraded state of the debate.
Therefore, it is refreshing to deal with such analysis. Here’s a suggestion to make clearer the impact.
For instance, would creating a national childcare and pre-school network really cost €400 million as Sinn Fein puts it? No (and by the way, I’m sure Sinn Fein knows this – this is just presentational issue). The gross spending would be that amount but let’s go further. 70 percent of that expenditure would be on labour (‘fully-trained accredited childcare workers’). Much of that expenditure would be returned to the Exchequer through taxation. There would also be the increase in consumer spending – another boost to enterprises and the Exchequer. There would also be a reduction in the Live Register – another boost. And if the childcare element was provided at cost to parents, they would experience a reduction in childcare costs, thus releasing more consumer spending in other areas. And none of this counts the long-term benefit of higher educational standards.
Or take the proposals to boost low-income households through redistribution from higher incomes. Such proposals (Christmas bonus, refundable tax credits) are likely to translate into pure demand, boosting consumer spending and tax revenue. You can calculate the benefit of this through marginal propensities to consume. If high income groups have a MPC of 0.5 (they would spend 50 percent of any additional income) while low-income groups have a MPC of 0.9 – the economy gets the benefit of the difference, in terms of growth, tax revenue and even reduced import-content.
Or this little nugget: building schoolrooms would create a permanent saving of €24 million a year on prefab rentals. That would be after the tax/GDP boost from the capital investment of building the schoolrooms. That’s a positive calculation, even if the capital spending were borrowed in normal times (savings over interest payments), leaving aside the long-term supply-side benefits.
When we examine the effects of stimulus in the concrete, in the particular, we can better present the benefit in a popularly understood way. But that is the big challenge – all the more so in a debate that doesn’t get it.
Sinn Fein has laid down a challenge – not just to the deflationary orthodoxy – but to all progressives. They have constructed a submission that goes beyond just Budget 2011 and begins to provide a framework in which an expansionary programme can be developed. By all means, let’s debate policy particulars, let’s discuss measurements - let’s do all the things that proponents of a debased arithmetic approach don’t do (that is, actually debate the economy). But let’s not lose sight of the fact that in that discussion, we are all going forward.
That is the strength of Sinn Fein’s submission – facilitating a conversation that can start us on that path.
Does that mean that every one of their proposals can’t be improved on? No. But let’s get this out of the way – put 100 progressives in a room, all working to the same strategy (an expansionary fiscal strategy) and they will come up with 100 different pre-budget submissions and a heated debate about some of the details. But as Franklin Roosevelt put it: ‘There are many ways to go forward, there’s only way to stand still.’ If one has a disagreement with the particulars of Sinn Fein’s submission, it is a disagreement within go-forward parameters. If only the national debate was so framed.
Let’s summarise: Sinn Fein aims to raise €4 billion in tax revenue through a range of reforming tax expenditures (pension contributions, mortgage interest for landlords, legacy property tax reliefs), increased capital taxes and, crucially a new wealth tax, etc.).
They are further seeking public spending savings of €1.2 billion. The biggest categories are capping public sector pay at €100,000, reduce professional fees, and charging private patients the full economic rate in public hospitals.
The main thrust of their submission, however, is the proposals for stimulus. In their main plank, they are seeking a €7 billion ‘employment/infrastructure’ stimulus over the next 3-5 years with €2 billion in 2011; all to be funded from National Pension Reserve Fund (NPRF). They are seeking to create 160,000 jobs. This is just a sample from their ambitious programme:
‘. . . focus on the more labour intensive and necessary infrastructure, such as schools, hospitals, conversion of appropriate vacant accommodation to social housing, improving energy efficiency in homes and public transport provision . . . remediating the leaking water network and extending the current pilot water collection scheme to all schools, thus saving costs on water and creating jobs; and rolling out broadband across the state.’
In addition, they are seeking a national childcare and pre-education network, a civillianisation scheme (whereby the public sector recruits to reduce administrative work currently undertaken by front-line workers), and an innovative one-stop-shop virtual helpdesk for business start-ups.
They are also seeking a ‘financial stimulus’ of €600 million for low-income households (restore Christmas bonus, introduce refundable tax credits, etc.) and to ease the public sector recruitment embargo. The financing of this would, not come from the NPRF, but from the consolidation package – effectively a progressive income distribution.
This is a bold programme to reinvigorate the economy, a programme that understands that employment is key and that the living conditions of low-income households are not an obstacle to growth but rather a pre-condition. In its broad outlines it is worthy of study, debate and support. But let’s see where it might be improved.
First, there is a danger that some of the taxation measures might impact on average income earners. The standardisation of tax expenditures – in particular, pension contributions – would increase tax liability on average income earners. This is not an argument against such standardisation – just that it should only be considered for (a) high income earners initially and (b) extended to everyone once a 2nd tier earnings-related pension is introduced through the social insurance system.
Second, the capping of public sector pay at €100,000 sounds egalitarian but it could undermine the state’s ability to compete for specialist labour (tax specialists in Revenue, financial specialists in the NTMA). The ‘savings’ of €350 million would actually result in considerably less – more than half of that would be lost in reduced tax revenue/PRSI/pension levy.
These are questions regarding details that don’t undermine the progressive thrust of the overall proposals.
Sinn Fein provides a detailed and well-argued appendix on the impact of its stimulus plans on public finances –showing how stimulus acts as the best platform for deficit-reduction.
They argue from the basis of the Lane-Benetrix multipliers and a tax-sensitivity of 60 percent (that is, an increase of GDP from investment results in a tax increase of 60% of the GDP rise). From this, they assume that a €7 billion stimulus will raise an additional €16 billion in tax revenue. This is a correct but I have two concerns:
First, Sinn Fein presents its capital stimulus as permanent increases in expenditure. I wonder how sustainable this is going into the medium-term. They acknowledge this issue when they state: ‘. . .the state might have to continue with some form of stimulus in later years . . .’.
Second, there is a strong argument that tax revenue would rise at a higher ratio than the current 33 percent tax take as a percentage of GDP when coming out of a recession – especially as Sinn Fein’s proposals would directly impact on the domestic economy. However, to what extent that 60 percent sensitivity, evidenced during the fall in output, would hold in subsequent years as the stimulus puts the economy back on a strong growth-path is something worth discussing more.
My concerns are not fatal to the economics of the party’s stimulus. For instance, were the stimulus made temporary with provision for easing in permanent increases in capital spending down the line, we might get over the problem of ‘stimulus withdrawal’. It would still retain the benefits while smoothing out the fiscal adjustments.
Sinn Fein provides a sound basis for which to construct stimulus strategies – in terms of their cost and their returns. My real concern is that their robust analysis will be largely unread and ignored in the wider debate. This is a problem that all progressives have when trying to get the national debate to understand that you can ‘invest your way to fiscal stability’. It’s far more fun (apparently) to debate how many classrooms or hospital wards we’re going to close or how much disposable income we’re going to take off low-income households – such is the degraded state of the debate.
Therefore, it is refreshing to deal with such analysis. Here’s a suggestion to make clearer the impact.
For instance, would creating a national childcare and pre-school network really cost €400 million as Sinn Fein puts it? No (and by the way, I’m sure Sinn Fein knows this – this is just presentational issue). The gross spending would be that amount but let’s go further. 70 percent of that expenditure would be on labour (‘fully-trained accredited childcare workers’). Much of that expenditure would be returned to the Exchequer through taxation. There would also be the increase in consumer spending – another boost to enterprises and the Exchequer. There would also be a reduction in the Live Register – another boost. And if the childcare element was provided at cost to parents, they would experience a reduction in childcare costs, thus releasing more consumer spending in other areas. And none of this counts the long-term benefit of higher educational standards.
Or take the proposals to boost low-income households through redistribution from higher incomes. Such proposals (Christmas bonus, refundable tax credits) are likely to translate into pure demand, boosting consumer spending and tax revenue. You can calculate the benefit of this through marginal propensities to consume. If high income groups have a MPC of 0.5 (they would spend 50 percent of any additional income) while low-income groups have a MPC of 0.9 – the economy gets the benefit of the difference, in terms of growth, tax revenue and even reduced import-content.
Or this little nugget: building schoolrooms would create a permanent saving of €24 million a year on prefab rentals. That would be after the tax/GDP boost from the capital investment of building the schoolrooms. That’s a positive calculation, even if the capital spending were borrowed in normal times (savings over interest payments), leaving aside the long-term supply-side benefits.
When we examine the effects of stimulus in the concrete, in the particular, we can better present the benefit in a popularly understood way. But that is the big challenge – all the more so in a debate that doesn’t get it.
Sinn Fein has laid down a challenge – not just to the deflationary orthodoxy – but to all progressives. They have constructed a submission that goes beyond just Budget 2011 and begins to provide a framework in which an expansionary programme can be developed. By all means, let’s debate policy particulars, let’s discuss measurements - let’s do all the things that proponents of a debased arithmetic approach don’t do (that is, actually debate the economy). But let’s not lose sight of the fact that in that discussion, we are all going forward.
That is the strength of Sinn Fein’s submission – facilitating a conversation that can start us on that path.
Burn ALL the bank bondholders
Paul Sweeney: The Irish government’s cap-doffing attitude to the speculators who lent money to the reckless bosses of Anglo Irish Bank and the other banks is incredible. It is costly. It is you and I who will pay.
The cost is staggering. It could sink this country. It will burden all of us and our children too. The Irish media is remarkably subservient to Government and banker spokespersons’ opinion that we, the taxpayers must pay all of the lending to all the creditors who lend money to private Irish banks - Anglo, Nationwide and also AIB and BOI. Who is calling the shots?
It is therefore refreshing that at least the Financial Times, a paper which knows a bit about the city and bondholders, in its main editorial on 1st November, sets the record straight for us, the Irish taxpayers. It pits us against the Government and, it seems, the opposition parties too, which are also cap-doffing to their perceived “betters”, the markets.
The FT on 1 November said: "Ireland’s leaders remain convinced they cannot force a haircut on senior bank creditors any more than on depositors or holders of Irish sovereign debt. They are mistaken. Senior debt ranks equal to deposits under insolvency rules. But a government can selectively bail out depositors of an insolvent bank in exchange for their pari passu claims on its estate, as the UK did with Icesave depositors."
“The equivalence of private and sovereign debt is a creature of Dublin’s imagination – though increasingly one of its making: the government has far too promiscuously expanded its legal guarantees of bank liabilities”, said the Financial Times.
Read on here.
The cost is staggering. It could sink this country. It will burden all of us and our children too. The Irish media is remarkably subservient to Government and banker spokespersons’ opinion that we, the taxpayers must pay all of the lending to all the creditors who lend money to private Irish banks - Anglo, Nationwide and also AIB and BOI. Who is calling the shots?
It is therefore refreshing that at least the Financial Times, a paper which knows a bit about the city and bondholders, in its main editorial on 1st November, sets the record straight for us, the Irish taxpayers. It pits us against the Government and, it seems, the opposition parties too, which are also cap-doffing to their perceived “betters”, the markets.
The FT on 1 November said: "Ireland’s leaders remain convinced they cannot force a haircut on senior bank creditors any more than on depositors or holders of Irish sovereign debt. They are mistaken. Senior debt ranks equal to deposits under insolvency rules. But a government can selectively bail out depositors of an insolvent bank in exchange for their pari passu claims on its estate, as the UK did with Icesave depositors."
“The equivalence of private and sovereign debt is a creature of Dublin’s imagination – though increasingly one of its making: the government has far too promiscuously expanded its legal guarantees of bank liabilities”, said the Financial Times.
Read on here.
Monday, 1 November 2010
Dissenter from the Consensus
Slí Eile. Even if one does not agree with everything he writes and comments on, for clarity and on this occasion complete accuracy and validity, David McWilliam's take on the markets and our current situation is class. Read here. He is a genius economist - he just tells it in plain English and as it is!
Friday, 29 October 2010
Defending the Minimum Wage
Tom McDonnell: The minimum wage was attacked in the Dáil again this week. The substance of the argument was that it was killing competitiveness and adding to the unemployment crisis. The evidence does not support this claim.
Wage factors are just one element of competitiveness. Indeed wages are just one portion of overall labour costs, which in itself is just one part (approximately one third) of overall business costs. TASC has already called for a full review of other business costs that influence competitiveness including utility bills; commercial rates and other input costs.
The minimum wage was introduced in recognition of the vulnerability of low income workers. That vulnerability has not decreased in the intervening period. Minimum wage laws also help boost overall wage equality between women and men as the majority of minimum wage workers are women. The minimum wage also acts as a bulwark protecting migrant and other vulnerable groups against exploitation by employers. Reducing the minimum wage will simply add to the vulnerability of low income groups.
Cutting or eliminating the minimum wage will also reduce aggregate demand: The way to restore economic growth – and jobs – is to restore demand – this requires disposable income – cutting the national minimum runs counter to this. Most other countries in Europe have raised their minimum wage rates.
Lowering the national minimum wage will also directly cost the exchequer through lost revenue. There will also be indirect costs to the exchequer in the form of reduced VAT receipts and increased Family Income Supports and Medical Card payments.
What about competitiveness?
Export-oriented firms tend to be more productive and already pay significantly above the minimum wage. It follows that reducing the minimum wage is not one of the policy measures which would have a positive significant impact on Ireland’s international competitiveness.
The existence of a minimum wage is a boon to all sectors that do not employ minimum wage workers because of increased demand in the economy. A lower minimum wage simply distorts the economy in favour of low paying sectors. On the other hand a higher minimum price on labour shifts the economy’s long-run comparative advantage away from the low value-added unskilled sectors and towards the high value-added skilled sectors.
What about the effect on unemployment? After all that was the core reason given for the attack in the Dáil.
A large body of research in the United Kingdom has found that the British National Minimum Wage has little or no impact on employment; for example David Metcalf at the London School of Economics.
Also, in a seminal (gold standard) econometric study by Dube, Lester and Reich (2008) the authors used policy discontinuities at state borders to identify the effects of minimum wages on earnings and employment in restaurants and other low-wage sectors.
The authors compare all contiguous county pairs in the US that straddle a state border and the results are illuminating – they find no adverse employment effects.
In addition, they show that (as they eloquently put it) “traditional approaches that do not account for local economic conditions tend to produce spurious negative effects due to spatial heterogeneities in employment trends that are unrelated to minimum wage policies”.
So the evidence does not support the proposition that minimum wage laws affect employment rates. On the other hand the minimum wage is a key safeguard for vulnerable low income workers.
Wage factors are just one element of competitiveness. Indeed wages are just one portion of overall labour costs, which in itself is just one part (approximately one third) of overall business costs. TASC has already called for a full review of other business costs that influence competitiveness including utility bills; commercial rates and other input costs.
The minimum wage was introduced in recognition of the vulnerability of low income workers. That vulnerability has not decreased in the intervening period. Minimum wage laws also help boost overall wage equality between women and men as the majority of minimum wage workers are women. The minimum wage also acts as a bulwark protecting migrant and other vulnerable groups against exploitation by employers. Reducing the minimum wage will simply add to the vulnerability of low income groups.
Cutting or eliminating the minimum wage will also reduce aggregate demand: The way to restore economic growth – and jobs – is to restore demand – this requires disposable income – cutting the national minimum runs counter to this. Most other countries in Europe have raised their minimum wage rates.
Lowering the national minimum wage will also directly cost the exchequer through lost revenue. There will also be indirect costs to the exchequer in the form of reduced VAT receipts and increased Family Income Supports and Medical Card payments.
What about competitiveness?
Export-oriented firms tend to be more productive and already pay significantly above the minimum wage. It follows that reducing the minimum wage is not one of the policy measures which would have a positive significant impact on Ireland’s international competitiveness.
The existence of a minimum wage is a boon to all sectors that do not employ minimum wage workers because of increased demand in the economy. A lower minimum wage simply distorts the economy in favour of low paying sectors. On the other hand a higher minimum price on labour shifts the economy’s long-run comparative advantage away from the low value-added unskilled sectors and towards the high value-added skilled sectors.
What about the effect on unemployment? After all that was the core reason given for the attack in the Dáil.
A large body of research in the United Kingdom has found that the British National Minimum Wage has little or no impact on employment; for example David Metcalf at the London School of Economics.
Also, in a seminal (gold standard) econometric study by Dube, Lester and Reich (2008) the authors used policy discontinuities at state borders to identify the effects of minimum wages on earnings and employment in restaurants and other low-wage sectors.
The authors compare all contiguous county pairs in the US that straddle a state border and the results are illuminating – they find no adverse employment effects.
In addition, they show that (as they eloquently put it) “traditional approaches that do not account for local economic conditions tend to produce spurious negative effects due to spatial heterogeneities in employment trends that are unrelated to minimum wage policies”.
So the evidence does not support the proposition that minimum wage laws affect employment rates. On the other hand the minimum wage is a key safeguard for vulnerable low income workers.
Collateral Damage from the Bank Collapse
Nat O'Connor: The Irish Independent has published a table of major losers from the fall of AIB bank shares. This is merely illustrative of the damage done to cautious investors who went for traditionally safe options. The table shows how €33 million in shares was reduced to 1.7 per cent of its former value.
If you extract named individuals and two firms from the list, it reveals that €25 million was held by religious organisations and charitable bodies; now reduced to €380,000. In some cases this money doubtless represents the funds raised over the years by these bodies. And, in terms of sensible finances, their boards of governance cannot really be blamed, as they went for a very sensible, safe option - in normal circumstances. The only fault might be if they didn't balance their portfolio. Of course, we don't know how many bodies might also have held shares from Bank of Ireland or the other banks.
Obviously, these shares may rise again over time, but they are unlikely to reach their previous heights. Also, the article dramatises the loss somewhat, as we don't know when the shares were purchased, or at what price. Plus, we don't know what level of dividend was paid over the years; which might have made the investment not so bad overall.
Nevertheless, there is a need in the economy for a safe investment. Government bonds, anyone?
If you extract named individuals and two firms from the list, it reveals that €25 million was held by religious organisations and charitable bodies; now reduced to €380,000. In some cases this money doubtless represents the funds raised over the years by these bodies. And, in terms of sensible finances, their boards of governance cannot really be blamed, as they went for a very sensible, safe option - in normal circumstances. The only fault might be if they didn't balance their portfolio. Of course, we don't know how many bodies might also have held shares from Bank of Ireland or the other banks.
Obviously, these shares may rise again over time, but they are unlikely to reach their previous heights. Also, the article dramatises the loss somewhat, as we don't know when the shares were purchased, or at what price. Plus, we don't know what level of dividend was paid over the years; which might have made the investment not so bad overall.
Nevertheless, there is a need in the economy for a safe investment. Government bonds, anyone?
Tuesday, 26 October 2010
House Swap on Ghost Estates
Nat O'Connor The Department of the Environment has published a report into the state of 120,000 dwellings in Ireland's unfinished, 'ghost' housing estates. (RTÉ news report here and report summary here). It will be some time before a full set of solutions are proposed as to how we deal with the surplus houses. And different decisions (knocking them down versus investing in them to make viable communities) will please or displease different sectors in the economy.
I want to suggest is that there are innovative, low-cost solutions available for people trapped on unfinished estates, and we should discuss a wider set of possibilities than are necessarily permitted by a legalistic or bureaucratic mindset. One solution would be to allow people on ghost estates to swap houses. Allow people in unfinished estates the option of moving - cost-free - to a same-size dwelling in another ghost estate. This would be a quick option to create viable communities, where vital infrastructure like sewers, road surfaces and lighting can be finished more cost effectively.
Such a proposal would require the Government to twist the arm of the banks a little, to allow mortgages to be moved from being secured on one asset to another. And stamp duty should be waived on the transaction, and 'first time buyer' status moved, which will require our bureaucrats to be flexible.
I imagine many people living on mostly unfinished estates have massive negative equity. Combined with the unfinished nature of the estate, these properties will be difficult to sell - which lessens people's ability to move after job opportunities or for family reasons. Allowing them to move to estates where the infrastructure is consolidated would relieve all of this.
But the main goal would be to allow people to get on with their lives sooner, and allow them to contribute to society and the economy, without spending years more trapped in 'limbo' (or hell in many cases).
Yet, as well as the administrative issues, one of the barriers to this kind of solution is the lack of any kind of coherent urban policy in Ireland. Our attitude to planning has been as laissez faire as our approach to financial regulation. Hence, the idea that the state could create such a house swap scheme comes up against the mental (but no less real) barrier that 'we don't do that kind of thing in Ireland'.
Just as we belatedly come to appreciate the merits of regulation, we should also begin to seriously consider the need for better urban policy built around the needs of people who are trapped in the many sub-standard built environments that resulted from the last decade.
I want to suggest is that there are innovative, low-cost solutions available for people trapped on unfinished estates, and we should discuss a wider set of possibilities than are necessarily permitted by a legalistic or bureaucratic mindset. One solution would be to allow people on ghost estates to swap houses. Allow people in unfinished estates the option of moving - cost-free - to a same-size dwelling in another ghost estate. This would be a quick option to create viable communities, where vital infrastructure like sewers, road surfaces and lighting can be finished more cost effectively.
Such a proposal would require the Government to twist the arm of the banks a little, to allow mortgages to be moved from being secured on one asset to another. And stamp duty should be waived on the transaction, and 'first time buyer' status moved, which will require our bureaucrats to be flexible.
I imagine many people living on mostly unfinished estates have massive negative equity. Combined with the unfinished nature of the estate, these properties will be difficult to sell - which lessens people's ability to move after job opportunities or for family reasons. Allowing them to move to estates where the infrastructure is consolidated would relieve all of this.
But the main goal would be to allow people to get on with their lives sooner, and allow them to contribute to society and the economy, without spending years more trapped in 'limbo' (or hell in many cases).
Yet, as well as the administrative issues, one of the barriers to this kind of solution is the lack of any kind of coherent urban policy in Ireland. Our attitude to planning has been as laissez faire as our approach to financial regulation. Hence, the idea that the state could create such a house swap scheme comes up against the mental (but no less real) barrier that 'we don't do that kind of thing in Ireland'.
Just as we belatedly come to appreciate the merits of regulation, we should also begin to seriously consider the need for better urban policy built around the needs of people who are trapped in the many sub-standard built environments that resulted from the last decade.
Monday, 25 October 2010
Trick or Threat
Slí Eile: Today, we were served an item on public sector pensions here. The report says that 'the Department of Finance has not ruled out measures aimed specifically at public service pensioners in the budget'. Perhaps there is some connection between the story, the timing and the budget preparation. The item goes on to say: 'It also disclosed the public service pensions bill will increase from 0.5 per cent of GNP to almost 2 per cent of GNP by mid-century, almost €8 billion per annum in current terms. Some commentators have said such a development is unsustainable.' Which commentators? Where? On the basis of what research? Some examples are given including stories of individuals receiving more than €135K per annum. Contrasts are presented with the private sector. We are back to the old divide and rule narrative.
Then the following item here takes the biscuit. 'Gold-plated pension regime may be unsustainable'. Who says it is unsustainable? The cost of a fully provided system of social insurance would be much less than the current cost of tax expenditures on private pensions. See TASC research here.
The entire news story seems like one of many pre-budget softeners.
In truth people are being served by a campaign of psychological terror backed by claims that unless we agree to the most devastating attack on public services, pay, conditions and provision we will be taken over the IMF, EU etc. Prior to invasion the tactic is to terrorise before the ground troups are sent in. Make no mistake the four-year austerity plan is a full scale attack on living standards, jobs and rights of workers.
Then the following item here takes the biscuit. 'Gold-plated pension regime may be unsustainable'. Who says it is unsustainable? The cost of a fully provided system of social insurance would be much less than the current cost of tax expenditures on private pensions. See TASC research here.
The entire news story seems like one of many pre-budget softeners.
In truth people are being served by a campaign of psychological terror backed by claims that unless we agree to the most devastating attack on public services, pay, conditions and provision we will be taken over the IMF, EU etc. Prior to invasion the tactic is to terrorise before the ground troups are sent in. Make no mistake the four-year austerity plan is a full scale attack on living standards, jobs and rights of workers.
Sunday, 24 October 2010
'Smart economy' is crucial for future jobs growth
Proinnsias Breathnach: Recent calls for a shift in the focus of Irish economic policy from the promotion of a “smart” economy to the cultivation of conventional manufacturing have attracted considerable media interest. In an address to the Lemass International Forum, Seán O’Driscoll, Chief Executive of Glen Dimplex, maker of electric heating appliances, argued that, during the Celtic Tiger era, Ireland had neglected its manufacturing base – in effect, we had “stopped making things” – in pursuit of “financial engineering” and what he termed the “imaginary” Smart Economy.
Meanwhile, according to media reports, economist Colm McCarthy, Chairman of An Bord Snip Nua, told the Richard Cantillon School that Ireland needed to rebuild its light manufacturing capacity which, he argued, was the driver of the original Celtic Tiger boom. This, he said, offered far greater prospects of replacing jobs lost in construction, retailing and manufacturing than the kinds of jobs likely to ensue from the smart economy policy.
David Begg, General Secretary of the Irish Congress of Trade Unions, followed up with the view that, in recent years, the services sector has grown rapidly at the expense of manufacturing and that it is naïve to think that the “so-called” smart economy could solve our employment problems.
All three arguments are at odds with the facts, display ignorance of how economies function to create employment, and appear unaware of how the Irish economy has developed over the last 20 years.
For a start, the idea that manufacturing and the Smart Economy are mutually exclusive is simply not true. The government document, Building the Smart Economy, states quite clearly that “Manufacturing will continue to play a fundamental part in our economic future, with an increasing focus on securing competitive advantage through innovation, R&D and design”.
The idea that manufacturing and services are mutually exclusive is equally incorrect. A key feature of modern advanced economies is the increasing integration of manufacturing and services. Ireland’s leading services export, software, can only work on manufactured hardware. A large proportion of the business services which are our second most important services export are performed by manufacturing firms.
Thirdly, Seán O’Driscoll’s notion that “we had stopped making things” is patently invalid. Between 1991-2000 – the boom period of the “real” Celtic Tiger – Irish manufacturing output grew by 250% in value terms and 225% in volume terms, over twice the overall growth rate of the economy. In this period, manufacturing’s share of total value added in the economy rose from 15% to 23%.
In one of the main drivers of this growth – pharmaceuticals – the average salary in 2000 was two thirds higher than the average for all industry – hardly indicative of the “light manufacturing” which Colm McCarthy reckons was the main driver of growth in this period. While this term might apply to a lot of the work in the other main growth sector (office machines & computers), this sector also includes major high-tech employers such as Intel, HP and IBM where the bulk of workers have higher education qualifications.
After 2000, Irish manufacturing continued to grow strongly – by 43% in volume terms between 2000-2008 – with medical devices emerging as a new star performer. In 2009, manufacturing industry (including power generation) accounted for over one quarter of gross value added.
Seán O’Driscoll’s notion that Ireland’s export competitiveness has been undermined by excessive wage growth is entirely erroneous. According to OECD data, unit labour costs in Irish manufacturing fell by 10% between 2000-2008 compared with an 8% fall in the USA and an increase of 3% in the EU at large. Not that labour costs are a major factor in the total costs of Irish manufacturing in any case – wages and salaries accounted for just 10% of total input costs in the sector in 2007.
David Begg’s view that services have grown at the expense of manufacturing is clearly not true. Even then, the perception that services are in some way inferior to manufacturing as a source of economic and employment growth is to seriously misunderstand their role in the Celtic Tiger phenomenon. Services exports hardly existed in 1990, yet ten years later they accounted for one quarter of total exports and employed over 68,000 workers at average pay levels which were significantly above those in manufacturing.
Since 2000 export services have gone from strength to strength, accounting for almost one half of total exports in 2009 and more than doubling their share of global services exports between 2000-2008. Nor do these services simply involve “manipulating money”, as dismissively suggested by Seán O’Driscoll. In fact, only 28% of services exports are IFSC-related, and lag well behind the two main export categories, computer services (including software) and business services.
Colm McCarthy’s idea of converting unemployed construction and services workers into manufacturing workers is far-fetched. In Germany, one of the most industrially-oriented of the advanced economies, manufacturing accounts for less than one fifth of all workers while only about one third of manufacturing workers in export sectors are unskilled. Large-scale employment in unskilled manufacturing is simply not an option in advanced economies.
In a small open economy such as Ireland, broadly-based employment creation depends on establishing a foundation of exporting, high-value, activities and then maximising the extent to which the spin-offs from these activities (input purchases, consumer spending by workers in export sectors) are retained within the economy. The replacement of the unskilled foreign branch plants of the 1960s and 1970s with more sophisticated, high-salary, activities in the 1990s played a key role in the rapid growth in overall employment in that decade.
Further export growth in the 2000s, in both manufacturing and services, has continued to support employment expansion – even with the collapse of the construction sector and its knock-on effects, there are still 135,000 more people employed in 2010 than there were a decade previously. The current unemployment crisis is attributable almost entirely to the bursting of the construction bubble of the early 2000s. By March 2010, construction employment had fallen by 130,500 from its peak in 2007. Adding in spinoff employment, the total job loss came to about 235,000.i.e. over 90% of the total fall in employment in this period.
What this means is that around a quarter of a million jobs were created in this country on the back of what was an unsustainable construction bubble and were duly wiped out when the bubble burst. In essence, these jobs comprised an excess above and beyond what the real productive economy was capable of supporting. Given the current depressed state of global markets, it could take up to twenty years to clear this excess (much of which will probably emigrate or leave the labour force in the meantime, a process which is already apparent).
Special measures are needed to provide meaningful employment for this overhang of excess unemployment, and there has been little sign of creative action from the government on this front. What is certain is that any action designed to promote low-skill manufacturing will produce minimal results. In an address to the Royal Irish Academy last February, Craig Barrett, former Chairman of Intel (operators of Ireland’s largest manufacturing facility) called for an expansion of investment in education and R&D in order to create the “smart people” and “smart ideas” which were key to Ireland’s future competitiveness. Moves to restrict the growth of the high-tech, knowledge-intensive activities which the Smart Economy entails will prove disastrous for general employment creation in Ireland over the coming years.
Meanwhile, according to media reports, economist Colm McCarthy, Chairman of An Bord Snip Nua, told the Richard Cantillon School that Ireland needed to rebuild its light manufacturing capacity which, he argued, was the driver of the original Celtic Tiger boom. This, he said, offered far greater prospects of replacing jobs lost in construction, retailing and manufacturing than the kinds of jobs likely to ensue from the smart economy policy.
David Begg, General Secretary of the Irish Congress of Trade Unions, followed up with the view that, in recent years, the services sector has grown rapidly at the expense of manufacturing and that it is naïve to think that the “so-called” smart economy could solve our employment problems.
All three arguments are at odds with the facts, display ignorance of how economies function to create employment, and appear unaware of how the Irish economy has developed over the last 20 years.
For a start, the idea that manufacturing and the Smart Economy are mutually exclusive is simply not true. The government document, Building the Smart Economy, states quite clearly that “Manufacturing will continue to play a fundamental part in our economic future, with an increasing focus on securing competitive advantage through innovation, R&D and design”.
The idea that manufacturing and services are mutually exclusive is equally incorrect. A key feature of modern advanced economies is the increasing integration of manufacturing and services. Ireland’s leading services export, software, can only work on manufactured hardware. A large proportion of the business services which are our second most important services export are performed by manufacturing firms.
Thirdly, Seán O’Driscoll’s notion that “we had stopped making things” is patently invalid. Between 1991-2000 – the boom period of the “real” Celtic Tiger – Irish manufacturing output grew by 250% in value terms and 225% in volume terms, over twice the overall growth rate of the economy. In this period, manufacturing’s share of total value added in the economy rose from 15% to 23%.
In one of the main drivers of this growth – pharmaceuticals – the average salary in 2000 was two thirds higher than the average for all industry – hardly indicative of the “light manufacturing” which Colm McCarthy reckons was the main driver of growth in this period. While this term might apply to a lot of the work in the other main growth sector (office machines & computers), this sector also includes major high-tech employers such as Intel, HP and IBM where the bulk of workers have higher education qualifications.
After 2000, Irish manufacturing continued to grow strongly – by 43% in volume terms between 2000-2008 – with medical devices emerging as a new star performer. In 2009, manufacturing industry (including power generation) accounted for over one quarter of gross value added.
Seán O’Driscoll’s notion that Ireland’s export competitiveness has been undermined by excessive wage growth is entirely erroneous. According to OECD data, unit labour costs in Irish manufacturing fell by 10% between 2000-2008 compared with an 8% fall in the USA and an increase of 3% in the EU at large. Not that labour costs are a major factor in the total costs of Irish manufacturing in any case – wages and salaries accounted for just 10% of total input costs in the sector in 2007.
David Begg’s view that services have grown at the expense of manufacturing is clearly not true. Even then, the perception that services are in some way inferior to manufacturing as a source of economic and employment growth is to seriously misunderstand their role in the Celtic Tiger phenomenon. Services exports hardly existed in 1990, yet ten years later they accounted for one quarter of total exports and employed over 68,000 workers at average pay levels which were significantly above those in manufacturing.
Since 2000 export services have gone from strength to strength, accounting for almost one half of total exports in 2009 and more than doubling their share of global services exports between 2000-2008. Nor do these services simply involve “manipulating money”, as dismissively suggested by Seán O’Driscoll. In fact, only 28% of services exports are IFSC-related, and lag well behind the two main export categories, computer services (including software) and business services.
Colm McCarthy’s idea of converting unemployed construction and services workers into manufacturing workers is far-fetched. In Germany, one of the most industrially-oriented of the advanced economies, manufacturing accounts for less than one fifth of all workers while only about one third of manufacturing workers in export sectors are unskilled. Large-scale employment in unskilled manufacturing is simply not an option in advanced economies.
In a small open economy such as Ireland, broadly-based employment creation depends on establishing a foundation of exporting, high-value, activities and then maximising the extent to which the spin-offs from these activities (input purchases, consumer spending by workers in export sectors) are retained within the economy. The replacement of the unskilled foreign branch plants of the 1960s and 1970s with more sophisticated, high-salary, activities in the 1990s played a key role in the rapid growth in overall employment in that decade.
Further export growth in the 2000s, in both manufacturing and services, has continued to support employment expansion – even with the collapse of the construction sector and its knock-on effects, there are still 135,000 more people employed in 2010 than there were a decade previously. The current unemployment crisis is attributable almost entirely to the bursting of the construction bubble of the early 2000s. By March 2010, construction employment had fallen by 130,500 from its peak in 2007. Adding in spinoff employment, the total job loss came to about 235,000.i.e. over 90% of the total fall in employment in this period.
What this means is that around a quarter of a million jobs were created in this country on the back of what was an unsustainable construction bubble and were duly wiped out when the bubble burst. In essence, these jobs comprised an excess above and beyond what the real productive economy was capable of supporting. Given the current depressed state of global markets, it could take up to twenty years to clear this excess (much of which will probably emigrate or leave the labour force in the meantime, a process which is already apparent).
Special measures are needed to provide meaningful employment for this overhang of excess unemployment, and there has been little sign of creative action from the government on this front. What is certain is that any action designed to promote low-skill manufacturing will produce minimal results. In an address to the Royal Irish Academy last February, Craig Barrett, former Chairman of Intel (operators of Ireland’s largest manufacturing facility) called for an expansion of investment in education and R&D in order to create the “smart people” and “smart ideas” which were key to Ireland’s future competitiveness. Moves to restrict the growth of the high-tech, knowledge-intensive activities which the Smart Economy entails will prove disastrous for general employment creation in Ireland over the coming years.
Thursday, 21 October 2010
Wednesday, 20 October 2010
Abandon the deflationary ship
Michael Taft: The Minister for Finance when announcing his €4 billion spending cuts in the last budget, stated confidently:
‘Further corrections will be needed in the coming years, but none as big as today’s. . . A Cheann Comhairle, the worst is over.’
Well, the worst has gotten worster. We are now told we will need another €4 billion or €5 billion in ‘adjustment’ (read: contraction) on top of the €7.5 billion the Government intends. We are told the reason for this is that growth projections are lower. Nobody has copped it that deflationary policies themselves are suppressing growth, the main reason why we known apparently need . . more deflationary policies. But won’t more deflationary policies produce ever lower growth which in turn will maintain unsustainably high levels of deficit? Silence all around.
Let’s be clear: the issue is not the balance between spending cuts and tax increases. The issue is the deflationary model itself. As long as policy is determined within the parameters of that model, it will fail to repair the public finances.
Using the ESRI fiscal multipliers and their growth rates contained in their Recovery Scenarios Update, let’s see where additional contraction will get us. These figures are provisional insofar as there is some extrapolation and, therefore, are intended to be indicative only. But they show the scale of the failure that is the deflationary model.
The ESRI was the first to signal that the Government’s strategy will fail. The €7.5 billion would not only fail to reach Maastricht compliance by 2014, it would fail to do so by 2020. As a percentage of GDP, (with an additional €1.5 billion added due to increased interest payments and revising growth downwards by a third, which seems to be consensus projection) this is what the deficit would look like:
As can be seen, even with an additional contraction of €4 billion, on top of the current €7.5 billion, public finances cannot be brought into Maastricht compliance by 2020. It would flat-line between -4 and -5 percent. And each additional €1 billion contraction would only lower the deficit by between -0.1 and -0.2 percent.
However, there are problems with even these projections. The ESRI model assumes an interest rate risk premium of 2 percent. We are now double that position. With projections showing that even with additional contraction, we won’t repair public finances we should expect that risk premium to remain high (that is, if we are still in the market).
Nor does the above take account of the probability that growth and deficit-reduction are reacting to the deflationary impact on the GNP (where most tax revenue is generated) – an impact which is 20 percent to 30 percent more negative than on GDP. If we tried to factor that in, we’d flat-lining at above -6 percent or so.
Nor does it include the extra interest payments arising from higher deficits. With additional fiscal contraction we’d still be adding €10 billion to €15 billion on our overall debt by 2105, putting cumulative pressure on the deficit.
And what it doesn’t take into account the spectre of what can be described as a deflationary cascade.
Something darker may be hiding in the Government’s fiscal cupboard. Michael Burke referred to this when highlighting the findings of the IMF. In short, for economies that have hit an interest rate floor and where other countries are pursuing fiscal consolidation, a 1 percent budgetary contraction could produce a decline in the GDP of 2 percent.
To put this in perspective, current policies are closely following the rule of thumb – a 1 percent contraction is producing a fall of 1 percent in GDP (marginally more). However, if we start entering more sustained deflation, we could really be in trouble. Even if the IMF is only half right (I emphasise half right), we could find ourselves in this ugly situation:
The deficit would fall to only –8 to -9 percent of GDP by 2014 and then flat-line for the rest of the decade.
The more we engage in fiscal contraction, the more we would be entrenching high deficits in the economy. The economy would literally be spinning its wheels with all the consequences this would have for unemployment, growth, debt and interest payments.
Additional fiscal contraction will not repair public finances but will drive the debt ever upwards (the ESRI already estimates the debt to be 130 percent of GNP by 2015 on current policies, but that’s not even counting the additional Anglo-Irish/INWB bail-out which will add another €10 billion minimum to that debt pile).
If we accept the fiscal contraction coming down the line and content ourselves to debating the relationship between spending cuts and tax increases, then we will be debating on the Titanic. For the real problem is not how much cuts or taxes, but the Government’s deflationary model itself. It can’t change direction.
And we’re heading for a big iceberg.
‘Further corrections will be needed in the coming years, but none as big as today’s. . . A Cheann Comhairle, the worst is over.’
Well, the worst has gotten worster. We are now told we will need another €4 billion or €5 billion in ‘adjustment’ (read: contraction) on top of the €7.5 billion the Government intends. We are told the reason for this is that growth projections are lower. Nobody has copped it that deflationary policies themselves are suppressing growth, the main reason why we known apparently need . . more deflationary policies. But won’t more deflationary policies produce ever lower growth which in turn will maintain unsustainably high levels of deficit? Silence all around.
Let’s be clear: the issue is not the balance between spending cuts and tax increases. The issue is the deflationary model itself. As long as policy is determined within the parameters of that model, it will fail to repair the public finances.
Using the ESRI fiscal multipliers and their growth rates contained in their Recovery Scenarios Update, let’s see where additional contraction will get us. These figures are provisional insofar as there is some extrapolation and, therefore, are intended to be indicative only. But they show the scale of the failure that is the deflationary model.
The ESRI was the first to signal that the Government’s strategy will fail. The €7.5 billion would not only fail to reach Maastricht compliance by 2014, it would fail to do so by 2020. As a percentage of GDP, (with an additional €1.5 billion added due to increased interest payments and revising growth downwards by a third, which seems to be consensus projection) this is what the deficit would look like:
As can be seen, even with an additional contraction of €4 billion, on top of the current €7.5 billion, public finances cannot be brought into Maastricht compliance by 2020. It would flat-line between -4 and -5 percent. And each additional €1 billion contraction would only lower the deficit by between -0.1 and -0.2 percent.
However, there are problems with even these projections. The ESRI model assumes an interest rate risk premium of 2 percent. We are now double that position. With projections showing that even with additional contraction, we won’t repair public finances we should expect that risk premium to remain high (that is, if we are still in the market).
Nor does the above take account of the probability that growth and deficit-reduction are reacting to the deflationary impact on the GNP (where most tax revenue is generated) – an impact which is 20 percent to 30 percent more negative than on GDP. If we tried to factor that in, we’d flat-lining at above -6 percent or so.
Nor does it include the extra interest payments arising from higher deficits. With additional fiscal contraction we’d still be adding €10 billion to €15 billion on our overall debt by 2105, putting cumulative pressure on the deficit.
And what it doesn’t take into account the spectre of what can be described as a deflationary cascade.
Something darker may be hiding in the Government’s fiscal cupboard. Michael Burke referred to this when highlighting the findings of the IMF. In short, for economies that have hit an interest rate floor and where other countries are pursuing fiscal consolidation, a 1 percent budgetary contraction could produce a decline in the GDP of 2 percent.
To put this in perspective, current policies are closely following the rule of thumb – a 1 percent contraction is producing a fall of 1 percent in GDP (marginally more). However, if we start entering more sustained deflation, we could really be in trouble. Even if the IMF is only half right (I emphasise half right), we could find ourselves in this ugly situation:
The deficit would fall to only –8 to -9 percent of GDP by 2014 and then flat-line for the rest of the decade.
The more we engage in fiscal contraction, the more we would be entrenching high deficits in the economy. The economy would literally be spinning its wheels with all the consequences this would have for unemployment, growth, debt and interest payments.
Additional fiscal contraction will not repair public finances but will drive the debt ever upwards (the ESRI already estimates the debt to be 130 percent of GNP by 2015 on current policies, but that’s not even counting the additional Anglo-Irish/INWB bail-out which will add another €10 billion minimum to that debt pile).
If we accept the fiscal contraction coming down the line and content ourselves to debating the relationship between spending cuts and tax increases, then we will be debating on the Titanic. For the real problem is not how much cuts or taxes, but the Government’s deflationary model itself. It can’t change direction.
And we’re heading for a big iceberg.
Tuesday, 19 October 2010
Reassuring the markets
Slí Eile: ever wonder who we are consoling on world markets? There is a school of thought which claims that we should so shock the markets with such a larger than expected or demanded fiscal contraction that we can turn the corner. This sounds like WW1 'last push and we are there lads' approach. We will be home by Christmas. Well here is a guide to the Turkeys here. I cannot vouch for the accuracy of this. Readers and bloggers might advise.
Understanding dynamics
Slí eile: a curious feature of what passes for informed economic commentary in recent times is the absence of any solid evidence to back up various assertions. Even just as worrying is an apparent lack of awareness of the most rudimentary points of economic analysis. Take for example the lazy assumption that an adjustment (read cut) of X billion equals a saving of X billion in borrowing and will translate into higher confidence and lower interest rates on monies borrowed abroad. There is a lack of acknowledgment of the dynamic interaction between spending changes, impacts on domestic demand, revenue receipts and triggered spending increases through higher unemployment. Surely, the ESRI or Dept of Finance can and do model these impacts and test the distributional and macro-economic impacts of severe fiscal shocks?
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