Kevin writes “Nor can it afford the salaries paid to top public servants, which should be capped at €150,000 or less.”
If the government decided to do this, has anyone worked out just how much this might save the exchequer, this year and next?
I sometimes have concerns about comparisons between today and the great depression, because i have spoken to people who lived and came of age during that time (1930’s) and frankly we are 100 times better off than them.
The drops in markets might be larger, but the markets were equally inflated in the last few decades, on the ground the story is totally different, it’s not to say that unemployment or misery is not widespread, but at least we have tools this time around and they are being used.
Once again we are reminded that economic equality is economically desirable as well as in tune with our republican heritage.
Kevin O’Rourke’s two main messages of hope are important:
1. Just because our options are limited in number and scope it doesn’t mean they are not important, and
2. Social equality must be part of the solution.
The warning that we could be in for an extremely rough ride over a protracted period suggests that the Govt should be extremely cautious in how much it spends on the banking issue and should not predicate decisiond on land values increasing over the next 10-15 years.
@karl d
“I sometimes have concerns about comparisons between today and the great depression, because i have spoken to people who lived and came of age during that time (1930’s) and frankly we are 100 times better off than them”
If by we you mean The populations of Europe and America then yeah sure, If you mean the Poorest of the poor who have Food shortages to worry about then no. This depression is more global due to Globalisation.
and it is the weakest who are being hit hardest predictably enough.
“The drops in markets might be larger, but the markets were equally inflated in the last few decades, on the ground the story is totally different, it’s not to say that unemployment or misery is not widespread, but at least we have tools this time around and they are being used.”
But does the fact that the drops are larger not indicate that either the tools are not yet working or that the drops would actually be far worse if we didnt have the tools?
Since there hasnt been a drop of this magnitude since we got the tools how do we know they will work?
Karl D is quite right to make the obvious point that a “great depression” today would be a very different lived experience today than in the 1930s (though we should consider the effect on developing countries). Obviously being unemployed is a far less materially deprived state of affairs in Ireland today than in any country in the world of the 1930s.
On the other hand the true catastrophe of the Great Depression was not economic but political – its ultimate consequences included Nazism and catostrophic war. I’m not sure we can be confident that a 21st century great depression would not have terrible political consequences, though what these would look like no one can know.
Political consequences could be in the form of a one world currency, suppose that would be both a political and financial consequence. I think this would be disasterous for Ireland but that is another story.
Also there will probably be a lot of geopolitical consequences especially if as predicted the price of oil goes upward again towards the end of this year.
What I do like about the article is that it deals with the fact that we need social equality and not to be pandering the whole time to special interet groups.
Good to see someone with a media platform start to call it, that this could well be the start of the 21’st century’s great depression.
Once thats acknowledged, stuff gets clarified and it should help decision making….., e.g. taxpayer buying NAMA assets at the current time is national suicide, even the idea suggested of caps in salarys etc needs to be looked at…
Stephen, good question – I think it’s an exercise that’s do-able. All we need really is a list of occupations earning €150k or more on average and finding out how many are employed in each.
Assuming €50k as the average excess above €150k (i.e. a more complicated version of some being on €300k but more being on €175k), cutting the wages of, say, one thousand people being paid more than €150k would save €50m. Hmmm, doesn’t make a dint into our €25bn gap, but I agree it could be politically significant.
Are there 10,000 people on €150k, which would save us €500m, a more significant figure? Probably not, as the entire education sector is certainly well paid (€60k average) but I can’t think of any occupations earning more than €150k.
What about 5,000 people, a saving of €250m? Health, civil administration and justice are the likely candidates for high earners. There are only 33,000 administrative civil servants, so it’s unlikely we’ll get more than 1,000 out of them if even… Are there 4,000 out of 100,000 health sector workers earning more than €150k? I wouldn’t have thought so…
My opinion is that we should benchmark (if I can steal that word back) ALL public sector salaries to (a) private sector counterparts or (b) OECD counterparts, adjusted for PPP. This will correct those at the top as well as those elsewhere in the public sector – and could save the taxpayer billions a year, rather than hundreds of millions.
@ Ronan,
You’re truly the master of the back of the envelope, and you largely confirmed what I thought–even if we got Medieval on the upper echelons of the civil and public services, we’d save 500m, max, and the political (but maybe not the social) cost would be enormous for those who did the cutting, as almost by definition these are the most connected people in Irish society, the judges, top level civil servants, full profs, etc, etc.
I’ve one qualm about private sector benchmarking. Of course the mapping will be imperfect, but what lag do you (or anyone else on the thread) feel is appropriate for the up/down benchmarking to take place, given that there are both ceilings and floors on the incomes of civil servants?
Instead of a public sector salary cap of X why not have a cap of X on all money for any one individual from the public purse.
whether its from salary, consulting fees, pension, dole, farm benefits, grants etc etc etc….
A very simple catch all for double jobbing, people working and drawing pensions etc…..
No need to benchmark, thats just makework for people… Set the cap, make it an agreed multiple of a full time minimium wage worker and were done…
And make it apply to all who exist at the whim of the state, civil servants, semi states, and of course bailed out banks!
@ Ronan
Its not the mind frame of “Hmmm, doesn’t make a dint into our €25bn gap” that will get us anywhere. This is a colossal amount as an income transfer. This is another wing on a hospital, a new building unit in a college.
These cuts at this level wont plug deficits but will stop, essentially, further leaking of the deficit and maybe, and stressing the maybe, go to some benefit of other sectors that would cost the taxpayers money.
Hi Conor,
Point taken, but I guess I’m thinking in my urgent-important matrix mindset, so to me the focus should be on those areas that are most urgent and most important.
The current state of the public finances means that if I were dictator, I would not be worrying so much about cutting out a €4m program here or €50 in certain types of salary/consultancy there. It’s like realising you’ve dropped a lit candle on the ground when your house is already well and truly ablaze. Rather than stamp out the candle, let’s get a fire extinguisher and tackle the whole problem.
That, and Stephen asked the question. Blame him! 🙂
@ Ronan, Yes yes, blame me 🙂
@ Conor, I’m not suggesting it isn’t important to look at high paid civil servants, in fact it is probably very important in the broad scheme of things. But right now, as Ronan says, the public finances need shoring up asap, and fighting judges, consultants, and upper level civil servants won’t achieve that. It would be fascinating to see a simulation of tax receipts and expenditures if we did place a 100k cap on all civil, public, and health services. Would there be egregious effects on consumption? Ronan?
Erm, leave that one with me, Steve. First stop, a dictionary!
The most depressing aspect of the Irish scene is that while the Government stumbles from crisis to crisis, radicalism in the form of fundamental reform proposals, involving taking a bazooka to many sacred cows, is not on the agenda of the Opposition.
In a society where the culture of plundering the public purse is applauded rather than reviled, unless there is a change to the buck stops nowhere system, there will be no change as band-aid measures will only have a short-term impact.
Why can the US state of Missouri with a population of 5.5m put all its public spending online – – public contracts, all payroll information, etc. – – in a searchable database for public access, at a cost of less than $200,000, when e-Government projects in Ireland to date, have cost almost half a billion euros and an abandoned project called Reach to provide “one stop shop access” cost €37 million?
Whose interest is served by shrouding the public procurement system in Victorian secrecy?
@ Ronan
Any time someone suggests taxing the wealthy we get the same response
‘It wont raise very much compared to the size of the problem’
To continue the bad analogies…
Unfortunitely our house is the size of the country and we dont have that much water at the moment.
I dont see that many ways of tackling this problem in one fowl swoop? Or even a small number of large ones. The numbers are just too big.
We are going to have to chip away at this little by little for a long time.
The only large swoop I can see has massive negative economic and political impacts. i.e. Default.
If Evet Public sector persons pay was capped at a certain rate then it would be easier to bring in legistlation to ensure that the Financial industry do likewise. So the small amount could help encourage a more competitive environment.
From little acorns…
Sorry to interupt the interesting discussion on public sector pay. (For what it’s worth, in addition to not raising much revenue, a public-sector salary cap strikes me as unfair. Take two high earning public servants, one earning 200KK and one 150K. The first faces a massive 25 percent cut, the second no cut at all. A progressive system of cuts would be better both in terms of yield and fairness.)
I want comment on a different issue raised by Kevin’s excellent piece. Kevin draws a sharp line between what larger and smaller countries should do to counter this recession. Kevin is right to emphasise the constraints created by smallness and fiscal fragility. But is the contrast being too sharply drawn? The main driver of Ireland’s output collapse is the sharp fall in domestic demand. And although Ireland is an highly open economy, I think the implications of this for demand management policies are exaggerated. It is well established that a large fraction of Irish imports are inputs into the production of exports. In a previous post, I (admittedly crudely) estimated that Ireland’s marginal propensity to import out of domestic demand is in the region of about 0.25. This strikes me as plausible given the high share of non-traded services in domestic demand in a highly development economy such as Ireland’s. Of course, a direct leakage of one quarter is high; but on its own it hardly suggests the impotency of fiscal policy.
The fiscal fragility poses a more difficult constraint. From my reading of the evidence (including ex post analyses of Ireland’s post-1987 experience), the expansionary fiscal expansion hypothesis has little empirical foundation. I am more convinced by arguments for pursuing a contractionary policy for reasons of prudence in a highly uncertain environment. But I also think there should be more discussion of ways to reduce the fiscal fragility for any given current value of the deficit. This would include much greater consideration of Philip Lane’s suggestions for medium-term fiscal rules, and giving greater priority to fiscal implications of banking-sector policy (along the lines of Morgan Kelly’s sensible suggestions in the IT last week). It is also a pity that the “stimulus” discussion got side-tracked by the debate over dubious targeted job subsidies. There is still much to debate relating the timing and composition of the fiscal adjustment.
Do TCD Professors earn less than €150,000 ? Thats all that article tells me.
@finfacts a very good point…
@John McHale So what? Revenue is in the low 30’s spend is around 60 (billions)… Time to stop screwing around and sort it out. Benchmarking and other bollocksology is just a delaying tactic in the hope 2010 the crisis will have passed… It wont.
Both the individuals you speak of are net beneficiaries of the public purse and both salaries need to be reduced and maybe even some eliminated to stave off bankruptcy.
By putting a salary cap in or better still by adopting a cap on all payments from the state, it will put downward pressure on wages across the spectrum… right through to the minimum wage
The alternative is to do what ibec etc want which is start at the minimum wage and hope the better off ‘professionals’ in the public service follow… Thats not working as can be seen from the number of judges who have volunteered a cut.
Leadership is needed and in any competent organization it starts at the top.
@Eamonn Moran
“If by we you mean The populations of Europe and America then yeah sure, If you mean the Poorest of the poor who have Food shortages to worry about then no. This depression is more global due to Globalisation.
and it is the weakest who are being hit hardest predictably enough.”
I feel it is fair to say that comparatively, the third world always suffers more, it’s practically a given. however, the people facing food shortages today don’t have it as bad as the poor countries did in the 1930’s before they were even starting to develop. the Ukraine famine happened during the ‘roaring 20’s’ so irrespective of the world economy, at any given time there is always somebody at the bottom of the pile, if I had a choice i’d rather be poor today than poor in the 1930’s.
“Since there hasn’t been a drop of this magnitude since we got the tools how do we know they will work?”
y’know that’s a brilliant question, I think Friedman said it best in the 60’s ‘in one respect we are all keynesians now, in another we are not’, we are relying heavily on tools that don’t have a fixed set of results, take a hammer to a nail and you know what will happen, apply an increased money supply, QE & deficits to a country and we can only guess (and hope!)
@Karl Deeter
Is your comment on global poverty and food shortages based on any in depth knowledge? It’s just that I am surprised to see you refer to the third world rather than the fourth world and you don’t seem to take account of the fact that food shortages were becoming critical before the economic crash. I am not saying you are wrong. I am just wondering what you are basing your opinions on.
@zhou enlai my personal experience of poverty and food shortages outside of europe is based on travel in asia and central/south america, i’m not a student of world poverty/hunger.
Food shortages and agflation are something I was paying a lot of attention to in early 08′ in particular as riots/demonstrations had started to occur in cameroon, indonesia, malaysia, dominican rep, egypt and other countries, at the time i felt it was linked to the short term upward move in commodities in particular that of oil. it was happening before the crash and to a degree i think that the crash has actually helped put food on the plate in some places as the slump in demand has meant that (in particular soft commodities) didn’t continue on an upward trajectory thus meaning that the poor (who were as poor during the good times as the bad) were again able to buy staples.
i’m not too sure if i answered your question though!
22 replies on “1929 and 2009”
Kevin writes “Nor can it afford the salaries paid to top public servants, which should be capped at €150,000 or less.”
If the government decided to do this, has anyone worked out just how much this might save the exchequer, this year and next?
I sometimes have concerns about comparisons between today and the great depression, because i have spoken to people who lived and came of age during that time (1930’s) and frankly we are 100 times better off than them.
The drops in markets might be larger, but the markets were equally inflated in the last few decades, on the ground the story is totally different, it’s not to say that unemployment or misery is not widespread, but at least we have tools this time around and they are being used.
Once again we are reminded that economic equality is economically desirable as well as in tune with our republican heritage.
Kevin O’Rourke’s two main messages of hope are important:
1. Just because our options are limited in number and scope it doesn’t mean they are not important, and
2. Social equality must be part of the solution.
The warning that we could be in for an extremely rough ride over a protracted period suggests that the Govt should be extremely cautious in how much it spends on the banking issue and should not predicate decisiond on land values increasing over the next 10-15 years.
@karl d
“I sometimes have concerns about comparisons between today and the great depression, because i have spoken to people who lived and came of age during that time (1930’s) and frankly we are 100 times better off than them”
If by we you mean The populations of Europe and America then yeah sure, If you mean the Poorest of the poor who have Food shortages to worry about then no. This depression is more global due to Globalisation.
and it is the weakest who are being hit hardest predictably enough.
“The drops in markets might be larger, but the markets were equally inflated in the last few decades, on the ground the story is totally different, it’s not to say that unemployment or misery is not widespread, but at least we have tools this time around and they are being used.”
But does the fact that the drops are larger not indicate that either the tools are not yet working or that the drops would actually be far worse if we didnt have the tools?
Since there hasnt been a drop of this magnitude since we got the tools how do we know they will work?
Karl D is quite right to make the obvious point that a “great depression” today would be a very different lived experience today than in the 1930s (though we should consider the effect on developing countries). Obviously being unemployed is a far less materially deprived state of affairs in Ireland today than in any country in the world of the 1930s.
On the other hand the true catastrophe of the Great Depression was not economic but political – its ultimate consequences included Nazism and catostrophic war. I’m not sure we can be confident that a 21st century great depression would not have terrible political consequences, though what these would look like no one can know.
Political consequences could be in the form of a one world currency, suppose that would be both a political and financial consequence. I think this would be disasterous for Ireland but that is another story.
Also there will probably be a lot of geopolitical consequences especially if as predicted the price of oil goes upward again towards the end of this year.
What I do like about the article is that it deals with the fact that we need social equality and not to be pandering the whole time to special interet groups.
Good to see someone with a media platform start to call it, that this could well be the start of the 21’st century’s great depression.
Once thats acknowledged, stuff gets clarified and it should help decision making….., e.g. taxpayer buying NAMA assets at the current time is national suicide, even the idea suggested of caps in salarys etc needs to be looked at…
Stephen, good question – I think it’s an exercise that’s do-able. All we need really is a list of occupations earning €150k or more on average and finding out how many are employed in each.
Assuming €50k as the average excess above €150k (i.e. a more complicated version of some being on €300k but more being on €175k), cutting the wages of, say, one thousand people being paid more than €150k would save €50m. Hmmm, doesn’t make a dint into our €25bn gap, but I agree it could be politically significant.
Are there 10,000 people on €150k, which would save us €500m, a more significant figure? Probably not, as the entire education sector is certainly well paid (€60k average) but I can’t think of any occupations earning more than €150k.
What about 5,000 people, a saving of €250m? Health, civil administration and justice are the likely candidates for high earners. There are only 33,000 administrative civil servants, so it’s unlikely we’ll get more than 1,000 out of them if even… Are there 4,000 out of 100,000 health sector workers earning more than €150k? I wouldn’t have thought so…
My opinion is that we should benchmark (if I can steal that word back) ALL public sector salaries to (a) private sector counterparts or (b) OECD counterparts, adjusted for PPP. This will correct those at the top as well as those elsewhere in the public sector – and could save the taxpayer billions a year, rather than hundreds of millions.
@ Ronan,
You’re truly the master of the back of the envelope, and you largely confirmed what I thought–even if we got Medieval on the upper echelons of the civil and public services, we’d save 500m, max, and the political (but maybe not the social) cost would be enormous for those who did the cutting, as almost by definition these are the most connected people in Irish society, the judges, top level civil servants, full profs, etc, etc.
I’ve one qualm about private sector benchmarking. Of course the mapping will be imperfect, but what lag do you (or anyone else on the thread) feel is appropriate for the up/down benchmarking to take place, given that there are both ceilings and floors on the incomes of civil servants?
Instead of a public sector salary cap of X why not have a cap of X on all money for any one individual from the public purse.
whether its from salary, consulting fees, pension, dole, farm benefits, grants etc etc etc….
A very simple catch all for double jobbing, people working and drawing pensions etc…..
No need to benchmark, thats just makework for people… Set the cap, make it an agreed multiple of a full time minimium wage worker and were done…
And make it apply to all who exist at the whim of the state, civil servants, semi states, and of course bailed out banks!
@ Ronan
Its not the mind frame of “Hmmm, doesn’t make a dint into our €25bn gap” that will get us anywhere. This is a colossal amount as an income transfer. This is another wing on a hospital, a new building unit in a college.
These cuts at this level wont plug deficits but will stop, essentially, further leaking of the deficit and maybe, and stressing the maybe, go to some benefit of other sectors that would cost the taxpayers money.
Hi Conor,
Point taken, but I guess I’m thinking in my urgent-important matrix mindset, so to me the focus should be on those areas that are most urgent and most important.
The current state of the public finances means that if I were dictator, I would not be worrying so much about cutting out a €4m program here or €50 in certain types of salary/consultancy there. It’s like realising you’ve dropped a lit candle on the ground when your house is already well and truly ablaze. Rather than stamp out the candle, let’s get a fire extinguisher and tackle the whole problem.
That, and Stephen asked the question. Blame him! 🙂
@ Ronan, Yes yes, blame me 🙂
@ Conor, I’m not suggesting it isn’t important to look at high paid civil servants, in fact it is probably very important in the broad scheme of things. But right now, as Ronan says, the public finances need shoring up asap, and fighting judges, consultants, and upper level civil servants won’t achieve that. It would be fascinating to see a simulation of tax receipts and expenditures if we did place a 100k cap on all civil, public, and health services. Would there be egregious effects on consumption? Ronan?
Erm, leave that one with me, Steve. First stop, a dictionary!
The most depressing aspect of the Irish scene is that while the Government stumbles from crisis to crisis, radicalism in the form of fundamental reform proposals, involving taking a bazooka to many sacred cows, is not on the agenda of the Opposition.
In a society where the culture of plundering the public purse is applauded rather than reviled, unless there is a change to the buck stops nowhere system, there will be no change as band-aid measures will only have a short-term impact.
Why can the US state of Missouri with a population of 5.5m put all its public spending online – – public contracts, all payroll information, etc. – – in a searchable database for public access, at a cost of less than $200,000, when e-Government projects in Ireland to date, have cost almost half a billion euros and an abandoned project called Reach to provide “one stop shop access” cost €37 million?
Whose interest is served by shrouding the public procurement system in Victorian secrecy?
http://www.finfacts.ie/irishfinancenews/article_1017081.shtml
@ Ronan
Any time someone suggests taxing the wealthy we get the same response
‘It wont raise very much compared to the size of the problem’
To continue the bad analogies…
Unfortunitely our house is the size of the country and we dont have that much water at the moment.
I dont see that many ways of tackling this problem in one fowl swoop? Or even a small number of large ones. The numbers are just too big.
We are going to have to chip away at this little by little for a long time.
The only large swoop I can see has massive negative economic and political impacts. i.e. Default.
If Evet Public sector persons pay was capped at a certain rate then it would be easier to bring in legistlation to ensure that the Financial industry do likewise. So the small amount could help encourage a more competitive environment.
From little acorns…
Sorry to interupt the interesting discussion on public sector pay. (For what it’s worth, in addition to not raising much revenue, a public-sector salary cap strikes me as unfair. Take two high earning public servants, one earning 200KK and one 150K. The first faces a massive 25 percent cut, the second no cut at all. A progressive system of cuts would be better both in terms of yield and fairness.)
I want comment on a different issue raised by Kevin’s excellent piece. Kevin draws a sharp line between what larger and smaller countries should do to counter this recession. Kevin is right to emphasise the constraints created by smallness and fiscal fragility. But is the contrast being too sharply drawn? The main driver of Ireland’s output collapse is the sharp fall in domestic demand. And although Ireland is an highly open economy, I think the implications of this for demand management policies are exaggerated. It is well established that a large fraction of Irish imports are inputs into the production of exports. In a previous post, I (admittedly crudely) estimated that Ireland’s marginal propensity to import out of domestic demand is in the region of about 0.25. This strikes me as plausible given the high share of non-traded services in domestic demand in a highly development economy such as Ireland’s. Of course, a direct leakage of one quarter is high; but on its own it hardly suggests the impotency of fiscal policy.
The fiscal fragility poses a more difficult constraint. From my reading of the evidence (including ex post analyses of Ireland’s post-1987 experience), the expansionary fiscal expansion hypothesis has little empirical foundation. I am more convinced by arguments for pursuing a contractionary policy for reasons of prudence in a highly uncertain environment. But I also think there should be more discussion of ways to reduce the fiscal fragility for any given current value of the deficit. This would include much greater consideration of Philip Lane’s suggestions for medium-term fiscal rules, and giving greater priority to fiscal implications of banking-sector policy (along the lines of Morgan Kelly’s sensible suggestions in the IT last week). It is also a pity that the “stimulus” discussion got side-tracked by the debate over dubious targeted job subsidies. There is still much to debate relating the timing and composition of the fiscal adjustment.
Do TCD Professors earn less than €150,000 ? Thats all that article tells me.
@finfacts a very good point…
@John McHale So what? Revenue is in the low 30’s spend is around 60 (billions)… Time to stop screwing around and sort it out. Benchmarking and other bollocksology is just a delaying tactic in the hope 2010 the crisis will have passed… It wont.
Both the individuals you speak of are net beneficiaries of the public purse and both salaries need to be reduced and maybe even some eliminated to stave off bankruptcy.
By putting a salary cap in or better still by adopting a cap on all payments from the state, it will put downward pressure on wages across the spectrum… right through to the minimum wage
The alternative is to do what ibec etc want which is start at the minimum wage and hope the better off ‘professionals’ in the public service follow… Thats not working as can be seen from the number of judges who have volunteered a cut.
Leadership is needed and in any competent organization it starts at the top.
@Eamonn Moran
“If by we you mean The populations of Europe and America then yeah sure, If you mean the Poorest of the poor who have Food shortages to worry about then no. This depression is more global due to Globalisation.
and it is the weakest who are being hit hardest predictably enough.”
I feel it is fair to say that comparatively, the third world always suffers more, it’s practically a given. however, the people facing food shortages today don’t have it as bad as the poor countries did in the 1930’s before they were even starting to develop. the Ukraine famine happened during the ‘roaring 20’s’ so irrespective of the world economy, at any given time there is always somebody at the bottom of the pile, if I had a choice i’d rather be poor today than poor in the 1930’s.
“Since there hasn’t been a drop of this magnitude since we got the tools how do we know they will work?”
y’know that’s a brilliant question, I think Friedman said it best in the 60’s ‘in one respect we are all keynesians now, in another we are not’, we are relying heavily on tools that don’t have a fixed set of results, take a hammer to a nail and you know what will happen, apply an increased money supply, QE & deficits to a country and we can only guess (and hope!)
@Karl Deeter
Is your comment on global poverty and food shortages based on any in depth knowledge? It’s just that I am surprised to see you refer to the third world rather than the fourth world and you don’t seem to take account of the fact that food shortages were becoming critical before the economic crash. I am not saying you are wrong. I am just wondering what you are basing your opinions on.
@zhou enlai my personal experience of poverty and food shortages outside of europe is based on travel in asia and central/south america, i’m not a student of world poverty/hunger.
Food shortages and agflation are something I was paying a lot of attention to in early 08′ in particular as riots/demonstrations had started to occur in cameroon, indonesia, malaysia, dominican rep, egypt and other countries, at the time i felt it was linked to the short term upward move in commodities in particular that of oil. it was happening before the crash and to a degree i think that the crash has actually helped put food on the plate in some places as the slump in demand has meant that (in particular soft commodities) didn’t continue on an upward trajectory thus meaning that the poor (who were as poor during the good times as the bad) were again able to buy staples.
i’m not too sure if i answered your question though!