39 thoughts on “Overview on Fiscal Situation”

  1. This post almost made me cry. This from a Professor of Economics. The delusion is beyond belief. No wonder Ireland is in such a mess. Competitiveness for what? Globalisation is dead, economic growth is dead. There is no recovery. The problem is by the time economists wake up it will be too late. We are not going back to business as usual. We have to find a new economic model based on the fact we live on a finite planet with finite resources and it is physically impossible to have exponential economic growth in this situation. Just watch all your predictions fail as reality catches up with you.
    Have a niec day.

  2. @Richard Stone
    “Globalisation is dead, economic growth is dead. There is no recovery”. Really? Any chance of a wee bit of facts on that?

  3. Very thoughtful article, which puts the recession into perspective, without denying its severity.

    A quibble (if you’re reading this John) would be:

    “Few realised the scale of Ireland’s loss of competitiveness up to 2008.”

    I still haven’t realised it – in terms of actual data, certainly v. high non-pay costs do reflect both the pull of resources into house construction and underlying productivity challenges in non-traded industries. Outside of this, it remains that:

    > Private sector wages in absolute terms are average in European terms, being somewhere between the Med countries and northern European bloc;
    > Data on actual export/import trade shows that we still have the proportion of EU15 trade we had at the start of the decade;
    > Data on FDI flows from UNCTAD suggest that we are the most successful economy in the Northern hemisphere for attracting Greenfield projects (this is the important FDI, the rest is M&A gunk which just moves ownership around);
    > We have achieved a considerable transformation in terms of productivity over the last 8 years. Our productivity growth post-2000 was significnatly higher than pre-2000 when you hold sectoral labour shares constant (which unfortunately few people do).
    > This productivity point is also reflected in a recent survey of MNCs by the IMI and NIB, which showed that the opreation of 70% of foreign MNCs surveyed were strategic centres for a product or region. The days when we just did production line are long gone.

    This point wasn’t central to the article, so sorry to quibble.

  4. The resilience and robustness of modern developed economies is absolutely wonderful to behold – and, apart from the standard example of Argentina, where has even a fairly developed industrial society not easily weathered the storms of economic downturns? Yes, things will be unpleasant for a while and social goods, profits, dividends, wages and benefits will be less than they have been; but will people go hungry or the sick left to die, or children left unschooled – no, of course not. Will emigration return, maybe – but people always move from perceived bad to better. Will the entrepreneurial or risk taking class be left sore; will public sector workers be left feeling aggrieved, will people feel poor instead of rich – yes. But will the Irish population still be the healthiest, best educated and richest in history – of course.

  5. It was good to read John O’Hagan’s article.

    Some points that might need also to be addressed include:

    – While some of the factors mentioned are indeed far more positive than in the 1980s, our expectations are also far higher than in the 1980s. It is an interesting psychological question to answer in terms of how people judge their position relative to their past. John talks about living standards going back to 2003, which would still be better than any of us could have expected when we were growing up. I think I would end up with a black-eye if I explained this to a lot of people I know at the moment.

    – Another factor relative to the 1980s is the high degree of private debt. This is likely one factor restraining consumption so heavily at the moment as households (even with relatively secure jobs) scramble to get their balance sheets back in line. Our data in Ireland is sketchy but the large change in people’s risk preferences along with peer effects may depress consumption for a long time.

    – As usual, I will flag the house value reductions along with the pension wealth reductions pointed out by John. We have very sketchy information on how this will play out and the implications it may have for a particularly important segment of the labour force.

    – The article clearly comes down on the side that an effective devaluation is the way to get the Irish economy back into the global system. Most people who have commented here agree with some version of this idea. However, it would be worth talking through the basic idea of whether such a devaluation is possible to achieve. Opponents argue that wage cuts depress demand and create further uncertainty. This has had some debate on this blog but worth a bit more of a row in my view.

    – The article does not get into the details of removing impaired assets from the banking system. The sense that the manner in which this is being done might be used as a stick to beat the government in any wage arrangement is becoming palpable. Coordinated responses require that there can be no party who is obviously getting an easy ride and that can be pointed to as a reason for others not to take their share of pain. The government are probably close now to winning the battle of getting NAMA implemented but there is a larger battle to convince people that the overall response is being handled fairly.

  6. That’s a relief. The bank collapse is “close to resolution”.

    Now, all we need do is implement McCarthy, cut wages, slash public sector pensions, jettison more jobs and wipe from our minds the history of this debacle (forget the “blame game”).

    “It is true that the distribution of losses in the last two years has been very uneven.”

    Yes, indeed. Funny how that happened. And where are the proposals to spread the pain more evenly?

    Instead, it appears, we need to further attack those who have borne the brunt of the crisis – for instance, we must cut social welfare payments now being paid to those who have already lost their jobs.

    This and so much more is accepable because things will eventually improve “in the years ahead”. (We can believe this because it’s a prediction from a prominent economist.)

    Meanwhile, all hands to the pump, to ensure we achieve our goals “without political turmoil and serious social unrest”. Because, with the banks almost restored to pristine condition, it would be a great pity if the skangers upset everything by getting stroppy.

    Tell me, old chap – what colour is the sky in your world?

  7. @Pete Maguire

    The article is very clear, at least to me, that pay and pensions at the top end of the public sector (including the author’s own grade) needs particular attention. This is not a self-serving piece nor one that unfairly targets the lower paid.

  8. Ronnie – I don’t think your quibbling. Rather, you have raised important points regarding one of the three main challenges that John referred to; namely, competitiveness. Our loss of competitiveness is often asserted but is rarely deconstructed and anlysed. Clearly, if there is a problem with our competitiveness then wages are not much of a factor. The recent Destatis (German statistical board) analysis shows, as you have stated, our labour costs lying between Northern Europe and the Mediterranean. Indeed, if we compare ourselves with the non-Med countries in the EU-15, our labour costs come in 15% below average.

    Along the way John makes unsubstantiated assertions. Such as claiming that our unemployment payments are high relatively high. Whether measured in actual amounts or as a replacement ratio, Irish unemployment payment recipients are at the lower end of the EU-15 scale.

    As to the arguments regarding the fiscal crisis, there may be all sorts of reasons for cutting public sector pay, but its beneficial impact on the fiscal deficit is not one of them. The ESRI’s fiscal multipliers published earlier this year showed that cutting public sector pay would deflate the economy further, contract consumer spending by nearly 1% and, thus, result in job losses – all to reduce the fiscal deficit by 0.3%. However, this analysis was done before the April budget. With those changes, the after-tax firscal benefit of cutting pulbic sector wages would be approximately 55% of the headline expenditure cut – and that’s not counting lost VAT revenue from reduced consumer spending, or the deflationary effects such a cut would entail. The reduction in the borrowing requirement could arguably be lower than the ESRI’s already low estimate. A high price to pay for such little, diminished impact.

  9. @ Liam Delaney

    The point is not that this is a crudely self-serving piece. Nor that academic economists selfishly seek to exclude their own income from the cuts they are proposing.

    The point is – lives are being devastated not just by the economic collapse but by the solutions being proposed and implemented by those who remain fairly comfortable. Accepting a cut in income is not remotely comparable to having your aspirations undermined, your job destroyed, your life crushed. And watching the same happen to your kids.

    This is more of the same – coldly proposed in full knowledge of its inequality and unfairness. This problem is to be solved by the acceptance of minimal discomfort at some levels and the imposition of devastation at others.

    The point is that no one should assume that this can continue for the next four or five years without severe “political turmoil and serious social unrest”.

    Such unrest would be deserved.

  10. Michael – is there a good source to tell us exactly where Irish unemployment benefits rank in the EU-27?

  11. Our financial collapse has resulted in a giant ethical deficit for our establishment. Nama will push this ethical deficit to dangerous proportions. Every day that goes by without any effective sanctions to the elite who caused our collapse is an interest charge on our ethical debt. But the writer proposes that we should just ignore this spiralling ethical debt.

    “The country has …. a well-established rule of law”.
    One usually finds that the laws governing misbehaviour by our elites often date to before independence. There is no one currently in jail in Ireland for corruption or elite financial crime. Plenty for not paying their TV licence though. I wonder how this happened. So difficult to prove…but the FBI nail people with wiretaps every day of the week. Must be an Irish thing.

    “In the debate on what needs to be done, I find it somewhat ironic that people have concerned themselves so much with the ‘blame game’ for the collapse of the economy, when so many – to a greater or lesser extent, in my opinion – contributed to the excesses of the boom years”.
    We will keep on playing the blame game until we get accountability, and justice. Why is that so unreasonable or implicitly even reckless?

    “The choice is a stark one and the case for a pay cut in this context is, in my opinion, undeniable”.
    Well, he doesn’t hesitate to take strong positions on some things.
    As it happens I greatly respect the writer – an excellent lecturer and author who has also made a significant contribution to public life. But I feel that his patriotism in advocating (additional) paycuts will play into the hands of the corrupt elite who caused this crisis. Ordinary people, even those in the public service, did not cause our problems. The evil quadrangle of bankers/developers/politicians and regulators did.
    Lets not waste another day before punishing them. Then we can all accept the necessary austerity caused by their criminality.

  12. “The country has a healthy, stable democracy and a well-established rule of law. People are not afraid of hard work.” Not if it involves ripping off someone!

    Where does this guy live? Our democracy is in tatters. Won’t even go into it, just look around, I rest my case.

    “A well established rule of law” Indeed? Where it is common place for offenders to have up to 40, 50, 60 convictions including murder before they are finally locked up! Where people are shot and kicked to death every week and where old people cannot sleep at night. A country teeming with drugs, alcohol abuse where you are wondering if your children will get home safe from an excursion into the city centre.

    “People are not afraid of hard work” 10, 000 sick days by staff in Tallaght hospital in one year alone. At least, 70,000 remained on the dole and refused point-blank to give up welfare ‘entitlements’ even as we so-called full employment.

    Sorry, I did not read past the above in case it became even more delusional.

  13. Richard Stone
    I think you are correct. I hope Ireland will reorganize itself to do better than elsewhere but!

    Brian Lucey
    Debt! It is all about debt! Steve Keen has said it all but there are many on the gold bug circuit who have shown how for every new $ in debt GNP rises only by $1 or so. No more multiplier, Brian. That means the party is over, no more borrowers. That was why we got sub-prime lending and George Bush ensuring federal rules prevented state rules from preventing predatory lending. Voluntarily anyway! Now we have NAMA. Involuntary and state guaranteed debt! This is the last bubble. We can lovingly gaze at it!

    Carbon trading is getting a job for the redundant.

    The Glee club for the green jersey will try, but Ireland will adjust to a new global environment.

  14. @ Kevin
    You are quite correct. But will you be so optimistic in a decade? These changes are fundamental. Get them right and I will be happy to agree with you then. But I fear that there will be no changes and those who really rule will ensure that they cut others’ entitlements too far. Then what happens?

    Peter Maguire
    That is likely. The PIRA got nowhere until the Baltic Exchange! Those forces which ran this lovely little country have not gone away with 1916. They are still there and they are now more clearly seen as bankers! They own far more than is made public and control much of the rest. If they do not act more considerately, they too can be made accountable. 170 years ago the island of Ireland held 8 million souls. England had 10 million. England now has 55 million. Facts, Brian Lucey! Even the English can be owned by someone else!

  15. I have now read the article. Very anodyne and all of the appearances of being objective. Even an advertizement for Ireland, something we must all bear in mind, even when ranting. We know well who might be reading these comments.

    But it is lacking in sympathy for an audience that is, as these comments show, anguished. People were misled by most economists and media into buying into the debt fuelled dream. The weakest point of the article, if it was meant to be objective, not an addition to the CV, was the neglect of the critical issue of debt. Competitiveness is used instead! Less food for the slaves!

    Unconvincing, but then it was in the SBP! When challenged, many economists ask for the facts. They rely upon the weakness of others.

    What is the current multiplier for Ireland for banks? Anyone?

  16. Richard Stone et al

    http://www.telegraph.co.uk/finance/financetopics/recession/6424885/UK-households-lost-13pc-of-wealth-in-one-year.html

    This sort of mayhem is only verified by economists but it is likely to be accurate + or – 10%?

    The recovery is only on stock exchanges that allow cartels to operate such as the Presidents plunge protection team. Also hurricane trading where software conducts 10,000 trades a second.

    Checkout http://www.nakedcapitalism.com/ for coverage of what US state courts are doing to foreclosures! Bank capital will not survive that sort of treatment and remember that many of the banks that should be foreclosing are European! Because they bought AAA rated dreck from US banks engaged in predatory lending!

  17. By one measure, we are back to 1993 rather than 2003. By my calculations, each person working in exporting industry is now supporting the imports of 11.3 people aged 15+, which is as it was in 1993. Numbers aged 15+ supported by each person working in exporting industry hit a minimum of 8.6 in 2000.

  18. John O’Hagan says: ‘

    ‘The challenge of reducing public sector pay and pensions can be met…unlike in the 1980s, the political establishment is, it seems, displaying such qualities [Decisiveness, determination and certainty] this time around.’

    If what’s in yesterday’s papers about the Government’s new strategy for correcting the deficit: reduce the number of tea-breaks in the public sector then this is not true.

    It is something we may, perhaps prefer to forget, but there is nothing in Brian Cowen’s or FF’s DNA that suggests they are serious about this.

    It seems as if Cowen has surrendered to the public sector unions without a shot being fired.

  19. @Ronnie,
    Forfás Employment Survey data on industrial development agency clients. Including both Full-Time Permanent and Part-Time/Temporary/Short-Term Contract totals. I think it’s the best available approximation for exporting industry employment. There’s a chart on my blog if you are interested.

  20. # Brian Lucey Says:
    October 25th, 2009 at 7:59 pm

    @Richard Stone
    “Globalisation is dead, economic growth is dead. There is no recovery”. Really? Any chance of a wee bit of facts on that?

    Dear Brian,
    Sorry for the late reply. Facts, I will try.
    Globalisation and economic growth are dependent on cheap energy, specifically cheap and plentiful oil. I believe we are now past peak oil so the only way for oil supply to go is down. In February of this year the IEA published a report stating that the depletion rate for existing oil fields was 9% unless significant investments were made. These investments have actually been cut due to the finacial crisis. To overcome a depletion rate of 9% would require adding the production of another Saudi Arabia to the worlds oil supply every two years.

    If you look at the mege-projects datebase (google) you will see that there is no chance of this happening and this with increasing investment. Projects are getting cancelled and delayed all the time. Again the IEA said supply would not satisfy demand by 2012. We have now had a slight demand drop, but also a production drop so we do not know when depletion will outstrip the demand drop.

    I do not know of any country that has increased economic growth with a contracting energy supply. You may know about this better than me. Incidently this is why NAMA is going to fail.

    But this is a few years away yet, First we will have further demand destruction as the economy declines as the deflationary spiral really kicks in. Oil prices will probablly drop again, just after the next stock market crash, probably before the end of the year. But purchasing power will decline faster so oil will not be any more affordable.

    As Pat Donnelly say it is all about debt. Nothing has been done about the debt. I am not specifically talking about Ireland here.

    We live on a finite planet, designing an economic system that depended on more and more of everything was always a stupid idea and now we have to pay for that stupidity. The future will all be about food. Get gardening.

    Richard

  21. Very good article. I sense that the ground is beginning to shift and that some of the media at least want a change from the unremitting and unjustified gloom churned out over the past eighteen months by the likes of David McWilliams and Morgan Kelly. However, the reference to “the standard of living may fall back to 2003 levels” should be put in perspective. Its probably true, but most EU15 countries are seeing their standard of living fall back to 2003 levels and, for the large majority of them, this was a lower standard of living than Ireland had in 2003. I just calculated the changes in GDP in EU15 countries between 2003 and 2009 Q2 and the results are as follows:

    Greece +20.0%
    Luxembourg +18.0%
    IRELAND +12.1%
    Spain +12.0%
    Austria +10.6%
    Sweden +9.2%
    Belgium +8.7%
    Netherlands +8.6%
    Finland +8.1%
    France +6.9%
    U. Kingdom +6.3%
    EU15 +5.9%
    Germany +3.2%
    Denmark +2.6%
    Portugal +2.5%
    Italy -0.7%

    So, in terms of the size of the economy, Ireland is still way ahead on 2003. Even in 2009 Q2, probably the trough of the recession, GDP was 12.1% higher than in 2003, a much larger increase than for most EU15 countries. To get ‘standard of living’, we need to take population growth into account and, on that basis, Ireland is back to 2003 levels. But, the same will be true for most EU15 countries, the difference being that they will have arrived at this level through a combination of lower economic growth but lower population growth than Ireland.

  22. @richard stone

    “I do not know of any country that has increased economic growth with a contracting energy supply. ”

    It is a myth that there is a “contracting energy supply”. Peak Oil does not equate to Peak Energy. In fact, it does not even equate to Peak Hydrocarbon.

    Natural gas reserve estimates have radically increased in recent years due to technological change (shale gas). Methane hydrates are another huge unexploited hydrocarbon reserve.

    As for non-fossil fuel energy. Total human energy consumption equates to a mere 0.01% of the incident solar energy at the surface of the earth. Uranium is more abundant than tin. And all the time there is steady progress on fusion research.

    There are very few things that we can be sure of. But we can be certain that the world is not “running out of energy” on any timescale that is meaningful.

  23. Richard and Pat. Well done. Keep at it. You have chipped off the outer shell of brilliant, crystalline carbon that protects what passes as informed debate! Its a blob of homogenized pap. Re-sharpen your chisels and keep at it.

    It is indeed about debt, all trillions of it, and the total inability to repay it. It is indeed about the steady decline in energy resources, both quantitatively and qualitatively.

    Economics assumes that ‘money’ makes our global consumerized world go round. Its actually fossil fuel – but sure the market (whatever that is!) will provide all the necessary substitutes when the supply of cheap, easily accessible FF dries up!

    Reading the O’Hagan article I wondered just how disconnected from reality could someone become. Quite a bit it seems.

    B Peter

  24. @Con,

    An estimate of around mid-1990s sounds right, though (for the record) far more people work in exporting industries than you suggest:

    > Indigenous EI, Shan Dev, Bord Bia, UG – Much of the output of ingeneous firms is for the domestic market, though around one third of the total (or around 50,000 jobs) are likely to be exporting;
    > Sub-suppliers of IDA and EI, perhaps 1 additional job per direct job. Their work is exported, albeit embedded in someone elses product;
    > Tourism;

    All in all, I guesttimate that around 500,000 workers, or 25% of the workforce are export facing, and I don’t include subsidy dependent farmers in that.

  25. @Phillip
    The biggest problem is getting people to buy in to fiscal consolidation when it is being managed by a corrupt elite who caused the fiscal crisis. This is especially difficult when the country in question is a democracy of long standing and relatively wealthy too. We expect better, we expect it now and frankly why shouldn’t we expect it? Many of the same people who told academic critics of Nama to shut up and teach are also those most enthusiastically telling the public to shut up and pay for the damage caused by the elites. In the mean time, those who are misguidedly going along with the robber barons ought to reflect on two further things:
    1. In the long-run, the most successful countries are those with the least corrupt elites. Bailing these elites out and easing them through this crisis will keep them alive.
    2. Ordinary people will copy the misbehaviour of the elite, dodging taxes, demanding government bailouts and rigging markets a la Nama. This will affect our economy’s long-run efficiency.

    Perhaps those who back fiscal consolidation by a corrupt elite which is bailing themselves out through Nama will start considering the above.

  26. # bg Says:

    – Methane hydrates are another huge unexploited hydrocarbon reserve.

    Do you really want to end the world as we know it. Have you ever heard of climate change. Methane hydrates would destroy any chance of life on this planet. You obviously do not have children.

    I feel with your views on our energy situation you are in for a few surprises. All these future technologies rely on large quantities of fossil fuels, mainly oil. Anyway it is about the the flows of energy not the reserves. How are all these future technologies going to be paid for, more debt anyone.

  27. @bg : I think you need to wake up and smell the coffee on energy resources. Richard said you are in for a few suprises – severe shocks more like!

    Please imagine the following: ALL liquid fuel suppliers shut down completely for two weeks. No one gets a even a ml! Better still, imagine that on Christmas Eve, the ESB runs out of electrons! Feeling better?

    Our (western permagrowth) economies are more addicted to oil than cigarette smokers to nicotine. No liquid fossil fuels, we starve and shiver.

    Agree or disagree, peak production of liquid fossil fuels is very close – maybe we have even passed it. It is not easy to explain the devastation that will occur when it is realized that the total global quantity of liquid fuels is less than the quantity demanded – and there are no substitutes – and I mean none!

    If you doubt this, ask an organic chemist to explain the difference in energy content between a carbohydrate and a hydrocarbon and why iso-octane is such an effective fuel. After that, ask about entropy, and its significance.

    B Peter

  28. @Ronnie, I guess there’s a question about where one draws the line around exporting industries, and that there isn’t a single right answer as to how to do this. I’m not sure that our understanding is all that different. If I drew the boundary differently, I could probably come up with a total in the region of 500k too.

    Interested to hear that your take on my main point pretty much agrees with mine.

  29. @Con,

    I take your statistic, though not necessarily your point!

    I think you are inferring that because our export employment share is in the mid-1990s, it is a sign that we are (in some sense) back there in terms of our export ability. This would be a mistake:

    1. Productivity: It matters more what you do, rather than how much you do it. The 1993 export employment profile is simply incomporable to now (I won’t bore you with the stats on this, but happy to share). The change in productivity has been particularly strong since 2000 as we lost many low-val added electronics, and replaced with pharma + services. This runs contrary to the perceived wisdom that prod growth has been lower since 2000, which isn’t true;
    2. Globally, the numbers working in low productivity sector (often personnel intensive public services) will tend to increase over time. As such, we should expect to see the share of export workers decline as societies get richer. Against this is the fact that globalisation is opening up to trade services which previously would be non-tradable which (all things being equal) should increase the share of export workers. I suspect the first point dominates this.

    I would expect that developed countries as a whole have les export workers than 1993, though if anyone knows of such research being done, I would be glad to read it.

  30. @Con, Ronnie

    The following OECD paper doesn’t deal directly with ‘exports’ employment as such, but with manufacturing employment. However, there is a good deal of overlap. Ireland comes out of this study very favourably. But, if ‘services exports’ employment was included, it would be even more favourable, as Ireland has had the fastest-growing services export sector in the OECD in recent years.

    http://www.oecd.org/dataoecd/44/17/37607831.pdf

    Both Con and Ronnie are correct. Con is correct in saying that ‘exports’ employment has fallen as a share of total employment in Ireland since the mid 1990s. However, Ronnie is correct in saying that this is a global phenomenon and in highlighting productivity.

    As the paper shows (figures 2 and 3), manufacturing employment as a share of total employment had fallen by almost half between 1970 and 2003 in most major OECD countries. Ireland was one of only four OECD countries to record an increase in manufacturing employment between 1990 and 2003 (figure 4). The rise in Ireland of around 32% was the largest of the four. Undoubtedly, if the figures in the paper were updated to 2009, the 32% increase since 1990 would be a lot lot less, as manufacturing employment in Ireland has fallen since 2003. However, the other countries will also have seen continuing and even accelerated falls since then also also. So, in relative terms, the situation for Ireland would be similar in 2009 to 2003.

    Ronnie is undoubtedly correct in highlighting productivity. As far as wealth-creating sectors like agriculture, manufacturing and services exports are concerned, what matters is their volume of output, not how many are employed in them. A century ago, there were 700,000 employed in agriculture in Ireland. Today, its 100,000. But, agricultural output in Ireland is many times what it was a century ago. Would Ireland be better off if those 700,000 jobs in agriculture had been preserved? Of course not. If the entire manufacturing output of Ireland could be produced by one robot, that would be a good thing, provided the laid-off manufacturing employees were employed doing other higher-productivity jobs. High productivity is the key to a wealthy economy, not vast numbers of people employed in low-productivity jobs.

    It is noticeable in the charts in the above paper that Italy has had a far smaller fall in manufacturing employment than most OECD countries, despite the fact that its manufacturing output has increased far less than in most OECD countries. But, its economy is a disaster area – average annual growth in GDP of 1% since 1990. I think there is a link.

  31. @Ronnie, I think employment in traded sectors may matter more as an indicator in Ireland than elsewhere. While productivity in some important traded sectors is shooting up, the value created is not all being retained in Ireland. The Irish economy expenditures (pay, services, materials) of foreign-owned clients of the industrial development agencies have been flat to falling in nominal terms since 2001.

    Between 2000 and 2008, there were four major changes in the sectoral composition of Irish employment. (The exact numbers here are sensitive to start and end dates, but the broad picture remains the same with somewhat different dates.)
    1) As you have rightly pointed towards, the share of employment in healthcare/social services rose (by a bit more than 2%). (As of Q2 2009 we have caught up with Germany.)
    2) The share of employment in Agriculture fell (by a bit more than 2%).
    3) The share of employment in manufacturing and internationally traded services fell by about 5%.
    4) The share of employment in construction rose by about 4% or so.

    While no doubt there are other ways to interpret this, the storyline I put on it is that low productivity health and social services employment substituted for low productivity agricultural employment, and that construction employment driven by an inflow of funds from foreign borrowing substituted for manufacturing and internationally traded services employment driven by exports.

    My interpretation is that because construction was fulfilling the main functions of an exporting industry (inflow of funds as well as direct employment, subsupply etc.) we will have difficulty in filling the hole the collapse in the industry has left through any means other than growing exporting employment. Which, given that employment in manufacturing and internationally traded services has stalled since 2001, brings us to competitiveness being a key issue.

  32. The Author of the piece seems to make a lot of very optimistic assumptions without using very many optimistic facts. Sure the Level of third level education is important, as is the fact that we have 80% more people in employment than 1995 but the amount of rosey scenarios extrapolited from this a little OTT to say the least.
    To use one of the current popular phrases “A lot more light than heat”

  33. @Liam Delaney
    “The government are probably close now to winning the battle of getting NAMA implemented but there is a larger battle to convince people that the overall response is being handled fairly.”

    There is no battle required.
    Everyone knows its not fair, so those with some semblince of stature (the middle classes) are aligning in interest groups to ensure they are treated well, but anyone earninng less than 40k and is not in a union are under no illusions, they cant do anything about it.

    It is very true in the US but is becoming more true in Europe that the general population are becoming apathetic to the increasing democratic deficit.

    Of the 4 billion in cuts outlined by the government, the group being hit by far the worst are those on social welfare. 1.3 billion directly and a large part of the 1.3 billion service cuts.

    When one considers the vast majority of media coverage concerns the effects of the 1.4 billion of cuts to come from the Public sector(a lot of which will come from people on more than 100,000) one should not be under any illusions. Those being affected by the majority of the other 2.6 billion are not as important.
    How does targeting those on social welfare for about half the total cuts that are required this year constitute protecting the vulnerable?

  34. The high costs of incarceration have now been solved in Kerry. Deportation to Cork until the next court hearing date. We need innovative solutions like this to keep the country solvent. Reminds of a time when a common tactic used by solicitors in Kerry was “My client has a ticket in his pocket for the train to Euston tomorrow morning at 9:00 a.m.”. Very good, the sentence usually being bound over to keep the peace for 1-2 years. I know the objections, but it is no more immoral than NAMA.

  35. @Con,

    “I think employment in traded sectors may matter more as an indicator in Ireland than elsewhere.”

    The point is that the secular fall in tradable employment in the long-run isn’t a bad thing, and reflects a societies choice as to how many people it wants to allocate to (say) nursing, and how many people it wants to allocate to (say) producing computers. If, through productivity growth, computer making becomes more efficient, then we can move more people into nursing, and still have moer computers than we orisginally had.

    Your concluding point essentially sys that we have a very large internal imbalance that will be difficult to solve. I agree. Where I disagree is the assumption be pretty much everyone (without statitics to support it) that we also have a very large external imbalance.

  36. @Ronnie, just building on what you wrote, I think there may be an issue with how the competitiveness problem is being stated by those of us who think it is a problem.

    I don’t think the issue is that there is a large provable external imbalance. Our exporting industries have generally been holding their own since 2001, and (particular problems caused by sterling aside) are not doing too badly in weathering the recession. There are some ominous indications for the future, but not enough to be able to say unequivocally that we are on a downward slope.

    The issue is more that the country’s earnings from exports, net of imported inputs, imported services (including royalty payments) and repatriated profits are not remotely sufficient to support the standard of living to which external borrowing for property development has made us accustomed, given our high reliance on imports, at least at current population levels.

    Divvying things up differently, for example by putting more into nursing, will not solve this problem, although it could make it less painful by alleviating unemployment and giving us better health and social services. A very high level of net outward migration could solve the problem, but I think this is unattractive, and perhaps impossible by itself, as a solution.

    Or we could grow employment in exporting industry. Which would require us to develop a competitive imbalance in Ireland’s favour.

    In an ideal world, racing ahead on productivity might provide another alternative, but the reality for Ireland is that we don’t capture enough of the benefit of increases in exporting industry productivity within the economy for this to be the mainstay of our strategy.

    In practical terms, I think our way forward actually has to include aspects of all the above. We have already undergone a major shift towards employing more people in nursing and other health and social service roles, and have recently caught up with Germany in terms of the share of our national workforce employed in this area. Perhaps there is room to go further. While we have discussions here about its scale, it is clear that we have gone from substantial net inward migration to at least significant net outward migration. We are investing, through R&D, company development assistance and other approaches, in boosting the productivity of exporting industry.

    But I can’t see us resolving our internal imbalances, as you describe them, without also creating an external imbalance that will allow us to grow exporting industry employment at a fairly smart clip.

  37. @Con,

    Glad to hear your comment on the external balance, which is a point that it not easy to get across, and quotes such as in the article above are still common. Your conclusion para I think is exactly in line with the conclusion of John Fitz Gerald at the Crisis Conference II.

    The summary of the extent of external borrowing is the CA deficit, which at 6% of GDP at peak was big, though not tremendously big. It is around the average of other anglo-saxon countries, and far below club Med, though as you say, it is still not desirable or sustainable in the long run.

    The way it is being adressed is a reduction in the standard of living, and we are probably most of the way there now, and in Q4 we will almost certinaly run a surplus (helped by seasonal factors though). Next year as a whole we will be in balance. We will have endured the fall in standard of living that other countries are postponing, but will have a bit to do in distributional terms to make sure that this does not fall too heavily on particular sections of the economy.

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