I miss the old Krugman.

Ah! okay. Again, my admiration for your frugality. If more of us were like you we would perhaps not have got ourselves into this mess.

“Induced long-term illness is no cure for illness; nor is it a method of making the patient healthy over the long-run.”

Thanks for that informative comment and interesting biopic. I too took macro courses, though doubtless not as many as you - and I’m sure I got lower marks and retained less. I’ll try to make my analogies less trite in future.

Back to the issue: ‘Trying out’ creative micropolicies may be intellectually appealing, but it is not costless. Policymakers (or “the Mandarins”) have finite resources to devote and policymaking is bureaucratic and time-consuming, even without the added burden of innovation. E20Bn’s suggestion of focusing on core adjustment is at least appealing in that regard.

Cutting your wages may indeed help youth unemployment, though I certainly don’t think it desirable an sich. The contribution sustainable fiscal management makes to long-term economic growth is the very forest we should not forget in looking at the trees of all these micro labour initiatives…

…ah but, I’m drifting into trite analogy again…

Don’t you think the destabilising effect of a 2.5-5% increase in corpo tax would be enough to scare off plenty of flighty companies, or at least give them cause to consider their options?

No question the low CT rate is a big draw for companies at home and abroad, but it’s also the fact we’ve kept it constant for so long - companies can plan around it, safe in the knowledge the government won’t keep tinkering with it every time it needs to raise a little extra capital.

I was just floating a general concept whereby incentives could be put in place to make it easier and cheaper for meaningful activities for unemployed people to be put in place with a social dividend and without skewing the economy. It is not micromanaging the economy because the people would not be involved in economic activity in competition with others. It is a way to leverage the skills of people who are out of work and the resources in the private sector (buildings and ICT infrastructure) that are not being used.

What you suggest sounds good but a bit too good.

Sounds like the government micromanaging the economy to me. I don’t think they’re good at management.

Who’s going to pay and how much will it cost?

I marvel at your ability to support a family of 5 on 35k a year, anywhere in Ireland. I wonder are you calculating the imputed rental value of your home as income? Not to pick on you, but this is a major equity issue that is often overlooked in the debate on how to make taxes ‘fair’ through proportionality.

To see why, let’s consider two neighbours in Drumcondra, both with families of five: Tim and Jim.

Tim earns 35k and owns a large family home - 4br in Drumcondra, say - which he inherited. The rental value of this property, should Tim choose to rent - would be EUR 2,200 / month. But of course, with his family of five, Tim stays put.

Jim, on the other hand, was not so wise in his choice of parents. They went SKIing and sold their 4br in Drumcondra for a couple of world cruises in the QEII, before taking the great Cruise Ship in the Sky. So Jim, with his family of five, is forced to rent a similar house to Tim’s, for EUR 2,200 a month.

Fortunately for Jim, he works harder than Tim, and therefore earns EUR 26,400 a year more (total salary: 61,400).

Some points to note:

Tim’s nominal income is 35k, but his actual income is the same as Jim’s. Even leaving aside the injustice of inheritance, any tax system which does not fully relieve Jim’s rent against income, is inequitable.

It is also inefficient because it makes property markets stickier by using the income tax system to discriminate against property rental in favour of ownership.

Another option of course would be to charge income tax on imputed rental income for owner occupiers. That might prove practically difficult and politically impossible, though.

Loads of different things depending on their existing qualifications, skills and abilities. I think there are many profects which would be undertaken that would have a social dividend, would help people’s view of their self-worth and would not skew competition.

As for the skills for the construction workers, I think they could be trained in any number of things, could carry out a number of good projects (insulating schools, repairing public buildings).

The selection of projects would have to be micro managed locally and would depend on the skills of the more qualified unemployed people who would be running many of the courses.

General management, cost management, basic accounts for self employed people, internet research skills, desk-job computer skills and so forth could all be taught to those anxious to learn.

Some might be well suited to mechanical work, machinery repair, farm labouring.

Some might be able to learn more about construction techniques and retro-fitting buildings to make them more energy efficient.

Not wishing to be negative but what would they be trained to do?

There are enough lawyers, doctors, accountants, nurses, teachers etc to keep this country going for a decade.

Training people to use a spreadsheet or photoshop won’t do much for our comptitive position though it might massage the unemployment numbers.

I know the corporate tax rate is a sacred cow but I would also increase this and say to business that every cent raised in this would go to reducing employers PRSI further. If we increase it to say 15 or 17.5 %.

My budget would be as follows;
20% off public sector pay and pensions (scaled to effect those on higher salaries more, anyone under 30k protected altogether) - 4 billion raised.

10% off social welfare across the board. If you link every payment to income you will only get more poverty traps (according to the Sunday Times I would be 4k better off on social welfare). - 2 billion raised

48% tax rate on income over 80K and removal of cap on emplyee PRSI 1-2 billion raised???

Savings on capital budget - 750 million

Increase in corporation tax to 15% - ???? raised

As someone living on 35K with a family of 5 to support (and doing so with little trouble) this seems like a load of low hanging fruit. Nobody is going hungry from these measures and they will provide 4 billion extra to implement a job stimulus to help those who are the real victims of the recession.

I think that the universities have a role to play on the qualiy assurance side of such projects. I think the Govt could bring in tax breaks for companies willing to donate the use of buildings and ICT equipment.

Another benefit of such a scheme would be that it could help many of the people who foreswore further education in favour of employment in the construction industry. That group poses a major problem for this country.

Of course, while cool air appears to stream out of the front of the fridge, the “coolness” is the result of even greater heat release on the other side of the fridge. A microeconomist, standing in front of the open fridge door, might well congratulate himself on the effectiveness of his cooling measures, all the while blissfully ignoring the macroeconomist behind him who is holding the thermostat and pointing out that the room keeps getting warmer….

So it is with the German labour market. Unemployment in Germany is high. Period. And if Krugman thinks that is a good thing, I would invite him to have a drink with some long-term structurally unemployed steel workers in Solingen.

Or just watch some reality TV on RTL.

This is a sound refutation of PK. PK is a mere mouthpiece for those who are dedicated to the short term cycle.

I hope Alan is not put out by my denunciation of PK!

Al

There must be a problem with choosing which jobs/sectors to subsidise.

If sectors which are open to global competition are subsidised is that not ignoring global labour supply (quality and numbers) and demand (as required by free movement of capital across nations).

If the multinational sector is subsidised are we not giving them a rod with which to beat us at a later date. “Continue the subsidy or we’ll pull the plug”.

In a global market place it seems nonsensical to me that governments should subsidise labour. In the long run labour will remain expensive relative to the market. The government and particularly the Green Party keep emphasising the “Smart Economy”. Does that also require subsidy? If it does then it can’t be that smart.

Subsidising labour might lessen the burden of welfare payments in the short term but could also act as an impediment to adjustments in the labour market, whether by emigration or reduction in the cost of labour.

This is not America. Not only do we not have the world’s reserve currency we no longer have monetary sovereignty. This is not Germany. We do not have a similar indigenous industrial base, were retaining a skilled workforce awaiting an upturn in demand makes some sense (and no, I don’t have evidence for that statement).

With our acceptance of globally traded goods and services and an inability to devalue we have no choice but to reduce the median wage and welfare payments or substantially increase productivity. The State sector cannot be excluded from this or it will be a millstone around the neck of the private productive sector.

Much of the increase in both wages and welfare over the last decade was based on nothing other than funny money (excess global credit). The party’s over. Taking a subsidy “hair of the dog” won’t get it going again.

http://cafehayek.com/2009/11/achtung.html

Comparing Ireland to either the U.S or Germany is pointless.

We have niether the borrowing power of one nor the financial rescources of the other, therefore any type of stimulous that requires real money is probably a non runner at the moment. We are where we are as they say.

But smaller measures can be looked at immediately while a much broader debate takes place.

A look at the minimum wage, council charges and high rental rates along with a reduction in energy costs would be a start.

How many businesses have had to lay off staff because it would be illegal to reduce their rates of pay?

How many are going out of business because the fixed overheads are unmanageable in the present climate?

How many start ups are delaying because of the cost of the above?

fair point on the micro guys coming up with the ideas.

I think we are looking at redirecting what is already being paid in dole but aligned to some longer term strategy. At one part of the labour market, for example, I could increase the numbers working with me on our research grants with waivers of prsi/pension contributions so instead of hiring one I hire two. With some contribution from current dole payment too, I am hiring more. I think we should commit to ensuring some formal training element in all of this and so on. So current money (dole, grant income which often is non exchequer anyway in social science) gets us more people and we all win.

A small example - but I accept we don’t have more money to spend. The challenge is to look hard at what we can do with what’s currently spent. I think that also will promote debate on labour market restrictions (we are terrified in uni sector of fixed term worker legislations so are taking an age to hire against grant income), about migration (are we thinking of restricting that now in some way?) etc.

Apologies for the narrow focus on what could be done in this one sector but it served as an immediate example.

The micro/labour market perspective at one level only adds to the gloom, pointing out the enormous long run consequences of unemployment for some people, and thus for society at large. But at another level you guys surely have a major role to play in suggesting ways to minimise the long run consequences of this slump — providing that the schemes you propose are budgetarily feasible.