It analyses the macro-economic interaction between trade unions, fiscal policy makers and the central bank in the context of the EMU.

It’s conclusions are similiar to the non-economic literature on social pacts and EMU which I am more familiar with.

http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V8F-4WCTWK9-1&_user=103682&_rdoc=1&_fmt=&_orig=search&_sort=d&_docanchor=&view=c&_searchStrId=1127431050&_rerunOrigin=scholar.google&_acct=C000007921&_version=1&_urlVersion=0&_userid=103682&md5=15101b53a1b2cd7473704ebee33d8355

Or PDF

http://150.146.3.132/986/01/WPaper__No_51.pdf

“But there is a role for INCREASED (sorry for the shout, I can’t do bold/underline etc. here) government spending in reflating the economy.”

You could use *bold* or /italic/ or even _underline_ or -*/all three/*_.

bjg

There’s no need for benchmarking on professional fees. Lift the veil of secrecy on them and it would likely do wonders for competition.

The public sector provides the professions with significant fee income.

The large public professional firms have a dream situation.

There is virtually no transparency on contracts because of the Victorian culture of secrecy on the government side, while the 19th century concept of limited liability has resulted in no obligation on these firms to publish their accounts - - even though the consultancy industry has become the outsourcing arm of the public sector.

The system is certainly not in the public interest and it benefits the insiders who have developed connections with ps managers and promotes informal cartels.

A public contract should not be a secret contract.

I think non-economists views are entirely valid, can be very useful, and generally add something to the debate.

Clearly, you’re ‘bending the stick’ a little as I don’t know of anyone who argues the State should directly employ all those laid off. But there is a role for INCREASED (sorry for the shout, I can’t do bold/underline etc. here) government spending in reflating the economy.

For these reasons:

*It is being adopted in virtually every other European economy (even Belgium, where they import over 80% of GDP, like Ireland), and beyond.

* Large multipliers are at work in the Irish contraction; a 13% decline in activity has led to a 32% decline in taxation revenues (Pre-Budget Outlook). They, or something like them can be made to work in an expansion

* Application of the ESRI multipliers by Michael Taft suggests little or no actual savings from the current austerity policy

* This analysis conforms to the real world- contractionary fiscal policies have already been implemented and look what happened, the govt. has repeatedly revised down its growth forcasts and revised up its deficit forecasts. There have been cuts, but no deficit-reduction.

* The EU Commission forecasts Ireland’s deficit will be stuck at 14.7% of GDP in 2010 and 2011, even (or especially) factoring in repeated contractionary fiscal measures here. By contrast, there is a declining path of deficits forecast even (or especially) for countries which have taken and continue to take reflationary measures. The forecasts could of course turn out to be wrong, but expected trend is significant.

One a wider point, I appreciate that people have lots of commitments, it’s not a priority to repond to every point of difference aired here, etc. But I am surprised that, for a second time on a thread here, I have asked one of the many (and sometimes very vocal) advocates of contractionary fiscal policy to enumerate the estimated impact of the government’s much-touted cuts of €1.3bn in public sector pay on the wider economy and, from that, on the deficit itself.

If any DoF official (anoymously, of course) would care to do so, that would be very helpful, as surely those numbers must be at their fingertips?

Alternatively, could any of the government advisers on these matters who contribute here please provide us with those same numbers? Surely no-one would advocate or pursue a policy without reckoning the consequences of it?

Unfortunately even in a downturn there’s plenty of work for quite a few professionals - accountants have restructuring and liquidations, lawyers have all the law suits, the property people now have Nama.

But fees should still be coming down but it won’t be 50%.

But using Philip’s logic if we cut professional fees (wages) from the government dramatically this will spark a reduction in professional fees across the economy. This will boost competitiveness and lower unemployment. Perhaps we need a downward benchmarking for professional fees to bring them into line with the rest of the Eurozone.

Prof Morgan Kelly says NAMA will lose:
€35 Bn lost on property loans acquired.
€25 Bn lost on interest on €59 Bn borrowed.
plus
€5 Bn wasted on finishing developments no one needs.

Total loss: E65Bn plus economic costs & NO extra lending!

NAMA and the blanket bank guarantee are solely due to FF/Developers rescuing themselves. In this case there is no other rational explanation: half the developers loans written off, then bought for €35 Bn too much from the banks and given to pet state agency who won’t pursue them for three years and are going out of their way to get the developers to work with them. It’s win, win, win for bankers, bank investors & FF/developers and it’s lose, lose and lose again for taxpayers.

This is what Mr Frank McDonald was told in April:
http://www.irishtimes.com/newspaper/ireland/2009/0411/1224244443488.html

“Bad debt agency may be scaffold for property developers”

Or, it may be a life boat. Clue: when you propose sending people to a scaffold they normally compain a lot more than developers did over NAMA.
The only complaint was from Owen O’Callaghan - who didn’t need it.

“DEVELOPERS WITH large loans from the banks are set to lose out big-time as a result of the Government’s decision to establish the National Asset Management Agency (Nama) to deal with the mountain of bad debt racked up in Ireland’s deflated property bubble.”

In retrospect a faint hope I’m afraid.

“Much would depend on the calibre of Nama’s top officials and frontline staff. “Hiring has already started for Nama’s managers, and you wouldn’t want some of those applying sitting beside you in a dark cinema. This type of person is remunerated by recoveries, so boot in.”

I read over the weekend that one of the developers who is cooperating is getting along fine.

“Most of them will be wiped out,” according to one developer, who agreed to speak on a confidential basis. “I think you’ll be finding a rush of Ryanair tickets for the developers to places they’ll be hard to find in. Otherwise, the wife and chisellers will be out on the street.”

The NAMA legislation means that the Ailesbury road piles are safe. The bank guarantee gave mega developers plenty of time to prepare for NAMA.

The article concludes:

“One way or the other, the game is up for developers and bankers who lost the run of themselves during the boom.

All we now need is a full and frank acknowledgement from the Government that it artificially inflated the bubble and thus made the bust more painful for everyone.”

So far, bankers are doing very well and bank investors doing even better.
Even in utterly insolvent institutions shareholders will get something. Still no word on the compensation for Anglo shareholders either - they’ll get something.

As for the developers, I expect them to do even better.
Finally, Mr. Frank Acknowledgement is still as much a stranger to the government as he ever was.

we’re not talking about the government reducing the fees that professionals charge the rest of the economy, we’re only talking about the fees they charge for government work. As such, bringing the fees down will not increase employment unless you think that the government would be doing significantly more of this work were it not for the fees, a situation which is patently not the case given how much professional fees make up of, for example, the cost of building a new school or hospital. I’m no expert, but i believe professional fees would typcially make up, in total, 15% of the total cost of a project excluding land value, so probably less than 10% of the total cost of the project including land value. As such, it seems unlikely that a 1-2% difference in total cost is going to suddenly going to see a ton of projects greenlighted. By all means reduce fees if we dont feel we’re getting value for money or could do if cheaper by bringing in competition from abroad (which we can already do), but please don’t make some bizarre assertion that if we massively reduce professional fees for government work further we are suddenly going to create lots of employment.

I’m no economist but the reverse logic is therefore the government should take on all people who are unemployed and this will pay for itself by the extra tax take and reduced social welfare and improve services at the same time.

Thank you for a response, but I was hoping that there would be something a bit more substantial than reference to the consensus. The Pre-Budget Outlook makes the startling estimate that a €4bn cut is a €4bn saving, which the DoF describes as a ’static’ presentation. Well, that’s one word for it. Surely, if cuts are being made it would be useful to know what the expected outcome is? And something a bit more sophisticated than the DoF approach.

@ Philip Lane or anyone

In a previous thread on this site I posed the same question as above. Ronan Lyons was kind enough to say that it was a good question. Perhaps not so good that it deserves to morph into two questions, but anyway, with the sure and certain hope of repeating myself, here goes:

“What is the best estimate of the impact on GDP of a €1.3bn cut in public sector pay? Given the unavoidable negative effects on taxation receipts and (in all likelihood), net social welfare payments too, what is the likely outturn then for the Exchequer deficit?”

The reason I ask is that Michael Taft, using the ESRI multipliers, has shown elsewhere that the cuts will amount to only fractional savings, if at all. I just wanted to know if any leading advocate of cuts has a refutation of that.

“We’re talking about the fees set by the government for work done for the government.”

Not always “set by the government” but also often via a competitive tender process (for the likes of architects and engineers) open to both Irish and foreign candidates. Either way, the issue behind unemployment in this sector is not because of cost, but because of a complete lack of new projects, and now by a cut in fees (though this may be justified). The basic point is that this private sector work is being treated in exactly the same way by the government as they are now proposing for the public sector workers, ie unilateral cuts. However, for some reason we should consider this to be completely different to how the public sector unions are being treated. Interesting logic.

“lower their fees by whatever it takes to eliminate unemployment among this sector”

That doesn’t make even a lick of sense. We’re talking about the fees set by the government for work done for the government. Its typically a set % fee based off an overall project value. Its all internal to the domestic economy. Its not a competitiveness issue. Unemployment is likely to increase as fees are reduced, unless you are asserting that the fees in and of themselves are what is stopping the government from commissioning more work?? Lower fees will likely increase unemployment in the sector, not create employment.

Also, Sweden is not a part of the Eurozone. Crazy name, crazy political geography, crazy economic logic. Whats next?

I agree. Can we return to the original debate. I know ernie has excited most of us but his is an opinion that is unchangeable.

Don,t get caught up in a debate that is unwinable in the mind of ernie.

Stick to Philips original topic of debate.

FF/Developers property bust has hit professionals hard. The government should make it a priority to lower their fees by whatever it takes to eliminate unemployment among this sector. Given how high they were a cut of 50% would seem advisable. Competitiveness would improve hugely and the taxpayer would save millions too.

another point on your “the public sector is the sacrificial lamb of the global economic downturn” theory.

Fees paid to professionals undertaking work for the government (lawyers, architects, engineers etc) have already suffered a unilateral 8% cut in the fees they receive. This was done pretty much without any consultation or negotiation. They are now set to take a further 5% cut in fees in the budget this week from what i hear. This includes work on projects that are already underway. As such, they have basically suffered a 13% pay cut in the work they do for the government. Is this a sacrifice, or just simply “unfortunate”? Why have we yet to see any strikes or industrial action from this set of employees?

The reason jobs get cut instead of wages? Fixed costs associated with employment are high, inefficiencies with part-time work are also high. So cut numbers, spread the work around to other workers. Pay them a bit more for the extra or pay them the same instead of a cut, but not nearly what has been cut in terms of hours of other people. So it looks grand if you just look at wages. Productive output of the economy per worker is up. Efficiency abounds.

Oh and not everyone has to take a pay cut. We need some people to earn more - those who export their goods and services. Not by pricing themselves out of the market, but by volume and quality of sales. If they happen to be rich, so be it. It doesn’t do us any good to discourage what might drag us out of the morass - genuine productive entrepreneurship.

But the evidence shows that for the rest of the private sector workforce the overwhelming number are unscathed. This is exactly as predicted by economic theory. If private sector wages were very flexible we would already have seen massive wages falls across the board followed by the elimination of unemployment. Mass unemployment is the evidence that refutes this. “Not everyone has been hit by the recession in the same way. In fact, most people – almost 70 per cent – say they haven’t had their pay cut or had their working hours reduced.”

Take out public sector workers and that means the overwhelming number in the private sector.

http://www.irishtimes.com/newspaper/ireland/2009/1121/1224259236344.html

We need to cut the wages of the rich in the public and private sectors significantly and everyone else’s by a sliding scale. See Kevin O’Rourke’s article in January 09 on this site. The social partners need to sit down together and cut wages across the board. We can do it, together.
It’s the only way.

Far from the PS “sacrificing” for the good of the nation, here is what Jack O’Connor had to say tonight: “There will be a campaign of resistance against pay cuts.” And Peter McLoone “warned of a long and sustained campaign of action”.

You know what the exact opposite of “to sacrifice is”, like the dictionary antonym? To refuse, which is exactly what the unions are doing right now in the face of the government’s decision.

7.5% pensions levy, 6% in rumoured pay cuts plus the income levy and increased PRSI add up to about a 20% hit in the take home pay of the average public sector worker.

Your arthimetic is poor.

The first two reductions you mention apply to gross pay, not take home. So once the tax saving is taken into account, they amount to a much smaller cut in take home pay.

Taking the annual salary increment in account also leads to overall decrease in take home pay of the order of 10%, or about half of what you claimed.

“what are you prepared to sacrifice right now for the good of the economy?”

“the PS, by and large is the only part of society sacrificing (unwillingly) toward that goal”

Just for clarity, the PS have not endured any “sacrifices”. It’s not arguing over the semantics of it to point out that a sacrifice has to be a willing or voluntary gesture. An “(unwiling) sacrifice” is a contradiction in terms. The pension levy and the looming 6% pay cut were not made willingly or voluntarily. They were enforced upon the PS, and were met with industrial action by the unions. To use your own logic, they are an “unfortunate” result of the de/recession we are currently enduring. The voluntary redundancies being accepted in the public and private sectors are far more fitting of the term “sacrifices” (albeit with an upfront pay off, and one which is typcially much lower for the private sector btw) than anything the PS is currently enduring.

The private sector pay and job losses are, in your words, “unfortunate” events, but the public sector pay cuts are “sacrifices”? And you wonder why there’s so little sympathy for your position??

Seriously make some suggestions of what you would call a sacrifice. Because you’re right I don’t get it.

just to clarify, I meant 20% gross. So we are about two thirds of the way there. Once more in 2011 should be about right. The next step is to start looking at overall numbers in the PS. Quangos anyone!!!

I do look forward to you standing in the next GE on a agenda of higher wages for the PS, higher taxes on everybody else and high business taxes.
Fair play to you if you win a majority.

There is no getting away from this argument IMO.
Even the most progressive tax system in the world isn’t going to get us €20bn in savings over the next few years. Therefore spending will have to be.

So, let me see if I have got this right? Losing ones job in the Private Sector is a minor tragedy but having ones salary cut in the Public Sector is a major one.

It’s a good line, but that’s not what I said. Losing one’s job in the private sector is a minor tragedy (minor because nobody dies, hopefully). Having one’s salary cut in the Public Sector isn’t a tragedy at all, but it is a sacrifice.

@jl

20% from end 2007 levels? On Wednesday, that will be done and more. 7.5% pensions levy, 6% in rumoured pay cuts plus the income levy and increased PRSI add up to about a 20% hit in the take home pay of the average public sector worker.

Can I take it that after Wednesday we’ll hear no more calls from any of the bloviators here for further PS pay cuts? Of course we won’t. We’ll hear the same old claptrap trotted out again and again because the Independent Media Group still won’t want their taxes increased….

Does the term “tyranny of the majority” mean anything to you?

You’re just not getting it. Items 1-7 are unfortunate, but they are not sacrifices.

The question for all Irish citizens right now is: what are you prepared to sacrifice right now for the good of the economy? The private sector response so far seems to have been: we are ready to sacrifice the wages of the public sector…

The PS already has zero sympathy in the private sector. A concerted and relentless media campaign has seen to that. We’re over it.

For the record, I do not think that the Public sector worker should make a sacrifice. Rather in the current environment their pay levels should be reset to reflect i) international levels ii) private sector levels for similar work iii) a premium for job security and iv) the state’s ability to pay. 20% from end 2007 levels is not unwarranted.