‘All the wrong options have been pursued’

Today’s Irish Times publishes an open letter by 28 social scientists [co-ordinated by Tasc] that criticises the current set of economic policies and proposes an alternative vision: you can read the letter here.

It is hard for anyone to disagree with many of the policy recommendations in the letter. An important point is  that many of these policies could be pursued simultaneously with the current strategy of stabilising the fiscal situation and  contributing to the process of real devaluation as a mechanism to improve competitiveness. As has been repeatedly pointed out on this blog, labour demand can be boosted both through outward shifts in the labour demand curve (through productivity improvements) and through reductions in wage costs (movement along the labour demand curve) and there is no direct conflict between these two strategies.

The letter assigns at least part of the responsibility for the depth and severity of the recession to current government policies.  Policy failures during the pre-crisis period (inadequate financial regulation and pro-cyclical fiscal policies) have certainly contributed to the severe contraction and it would have been much better if Ireland had accumulated sufficiently large surpluses during the boom years to provide the fiscal space required to engage in counter-cyclical fiscal interventions.  In addition, it is possible to debate the appropriate mix between current and capital spending within the current aggregate envelope and the optimal sequence for the required increases in the overall tax burden.

However, given the massive shock to the economy and the public finances, the over-riding imperative in setting fiscal policy has been to demonstrate a commitment to fiscal sustainability. If the government had not undertaken a sizeable fiscal adjustment, the spread on sovereign debt would surely be much higher than the current elevated level and the upward movement in interest rates (influencing the funding costs for the banking system as well as for the government) would have had an even more contractionary impact on the economy.

Conditional on the environment facing the country, the path of fiscal adjustment is more certain of returning growth to the economy than an aspirational alternative that seems to rely on investment-led growth to jointly solve the fiscal crisis and the economic crisis without having to resort to cuts in the level of public expenditure (beyond any savings from efficiency gains).  The international economic consensus highlights that  the optimal fiscal response to the crisis varies substantially across countries, with fiscal adjustment required for those countries that face a difficult funding situation. As such, it is perfectly consistent to advocate more expansionary fiscal policies for some countries while also supporting fiscal adjustment in Ireland.

Finally, the letter makes a number of recommendations for re-shaping longer-term economic policies. The debate about post-crisis policies is important and the coherent vision provided by this letter is a valuable contribution – but the first order of business is to safely emerge from the current crisis.

83 replies on “‘All the wrong options have been pursued’”

They lack a knowledge of history at least as demonstrated in the article, hence this is not described as a depression. The amount of money for welfare is therefore not known and is likely to be set too high pending resolution of the bubble issues.
Only once the new normal is ascertained can we know the likely future levels of revenue and then set spending and new taxes. The neasures taken are only a start and as the article says are as usual procyclical. But they are not inappropriate, given the bubble. Sadly worse is to come.

Nothing can save a people who devote themselves to making money from borrowing. Live among the debris long enough and it may make it to the primary school curriculum.

I’m surprised it’s taken so long for these advocates of the left/progressive stance, collectively, to set out their stall in the mainstream media. All the elements of this critque/set of prescriptions have surfaced at various points during the last year. The vacuity of what is being proposed to exposed when they get to describing how we will pay for this wonderful “transformation”.

“We must mobilise all the resources available to accomplish this transformation. We still maintain a relatively low-debt status in the euro zone, buttressed by the vast accumulated borrowings in our exchequer cash balances (over €20 billion).

We can employ the strength of our combined public enterprises – their off-balance sheet borrowing and investment capacity to invest in our infrastructure and create new indigenous enterprises, both public and private.

We can further employ new funding vehicles – enterprise development bonds (eg green bonds), municipal bonds and the new National Solidarity Bonds – which can leverage our current high savings ratio and international investment.”

The simple facts are:
1. Ireland has very limited scope to borrow more without increasing credit spreads and roll-over risk while the amount of bank recap is uncertain and until further efforts are made to redcue the structural component of the current fiscal deficit. This pot of gold in cash balances is short term t-bills and commercial paper for ways and means expenditure of the Government and is not available to finance long term investment.

2. Semi-states are part of the problem; they are not the solution. Where regulatory revenue models are applied, e.g., electricity and gas, consumers are being ripped off right, left and centre to fatten up these semi-states. Where do they not exist, this is an invitation to throw money into a black hole of dysfunction and unaccountability.

3. The last place any rational pension or insurance fund manager would throw customers savings is into unreformed and dysfunctional public and semi-state sectors – or any expansion of these sectors under the current inept system of governance.

I’m afraid these well-intentioned folks need to go back to the drawing board.

“it would have been much better if Ireland had accumulated sufficiently large surpluses during the boom years to provide the fiscal space required to engage in counter-cyclical fiscal interventions”

It’s a well-made point and it’s shocking that no surplus was ever run – in fact, it’s probably more shocking that anybody in government had the limited foresight to run up contributions to the pension reserve – but can anybody point to a time in the past decade when there was an appetite from the electorate for maintaining a surplus?

I know politics is largely dictated from the top in this country, but it’s sad that it was never even a talking point.

It is the structural deficit that must be addressed. While the structural deficit must be addressed (which I would like to see through the reform agenda in the public sector rather than cuts, and wealth taxes) there is still scope for increased capital spending.

I consider we are suffering from two recessions:
1) End of the bubble. The bubble led to structural deficits that should be addressed.
2) International recession. This caused a drop in demand and my policy response for this would be increased capital spending.

Philip Lane states “it would have been much better if Ireland had accumulated sufficiently large surpluses during the boom years”. Personally I would rather part of the €15 billion we have left in the pension reserve be invested in infrastructure in Ireland rather than poured into insolvent banks.

@ Philip Lane

As one of the signatories to the letter I would like to thank you for the judgement that ‘the coherent vision provided by this letter is a valuable contribution’. But I want to take issue with the implicit judgement that government policy will lead to safely emerging from the crisis.

“If the government had not undertaken a sizeable fiscal adjustment, the spread on sovereign debt would surely be much higher than the current elevated level and the upward movement in interest rates (influencing the funding costs for the banking system as well as for the government) would have had an even more contractionary impact on the economy.”

Unfortunately, this does not accord with the facts. Government austerity policies have widened Ireland’s yield premium over other Euro Area borrowers.

This can be established by comparison with a host of European sovereign borrowers, all of whom adopted relfationary measures in 2009. The most obvious comparator is Belgium, which (by dint of having higher debt and lower deficits) had almost exacty the same 10year yields as Ireland for well over a year before the crisis occurred. They were within a bps or two of one another.

The Belgian authorities engaged in significant reflationary measures- Ireland had its own unique contractionary experiment. The yield spreads began to part company precisely when Ireland adoped the first of the austerity packages in 2008. From a zero yield premium over Belgium, this diametrically opposed policy has pushed out the yield pemium to 77bps currently, and has been over 100bps.

Even its own terms, the Irish government policy of ‘reassuring the financial markets’ has failed utterly.

“it would have been much better if Ireland had accumulated sufficiently large surpluses during the boom years to provide the fiscal space required to engage in counter-cyclical fiscal interventions”

I wonder how many these left/liberal critics were advocating more expenditure on various public services in 2003-2007, disapproving of budget surpluses and trotting out the old cliche that “the country is awash with money”

Not all of the wrong options have been chosen; all of the right options have been chosen, but not necessarily in the right order…

With apologies…

A really good article. An investment strategy of €15bn to stimulate growth, investment and jobs does not seem unreasonable when one takes into consideration;

– €54 bn will be given over by taxpayers money to five failed banks via NAMA (even if it is in the form of bond IOUs)

– €6bn will be required to re-capitalise Anglo Irish Bank

– Around €8bn will be required to re-capitalise AIB and Bank of Ireland

How can any society justify a complete bailout for zombie banks and minimal support for jobs, growth and investment?

When the taxpayer transfer starts to happen, people will rightly question the political economic priorities of policymakers. People will correctly point out that the banks who have been bailed out are now a) rising interest rates on mortgages and b) not providing money to small and medium enterprises to maintain jobs c) continuing to pay themselves extraordinary salaries when in reality, they should be all fired.

There is simply no political legitimacy to provide unconditional support to our banking system whilst simultaneously ignoring the real productive economy. This political reality will eventually hit home.

Far from ‘coherent vision’ this is deranged tunnel vision stuff. Not a single new idea or radical proposal on offer, just a rehash of the capital investment, ‘tax the rich’, early school education, public service led growth drive, ‘green’ jobs’, more bond offerings than there are lotteries on sale pre-budget formula of ICTU, SIPTU, UNITE etc. The policy alternatives are reminiscent of Papandreou’s manifesto in last year’s general election in Greece – and look what happened to them!

It doesn’t sit very well either with the ICTU threat, as reported on the front page of the same newspaper, to escalate industrial action to cripple public services which will cause most hardship to those whose interests the authors purport to represent. All very depressing.

While I can easily agree with their appraisal that the current and recent governments are culpable to an outrageous degree, the TASC open letter is primarily a testament to the persistent idea that there is “someone” out there who can pay for “everyone”s needs. Unfortunately, there is no-one.

The TASC plan (I use the word “plan” very loosely in this context), with a huge bureacracy of government overseeing a gigantic program of borrow and tax and spend would be an immediate disaster.

What is shocking to me is the number of business and finance academics on the list. I can understand sociologists having dreams, but business and finance should understand that dreams need to be worked for, or paid for, not stolen or borrowed from an imaginary “someone”.

TASC are apparently living in a dreamworld. Wake up guys and gals. It’s Monday.

Budgetary policies have been short-termist and reactive. Instead of cutting real waste in the public sector by increasing productivity and efficiency, the Government has cut public services and the living standards of those who can least afford it, further reducing domestic demand and, thus, employment.

I would say to the professors, doctors and commoners who signed this screed, in that order, that you:

1) appear to not recognise that calling for political vision without proposing fundamental political reforms and systems of accountability, is a waste of time.

2) this is a menu without prices and would promised “transformational’ change in the public sector remain as a bargaining chip?

3) so we would have more public investment and the same opaque system which benefits insiders would remain in force?

4) there is no evidence here that you understand the job challenges in today’s post recession world.

5) the government is continuing to invest in research but in ten years, 1,000 jobs from university spinouts seems realistic.

6) Jobs at IDA Ireland supported companies will fall to 1998 levels this year: 118,000. At 1.9 million, we now have 400,000 more in employment than in 1998 and 200,000 more in unemployment.

Can the main growth engine of the economy support that many jobs?

A big public sector investment programme in the short-term assumes the world will return the pre-crash credit boom days.

You would be wrong and foolish to assume so.

7) a reader seeking a road map to the future from this set of aspirations would surely not find it

Philip has provided a thoughtful comment on today’s article in Irish Times. There are a couple of points I’d like to address. Philip suggests that if we accumulated sufficiently large surpluses during the boom years, we might have had the fiscal space to provide counter-cyclical interventions. We did do this, we did have that space, and we still do (though we might all have different ideas of ‘sufficient’). Between 1995 and 2007, Ireland reduced its debt levels from 81 percent to 25 percent in comparison with the Euro zone performance of a reduction from 72 percent to 66 percent. At the same time, Ireland was able to build up a Fund of €20 billion. Entering into the recession in 2008, Ireland was well placed to engage in timely and temporary counter-cyclical measures. Instead, rather than play to this strength, we took the wrong option. In 2010, we still have a debt level below the Euro zone average, in addition to significant Exchequer cash balances and the NPRF holdings. The space is still there (though more limited now due to deflationary policies) and, as per Fine Gael’s proposals, were we to mobilise public enterprise resources, more resources would be available.

The debate over fiscal consolidation is incomplete without specifying the optimal level at which such stabilisation takes place. The Government’s prioritising of spending cuts has been shown by ESRI simulations to be self-defeating. Government wage and consumption cuts are fiscally trivial but economically damaging. The long-term deflationary effect will depress future activity, leading to what is described as a ‘low-growth, high-debt’ future. Rather than exiting the current crisis safely, we will continue to experience this crisis through low-growth and high unemployment. The Government’s strategy only makes sense when we understand it is part of an agenda to maintain a low-tax model – which they detail in their Stability Programme Update. This is, however, only one type of fiscal consolidation – there are others. That is, or should be, the crux of the stabilisation debate.

This leads to your point – John Sheehan. Whether left or right, a number of commentators opposed the pro-cyclical, asset bubble policies pursued by past Governments. Rather than pump-priming an inevitably doomed property market with unsustainable tax cuts and irrational subsidies, had we invested into our physical and social infrastructure – we might have avoided the burst-bubble aspect of our recession and avoided the terrible situation that Davy has recently reported on – a largely wasted decade (http://www.davy.ie/content/pubarticles/economy20100219.pdf).

@Michael Taft
“Between 1995 and 2007, Ireland reduced its debt levels from 81 percent to 25 percent in comparison with the Euro zone performance of a reduction from 72 percent to 66 percent. At the same time, Ireland was able to build up a Fund of €20 billion.”
Or to look at it another way, net debt in Ireland decreased from 38 bn euro in 1995 to, eh, 38 bn in 2007… net debt (the national debt) including the NPRF. So over the period we saved… nothing.

For those of us who believe that the bubble was unsustainable, that GDP is artificially inflated by transfer pricing (beggar thy neighbour economics), by over-investment and over-valuation of non-productive capital stock, GDP is a meaningless figure.

If Ireland was a company, it would be restating its turnover, profits and debt level over the past ten years.

PS It appears from the rest of your post that you agree that GDP is a non-sense figure. You can hardly use it to support your argument while simultaneously dismissing it…

I think the idea of being ‘progressive’ has basically been hijacked, it should be (the way I understood it) used to describe a mechanism whereby society advances, with a focus on eradicating rent-activities via taxation and creating a society where we avoid certain sections being treated harshly.

and that is where the inherent contradiction occurs, because currently the sector of society receiving the harshest treatment is that of the private sector and yet it seems to be the public sector shouting the loudest and seeking rentier status via the creation of yet more state supplied jobs.

do we even know the cost per student in various Irish schools? can we compare them to see where value for money is coming from and replicate the recipe for success? or should we just have lots of new schools believing that sheer numbers will solve the problem?

progressivism in Ireland is far from any association with progress, it is instead a call for state lead solutions to every issue as a universal cure.

I’m reminded of a saying I used to hear as a child growing up in los angeles ‘son, you want a helping hand? there is one on the end of your arm’. the sooner we all start to realise that the better. the government are more like a ref than the people playing the game.

@All

This is very welcome – the Irish Public Sphere may be waking up. More please …

@Rory O’Farrell

The kitty in the National Pension Reserve Fund (€20 billion or so?), astutely build up by the professionalism of the NTMA, is marked for transfer to the Zombies (Joe and Joan Citizen get to eat the IOUs) – Title: The Greatest Bank Heist in Irish History – and the manuscript is with the publisher – publication shortly. If despair were an option, I’d be in it already!

So All the wrong options have been pursued?

I think those setting policy are more than capable of pursuing further wrong options 🙂

@Karl.

I fully agree – and have limpingly tried to previously express – the huge error that takes place when the word “progressive” is applied to much of what masquerades for policy today.

“Progressive” today is often a sophistic version of the thuggish remark uttered on Frontline at Bill Cullen. (Note, I neither know Bill Cullen nor am enamoured by his public persona, but that’s another day’s work).

The remark was essentially “Yes, I do want to penalize you Bill, because you’ve got too much money”. Charming!

Progressive should, IMHO, mean that we want everyone to have the possibility of being as well off as Bill Cullen rather than meaning Bill Cullen should be penalised for having worked hard and actually becoming well off.

A huge problem in Ireland is that many professions and business activities are state protected, from the cliched tribunal lawyers through to well protected pharmacists – to the fabled dodgy developer. Niall Fitzgerald talked about it recently but apart from a few commentaries, no-one was really listening.

Anyway, earnings in these protected areas are not actually earned, they’re enforced, they’re pure state-mandated rents. They’re corrupt payments in all but name. They steal from the poor and hardworking. They steal from everyone except the other protected ones.

So, it’s no wonder that high taxation is seen as a tempting way of limiting the effect of these rents – but high taxation also damages all the parts of the economy where wealth generation is NOT protected by the state, and thereby does huge damage to the economy and its long term prospects.

A much more effective policy would be for the state to provide special protection to nobody except a few categories of weaker citizens, unable to look after themselves. Kids, handicapped, elderly, etc.. Instead it should focus on setting up fair, transparent, rules for industry and markets – and by treating everyone and everyone’s income exactly the same.

For instance, no-one was ever forced to give Bill Cullen any money, nor buy a Renault car from him. Why should he be “penalized” the more successful he is, the harder he works? Well, unless he’s got some special monopoly rents then he shouldn’t be penalized. If he’s got some special monopoly rents, unless these came from inventiveness or hard work (patent, copyright, etc) then the returns on these rents should be regulated away in a way similar to our Competition Laws.

Note, they should NOT be taxed away because taxes will hit all the people who are working hard but who don’t have monopoly rent-seeking capability.

Meantime, TASC’s ideas are still fantasy land because we can’t borrow any more without paying punitive rates, and we can’t use “off balance sheet” lending through our vastly inefficient semi-states to create wealth because they’re vastly inefficient, and I doubt that we can get people to invest their savings in Green Bonds because nobody trusts anyone in Irish governance to look after their money. That leaves us with no money to go after TASC’s potentially laudable goals. Worst, we can’t elevate “the ethos of public service and personal responsibility” because we don’t have this ethos in Ireland.

So that leaves us with the unpleasant task of realising that much of the wealth of the past years was a lie as much as an illusion, and then starting from scratch again.

On the lie, the Davy report said as much, Yoganmahew says as much, everybody knows it was a lie but is still acting as if denying it for long enough can make the past live up to the lie. It won’t.

The wealth is not there anymore, much of it never was, and it’s no solution to penalise those who are working today to create it again.

@ Mike Burke

A quite detailed comparison!!
Is it beng published soon??

“This can be established by comparison with a host of European sovereign borrowers, all of whom adopted relfationary measures in 2009. …
Even its own terms, the Irish government policy of ‘reassuring the financial markets’ has failed utterly.”

Al

‘….these are the consequences of pursuing a failed low-tax, low-spend model ‘ – you’re kidding, right?

@Micheal Burke

Your argument that our austerity measures have failed to reduce spreads is heroic but appears pretty weak.

Citing Belguim as the most appropriate basis of comparison, well, lets say I dont think you actually believe that.

@ Hugh Sheehy

sorry for the wordiness.

Don’t worry. You’re no in Brian O’Hanlon’s league yet.

The Americans have almost legalised bribery out of existence and Ireland isn’t too far behind them.

What more sums up the society than already overpaid tribunal lawyers, fighting for more pay as they investigate politicians selling favours for the equivalent of two hours of a lawyer’s chargeable time.

It is still a gravy train for many and the medical consultants’ private medicine cartel is funded by taxpayers who feel compelled to take out private insurance because of the perception of an unreliable public service.

Regrettably, people like Niall Fitzgerald only speak out when they are semi-retired or retired.

Trade unions and professional institutes often operate against the public interest.

For many years, Anglo’s Seán FitzPatrick was the most powerful member of the council of the Institute of Chartered Accountants.

The main business body IBEC, which represents a disparate rainbow of vested interests and some public agencies, keeps very quiet on the private sector rent seekers while trade unions with some of their leaders on comfortable packages of more than €200K are also bastions of a conservative society serving narrow interests.

As unions contemplate publicity seeking actions such as staff with security of employment not answering phone calls from the public, some of the desperate forgotten unemployed people are contemplating suicide. Who really gives a damn about them?

In the public service, why not support reform — get rid of the hundreds of wasteful quangos — and support modern systems and consider with the Government how sustainable job creation can be promoted i.e actions that have a direct impact on job creation?

Last week, consultants McKinsey published a report which highlighted that promoting sectors such as green tech would not have a short-term impact on employment.

http://www.finfacts.ie/irishfinancenews/article_1019191.shtml

Amazing how leftists consistently call for ‘stimulus’ while at the same time calling for increased taxation and borrowing. What do they think the effect of increased taxation is on an economy, surely not stimulus?

The problem or cause is not spending reductions, the cause of the problem is and was the spending increases that took place over the past 10 years, inflationary spending increases as Garret Fitzgerald and others have consistently pointed out.

@Ciaran Daly
Presumably it is different ‘leftists’ that called for a car scrappage scheme, the Home Choice Loan’s scheme, and the bank bailouts, but omitted to mention that it would require increased taxation and borrowing.

You may call it ham, they may call it bacon, it is still pork…

(PS I agree with you about the cause, though…).

It says “economists and social scientists” and I do not know the individuals personally, but if the list includes trained economists how come there is no mention of expansionary fiscal contractions or of the special constraints on fiscal policy in small open economies? The social/environmental policy side of the article is fine but if there really is a trained economist among the signatories he/she should have added something about expansionary fiscal contractions and/or about the constraints on stimulative fiscal policies in small open economies.

@ Paul MacDonnell,

Indeed good point, low tax, low spending???????? Just where do these idiots come from?

@ Hugh Sheehy,

I like your comment about discriminating between those who create wealth from the sweat of their brow and those who work in a protected career.

Unfortunately both your comments do not fit well with the Central Planning one size fits all authority.

A brief outline of the argument that stimulus has been good for government bond markets, and austerity a negative, specifically referring to Ireland is here

http://socialisteconomicbulletin.blogspot.com/2009/12/austerity-programmes-and-financial.html

and similarly in relation to the sell-off in British gilts here

http://socialisteconomicbulletin.blogspot.com/search?updated-min=2009-01-01T00%3A00%3A00Z&updated-max=2010-01-01T00%3A00%3A00Z&max-results=41

A more detailed account on Ireland will be published soon, which I will flag.

The use of term ‘progressive’ by those who I suspect advocate & support socialism reminds me of 1984.

@Michael Hennigan.

The McK study is a very long way of saying what has long been known. You cannot build new industries overnight. It’s hardly earth-shattering news. Similarly, if someone doesn’t start building them, then in the long term they’ll never be there. That’s also hardly new.

However, other things that the study says ARE important and interesting, if not comforting reading for Ireland.
– The competitiveness of sectors matters more than the mix
– To generate jobs, service-sector competitiveness is the key

Our competitive sectors are well known, aren’t they? We’re saved, right? Let’s all make a list of our competitive sectors……ehm….foreign owned pharma and software and ehm, dodgy international finance and ehm……

As for the previous wordiness, apologies to all again. Still, the point about “progressive” being precisely the wrong answer to the situation is still important and, IMHO, widely missed.

If we had a situation where our domestic economy was seen as even vaguely open and fair then so-called progressive taxation would rightly be seen as (i) economically dumb and (ii) completely unjust. We don’t – as I think you also mention – have an open or fair economy, certainly not domestically.

Unfortunately, the loud among us (unions, ministers/barristers, etc., ) don’t know anything about the rest of the world. I wonder how many of the current cabinet, or union heads, could do business in another language.

@ Gregory Connor

As a signatory (and trained economist) I fail to see your point. Though there have been expansionary fiscal contractions, these are far rarer than your average contractionary fiscal contraction.

In Ireland fiscal policy has contracted, and so has the economy.

Expansionary fiscal contraction has clearly not occurred. I don’t see how the flow of argument would be improved by referring to something that can not be applied to the current situation.

@ Gregory Connor

Regarding constraints, of course they exist, but that particular piece was targeted at Irish Times readers, not specialist economists.

@Ciaaran Daly:
“The use of term ‘progressive’ by those who I suspect advocate & support socialism reminds me of 1984.”

I think there’s a Fox TV talent-scout in town. You could have a whole new career ahead.

bjg

@ Michael Taft

There is a more plausible explanation for the Belgium-Irish 10 year spread and one familiar to any one who has ever been a bond vigilante or even met one.

Ireland budget blows up and yield spread widens out because we are living beyond our means. Yield spread peaks in early March 2009 at just under 200bps. Announcement of first budget brings yiled spread into 140bps.
A mix of increasing sovereign risk, political uncertainty, poor economic data drives spread out to 200bps before rally into 144 prior to resolute 2010 budget. Spread moves quickly to 83bps currently.

This narrative would argue that the govt should have the courage of its convictions and continue on the course prescribed for it by the EU.

The other conclusion to be drawn from this letter is that we have two many “social scientists” in this country who could usefully be redeployed into the real world.

@Brian J Goggin.

It would be nice if you had a point to make other than the tired old “play the man and not the ball” approach you took with Ciaaran Daly.

Do you, or is this it? Sarcastic remarks based on your dislike of Fox-TV…that’s the depth of your contribution? Is it?

The other thing that starkly exposes the ‘value for money’ we get for punitive taxation is the currency union with Germany, there really is nowhere to hide anymore.

@ROF

OK, the piece was targeted at Irish Times readers.

However, this blog allows you to link away to your heart’s content and the audience consists, in part, of people who are trained economists.

It could be useful to set out in detail what you think the constraints our fiscal policy faces.

Also, the issue with respect to expansionary fiscal contractions is clearly more complicated than “it hasnt happenend so its not relevant”.

Specifically, the reasons why such expansionary contractions occur could be relevant.

For example, if expansionary fiscal contractions occur because they boost private sector invesmnet as a result of increased confidence in the sustainability of the fiscal position, and thereby improve the economic outlook, I would suggest that such considerations are are clearly relevant to our current position.

@ Rory O’Farrell

The problem is that it is too much of a hodge-podge of ideas and aspirations that it likely neither makes sense for Irish Times readers or specialist economists

The torrent of proposed prescriptions from different quarters must all be confusing for non-economists and last week, we had job forecasts from two State agencies that were more fairytale than fact.

IDA Ireland produced a document with one jobs target: 105,000 new jobs by 2014. On closer analysis, beyond the spin, the likely outturn for net jobs added is likely to be closer to zero or less.

FAS forecast 250,000 net new jobs by 2015 but it based this projection on a May 2009 ESRI forecast for post-recession global growth in different regions that looks overoptimistic compared with the “green shoots” optimism of last spring.

Avg Irish GNP growth of 5.9% in 2012-2015 seems a little optimistic when we can only benefit from strong Asian growth indirectly besides other problems.

One advance would be for the Government to present an unvarnished assessment of the challenges of job creation.

Contractionary Fiscal Expansion (CFE) works through a confidence mechanism. Ireland’s problems are not due to a lack of confidence. They are not due to talking down the economy, but are more fundamental. For about 8 years we followed a credit growth model. The end of this resulted in a shortfall in demand, and like that scene from Kelly’s Heroes, no amount of positive thinking will change it.
Also, CFE models normally deal with structural deficits. The structural deficit must be addressed, but we can simultaneously expand capital investment.

Regarding constraints, I would make use of the pension reserve fund, about €15billion. I would invest in projects that give a financial return. Think of all the money being spent on school prefabs. We have to build the schools sometime, why not now. This is the cheapest possible time. I give a (very) rough outline here of why it is so much cheaper now. http://www.progressive-economy.ie/2010/02/aib-makes-case-for-increased-public.html

Also, investment in infrastructure will expand our ability to repay our debt. Which is better, to invest the money in insolvent banks, stocks in foreign countries, or our own economy?

[Using the pension reserve fund is my personal opinion, and not necessarily that of the other signatories.]

In my opinion the situation in Ireland is a classic case for an expansionary fiscal contraction. To give them credit, the government has realised this and so far has made some progress in that direction. Hypothesize a businessperson planning to open or expand a business in Ireland in March 2010. The fact that the government has made a good attempt to reign in spending will give them confidence that they can plan for a future without confiscatory taxes and/or ECB/IMF bailouts with conditionality. Multiply by 10,000 cases and that is an expansionary fiscal contraction. Suppose alternatively that the TASC/ICTU programme for a wealth-regressive transfer of resources to public sector employees succeeds. In that case, businesspersons will hold back on expansion/investment plans. Multiply that dreary prospect by 10,000 cases. A contractionary fiscal expansion!

Ireland needs an expansionary fiscal contraction and there could hardly ever be a stronger case for one.

@ Gregory Connor

But we have had fiscal contraction, and we have had an economic contraction. When should the expansion begin? Investment has nosedived. Given the credit constraints (due to the end of the credit growth model) where would these newly confident, positively thinking, entrepreneurs get the financing.
I am not aware of ‘classic cases’ for EFC. The only real example I can think of is Bulgaria during the transition from communism, though there are probably others too. Also, EFC should apply to the structural deficit, rather than aggregate fiscal deficit. I agree that the structural deficit should be addressed (though I would do it in a different way to the government).

Ireland suffers from an infrastructural deficit. Why not build the infrastructure now, when we can do it at a fraction of the cost of a full employment situation? We have €15 billion in the NPRF, I say invest it in Ireland, not abroad, and certainly not in Anglo-Irish Bank.

Regarding EFC – we have had a fiscal contraction of €11 billion, we have had an economic contraction of €28 billion or so. Surely, we can’t detach the two unless it is asserted that the one operates independently of the other. As to expansion, ESRI simulations show that fiscal contraction via spending cuts will depress growth in the years ahead. Futhermore, in their Autumn Quarterly they stated that without the €4 billion contraction, the economy would exit the recession earlier than otherwise and we would experience full-year growth this year. If there is a relationship between expansionary and fiscal contraction, there’s nothing to date to suggest it is a positive one.

As to the issue of a low-tax model, the average Government revenue/GDP between 2000 and 2007 for the Euro zone was 45%; for Ireland – 35%. In 2014, the Government is projecting Government revenue to be 37.1% – and that’s with carrying nearly 4 times the amount of interest (as a % of GDP). Exclude interest, and Irish taxation levels will be even lower than during the 200-2007 period. Whether one think that’s a good idea or not, it can be reasonably described as ‘low-tax’.

Just one more additional note re: spending increases. Between 2000 and 2007 Irish current expenditure increased by 2% of GDP – from 28% to 30% (compared to a Eurozone average of 43%). That small increase took place against a background of the biggest population growth experienced by any Eurozone country. Even when adjusted for GNP – it can hardly be said that Ireland is a high-spend economy or that spending increases were somehow extra-ordinary (though this isn’t the same as saying all spending increases were efficient or could not have been better employed).

I also recall, but can’t find, a good article on the topic by Ronnie O’Toole published about a year ago. Perhaps he’ll supply it if he’s reading…

Sorry, the Ronnie O’Toole article I’m thinking of was in the Sunday Times business section. But I still can’t find it.

@ Mike Burke

I read the first link, I dont have time for the second.
Partly because of the first one…..

“Belgian reflation has led to falling forecasts for the deficit (because of stronger growth), while Irish fiscal contraction has led rising deficit forecasts (because of weaker growth).”

Pardon my analogy but Ireland needs to breath in, in order to be able to breath out! Air, precious air! We didnt have any in the lungs.
Not that we were out of breath from productive exporting.

Fair play to all involved in this letter though.
Such effort is needed, but let the issues be debated.
Today on the radio, I think I remember a Union leader referring to the letter etc to support the cause?
Accidental timing???
I think not

Al

@Hugh Sheehy:
“It would be nice if you had a point to make other than the tired old “play the man and not the ball” approach you took with Ciaaran Daly.”

I generally assume that it isn’t necessary to spell everything out, but since you insist: Mr Daly’s message seemed to me an example of attaching a scary name to something and then attacking the name. That is, I understand, what television persons in the colonies do; it might be described by those who like sporting metaphors (I’m not very good at them, alas) as “playing the label, not the ball”. I wished to suggest that a more considered critique of the open letter would be more enlightening for the Bears of Little Brain(*) like myself.

If you would like me to explain anything else to you, please don’t hesitate to ask. I can even spell “buterred toste”(*) sometimes.

bjg

(*)A reference to Winnie-the-Pooh, one of the seminal works of our modern civilisation: Milne, A A *Winnie-the-Pooh* Methuen & Co Ltd, London 1926

@All
The main thing is that we have a discredited, corrupt, incompetent government shovelling tens of billions to bank investors and megadevelopers. It imperilled the country by guaranteeing all its banks’ liabilities to save its megadeveloper supporters – leaving us at the mercy of the bond markets.

Secondarily it has also raised taxes and cut spending, including wages & welfare i.e. consumption, and capital spending, but not abolished all taxbreaks and left the vast majority of the pork spending. In spite of this it is loudly considering allowing hotelier investors to keep tax breaks and has already given a new taxbreak to …car sellers??? Why car sellers? Because they’re well connected.

Conclusion:
ANY changes this zombie government makes along the lines TASC advocates are likely to be small, slow, bungled, corrupt i.e. doomed to fail.
The urgent priorities now are bank resolution legislation, a referendum on Anglo/Nationwide and a general election.

@Oliver Vandt

“The urgent priorities now are bank resolution legislation, a referendum on Anglo/Nationwide and a general election.”

Your pragmatism is really coming on Oliver – glad to see those ol’ anarchist tendencies diminishing – but keep a wee few – just in case (-;

& Rory O’ Farrell would like to hold onto the NPRF (tried to tell him above it was gone) – you might add it to the referendum – but it would need to be held next week …….. back to TIME ………. 40 seconds to meltdown – its accelerating.

@James,

I had a piece in late 2008 along the lines as to why the concept of an EFC was a myth, and what happened previously was down to devaluation. I won’t copy out the full article so as not to try the patience of the blog’s readers (not to mention respecting Mr. Murdochs choice of business model), though the punchline of the article hasn’t really happened, namely that things would go thud post a Govt fiscal contraction.

Consider unemployment. If we take the start of Q2 as the real start of contraction (when the public sector levy was kicking in, and just before the more general April budget), then the rise in unemployment in Ireland has been 2.2% up to January 2010. The EU average rise was 1.3%. Given the scale of the divergence in fiscal policy (our -5% compared to a typical EU +2%/3% or so), this difference in terms of the rise in unemployment is very, very modest.

Wolgang munchau had a throwaway comment some days ago that the effect of fiscal policy in the current crisis had been ‘disappointing’, without spelling out what he meant. This might be a topic that is returned to.

Its definitely not an EFC, but in other European countries an EFE doesn’t seem to have been operating either.

@Ronnie
“Wolgang munchau had a throwaway comment some days ago that the effect of fiscal policy in the current crisis had been ‘disappointing’, without spelling out what he meant.”
I expect it is not disappointing in Asia…

@BJG, I’m guessing you assume it is not possible to be progressive and be conservative (only socialists are progressive….), and I mean conservative in the traditional (liberal) sense, not in the FOX News warmongering, expansionary gov spending & deficit sense!

Most non-socialists would find it difficult to make such an all-encompassing and fantastic statement as from the article:

“We must mobilise all the resources available to accomplish this transformation. We still maintain a relatively low-debt status in the euro zone, buttressed by the vast accumulated borrowings in our exchequer cash balances (over €20 billion).”

The article also states that the low tax / low spend model has failed. If our government ran a low spend model its news to me, and I would like to know what level of spending would not be considered ‘low’.

@Brian J Goggin.

I am not at all sure I am looking forward to your use of Pooh metaphors in explaining your economic views.

Perhaps you’d better stick with the Fox TV approach. It’ll be easier to deal with.

I supposed you might also consider using approaches based on reasoned argument and debate. Go on. Try it.

@Ronnie O’Toole.
Should I infer from the the data points and the Munchau reference a suspicion on your behalf that EU economies are treating deltas in spending or taxes now and later, etc., all far more equivalently (a la Ricardo) than anyone expected? Now that would be interesting.

This article strikes me as being right in principle, but wrong in detail.

Right in principle because deflationary policies are proving catastrophic, wrong in detail because the proposals for raising more funds are mostly
wishful-thinking.

The claim that we can pursue a foreign borrowing-funded reflationary course a la Beglium is fatuous for two reasons:

1. The Belgian budget deficit is still only about half as big as ours relative to GDP. This means investors don’t fear national bankruptcy.

2. Belgium has a coherent tax system based on heavy income, corporate, and property taxes (with few exemptions at the lower end).

The only realistic means we have of pump-priming is thus, as some others have pointed out here, to dip into, nay liquidate, the NPRF whilst letting Anglo-Irish go to the wall. This would allow us to avoid being massacred on the international bond market. (All this guff about improving efficiency in the public service is besides the point. As Keynes pointed out, paying people to dig holes and fill them in again has the same macro-economic effects as hiring more nurses — i.e more consumer spending, more demand, and more growth etc.)

In the long run, such a course would entail dramatically lower public sector pensions (which are arguably an undeserved perk in this day and age) and much higher taxes post-recovery on all income earners (including the low paid). In Germany, someone earning 30 grand a year pays vastly more income tax than an Irish person on the same wage does. If we want to live in a social democracy, then that’s what it costs.

Politics is about choices. The Left needs to face up to the fact that its policy choices may entail just as much sacrifice as those of the Right.

To reinforce the point vis-a-vis Belgian taxes:

“The basic exemption for 2010 is 6,430 EUR regardless of marital status with further exemptions for dependent children and a spouse. For 2010, marginal income tax starts at 25%, rises to 30% over EUR 7,900, 40% over EUR 11,240, 45% over 18,730 EUR with a top limit of 50% for incomes above EUR 34,330.”

From http://www.expatica.com/be/finance_business/tax/taxation-in-belgium-8618_8286.html?ppager=2

@ Ronnie,

Then again, the updated O’Rourke-Eichengreen graph might indicate the opposite of Munchau’s remark! Of course maybe it’s the monetary stimulus that has saved us from a Greater Depression.

Or maybe other countries’ expansions have contracted our contraction, just as our contraction has contracted their expansion?!

Time for bed methinks.

What we need reformed are; the political system and it’s conjoined legal hegemony.

The antiquated public sector, which is a fossil along with its trade union movement, another fossil, and one which is merely a mutated response to the gross inefficiencies and structures of the public sector and civil sectors of our society.

We need to rationalise our education system to radicalise the way we think.

Finally, we need a proper health care system delivered for 10 billion or less.

Notice, I have left out the banking system, because soon it will be part of our political system. A political system that is already dictating the kind of banking system it requires for itself.

Going back to the article, our social scientists have identified 5 key areas that they are most concerned with and which “require fundamental reform”.

1. Our Substantial Physical Infrastructure Deficits
2. Our Poor Social Infrastructure
3. Our high levels of Income Inequality
4. Our Under performing indigenous business sector
5. Our unsustainable reliance on carbon heavy resources and activities.

Then the solutions offered;

Retraining and return to education (where most of the 28 work)
Investment in education (ditto)
Employing the strength of the public sector to create more off-balance sheet finance/debt ( Strength? and more off-balance-sheet debt?)
Use enterprise development bonds, municipal bonds, solidarity bonds (would anybody in their right mind give their money to broke councils or this government?)

Then they turn their attention to the tax system, suggesting…

A comprehensive property tax is suggested (deflationary)
End tax breaks for high earners
Extend environmental taxes (deflationary)
Add an additional tax band at the highest level (deflationary)
Look to local taxation to broaden the tax base (deflationary)

Finally, they talk about “embedding investment rather than debt into the economy while restructuring taxation and expenditure in a progressive and expansionary manner to ensure a job-rich recovery. ” (just meaningless social science speak)

Sorry to see, that some of the people who taught me over 30 years ago and put their names to this article are still hiding out in universities, they never moved on and the dearth of there combined analysis is certainly not an argument for people to go back into education.

Surely, this article is a further indictment of the education system in this country?

Simon MacAonghusa

Of course no economy can provide an identical set of variables as another; each country is a specific combination of general trends. What we can hope to do is identify those general trends and apply specific remedies to each case.

Therefore, while you are entirely correct that Belgian deficit levels are now approx. half of Ireland’s relative to GDP, it is surely worthwhile examining how that position was arrived at.

On this blog and elsewhere the majority opinion was always that Ireland’s deficit was too large to provide fiscal stimulus. But the Irish slump was a year earlier than that of the Euro Area as a whole. Ireland’s budget deficit was 7.2% of GDP in2008 (net general government borrowing). That is not qualitiatively different from the Euro Area average the following year, when their recession kicked in. The average deficit that year was 6.4% of GDP, with France a whopping 8.3%. However, the overwhelming bulk of those countries adopted fiscal stimulus packages, with France one of the biggest of all (hence the scale of the short-term blowout in the deficit).

But the EU Commission forecasts French net GGB this year at 8.2% in 2010 and falling to 7.7% in 2011. Similarly, Belgian GGB is expected to be 5.9%, 5.8% and 5.8% (incidentally, one of the reasons that Belgium is a useful comparator, aside from previously identical yields, is to overcome factors such as SOE or size bank bailout; Belgium is 2nd in the Euro Area behind Ireland for both).

For the Euro Area as a whole the profile of GGB forecasts is 6.4%, 6.9% and 6.5% out to 2011, whereas Ireland’s is 12.5%, 14.7% and 14.7%. The Euro Area adopted fiscal stimulus; Ireland a Thatcherite slash & burn. The Euro Area is expected to stabilise and lower its deficit. Ireland’s deficit is expected to increase and then ‘stabilise’ at that higher level.

The architects of slash & burn need a Plan B, soon, and a little top-up of investment, ‘financed’ by more slash & burn won’t pass muster.

@ Robert

There is absolutely nothing worth reading in your rant Robert. You simply restate what is in the article, throw your rattle around, and cry that you dont like it. Your ideologically opposed to the content. Get over it.

What is good about this article is that it is actually starting a debate. It is forcing the true ideological colour of all those economists who hide behind the veil of technical jargon to state their true normative opinion.

All we have had in this country since 2007 is a monologue of the same arguments, same voices, and same failed politicians-economists who wouldn’t shout stop in the good times.

@ Stringer Bell

“What is good about this article is that it is actually starting a debate” then…..

“throw your rattle around, and cry that you dont like it.”

Also, if I simply restate what is in the article and you call it a rant then ergo it appears that you are calling what is in the article a rant. Maybe you are right. I simply stripped out much of the unnecessary verbiage to leave the article a bit more naked.

If you want to revisit 2007 here is a quote from the Indo Dec 03/2007 author Tom McEnaney, under the heading. “Cowen sets out on his mission for a leaner, fitter public sector”

“Brian Cowen will use the Budget in two day’s time to signal root-and-branch reform of the public sector. He will call for the public sector to become entirely focused on the needs of the public, rather than the public sector bodies or employees.” It is now 2010 and he is thinking of setting up a junior minister of public sector reform.

I had to drive to the hospital the other day to find out how someone was because the phones were not being answered. I am not a reductionist nor do I consider myself to be ideologically driven so why not just explain what you disagree with and kick off the debate you say you welcome? Constantin Gurdgiev has more than a few unkind words to say about this article over on his blog “True Economics” you might find his comments more elucidating than my “rant”.

We do love to talk don’t we?

A lot of sense but they will dismiss it as …… whatever. Getting them involved in the debate might be useful towards achieving more social justice. No one is against that? But what does it mean?

We just disagree on the practicalities of achieving that? Having a formalized way of debating the exact methods might be very constructive for all concerned.

@Rory O’Farrell

According to the ‘trained’ economist on the Irish unemployed in in a comment in The New York Times “… the pain is relative. Inability to pay your mortgage and/or losing your job in Ireland does not mean destitution as it does for so many Americans. You can still have a holiday, your kids can still go to college, you can still eat well and have a few pints with your mates in the local pub while you sort out your life.” …. Makes one wonder on the ideology of the trainer – let alone the trainee!

@Rory O’Farrell

…. and futher from the ‘trained economist’ …”Good, universal healthcare means that there are no ‘medical bankrupties’ and that unemployment does not have healthcare consequences.”

What school of economics is this?

@ Michael Burke

These macro comparisons may be interesting but isn’t it time to focus on the nitty-gritty of sustainable job creation?

Investment in infrastructure can provide jobs in the short term but where will the engine of jobs growth be?

Surely not in an unreformed public sector where for example electricity prices are among the highest in Europe?

Minister Eamonn Ryan plucks an estimate of 20,000 from the air for green tech but even so, that doesn’t answer the question.

http://www.finfacts.ie/irishfinancenews/article_1019210.shtml

@ James, Hugh

I don’t know what transmission mechanism is at play here, what’s working or not. However the contention that a) monetary policy should have very little impact and that b) all the action is in fiscl policy, should show up in a comparison between countries.

Ireland and Spain are a case in point, having the same monetary policy, variable interest rate mortgages etc, but v different fsical policies. Why have Spain not done far better? Going back to John McHales estimated elascticities, the ‘open economy’ explanation will only go so far, particularly in the very short run.

I suppose the advantage of having a single currency with no inter-member fiscal rebalancing is perhaps a unique economic experiment which may allow us to tell the relative importance of fiscal and moneatry policy. Those who say that you simply can’t have a sustainable single currency without such inter-member fiscal flows should also have to explain why Ireland han’t fared far worse than Spain over the lat 12 months.

@ Michael Burke
“this blog and elsewhere the majority opinion was always that Ireland’s deficit was too large to provide fiscal stimulus. But the Irish slump was a year earlier than that of the Euro Area as a whole. Ireland’s budget deficit was 7.2% of GDP in2008 (net general government borrowing). That is not qualitiatively different from the Euro Area average the following year, when their recession kicked in. The average deficit that year was 6.4% of GDP, with France a whopping 8.3%. However, the overwhelming bulk of those countries adopted fiscal stimulus packages, with France one of the biggest of all (hence the scale of the short-term blowout in the deficit).”

This just seems like crying over spilt milk.

Maybe a stimulus in the right areas in 2008 would have made a difference but not to the extent you are trying to argue. And I completely disagree that it is still not to late.
It is too late.

There is no way that the EU would allow us.
And even if they did we probably shouldn’t.
It seems that you are accounting the dramatic increase in Government Deficit from 2008 7.4% to 2009 12.5% on thatcherite slash and burn policy.
But the deficit was always going to increase in 2009. I think your theory of causation is weak.
The thing that makes Ireland different from many of our central European neighbors is that we had a huge stimulus from 2001-2008 when it wasn’t needed.
This stimulus included the Tax breaks given to the construction industry as well as other insders and the over generous pay deals given to mid-high end public sector employees and unlimited credit to all business and to the 20 and 30 somethings. The size and scope of these was not comparable to what happened in central Europe and they therefore can afford a stimulus now.
We cant to any great extent.
We can try to be imaginative with low cost effective jobs creation policies but in general our costs need to be reduced in a very dramatic way.
The reality is that we were spending way beyond our means for a long time. One cannot look at the growth figures over the 2000’s without first looking at the increases in private debt over the same period.

We cant afford to put money into the banking system either and I don’t think we should but thats another story.

@ Michael Hennigan

I think some short term job creation is fine, just to keep things ticking over during the downturn.

However, for the long term jobs, don’t we need to improve the infrastructure. This could be rail, broadband, or educational qualifications.

@ Rory O’Farrrell

There is a lot of emphasis on hardware but no proposals for changing the inadequate software – – management and control systems – – which has resulted in a huge waste of money on public projects over the past decade.

There was no shortage of money for broadband during the bubble days but our record compared with Denmark has been pathetic – – they too evolved from a public telco system.

The Naas dualcarriageway was opened in 1968 and 42 years later, a motorway to Cork is still a work-in-progress.

There is €1bn annually spent on the science budget and we are oversupplying PhDs – – not always the requirement for an innovative system.

So why not fix banjaxed systems first ?

We could spend money on long term projects but how do we increase our export potential?

Just pray that the US economy returns to strong growth?

I wonder how many of the signatories to this letter have Beards?? Could they send in a group photo to the IT ?

@ Robert Browne,

Just a aside note about phones not being answered etc. Sorry to hear about your inconvienience etc. However I would like to point out that not all public servants wish to follow the direction of the Union Leadership.

There are a number of teachers and other civil servants who are aware that the state is broke, and there is no point in rocking a fragile boat in this financial storm. However these same people have a problem, they have to follow the directions of their union. To stand out now against their fellow workers is not very endearing etc.

Most civil servants are members of a union, not because it is necessary to get into battle with the Govt, but union membership is used as a form of security against bullying by management. Teaching hours being increased by a school principle on other teachers for example, etc etc. The back side kissers always have Friday Afternoons off etc.

I would just like to point out that fact.

The role in Ireland’s population decline (more specifically, tax paying members of the population) through “back to Warsaw, off to Bondi” in the last 12 months has a role here – it’s not just about debt or debt/GDP but also debt burden.

Nick Rowe, yesterday: “I had always known that a given debt/GDP ratio would be more worrying for a country with declining population than for a country with a growing population. There will be fewer future people to carry the same future burden. But I had never sat down to do the arithmetic, until just now. What surprised me was just how big this effect was.”

http://worthwhile.typepad.com/worthwhile_canadian_initi/2010/03/some-simple-arithmetic-of-debtgdp-and-population-growth.html

If TASC’s ideas don’t provide an incentive for the peak earning demographics, particularly those not bogged down in the property mire, not to GTFO ASAP, this problem will get steadily more apparent.

Letter in the Irish Times today on the reality of pay cuts:

Madam, – I am confused. For over a year letter-writers have been telling civil servants that our labour is over-valued and unworthy of our “bloated” salaries which average €30,000 per annum for clerical people who process claims – and are still doing so despite the industrial action.

Now it seems that the absence of that labour (even on a low-key and occasional basis) is making significant difference to the public. Our case is that we are seeking a decent, living wage in return for providing those significant services to the public.

My take home pay in the Department of Social Welfare and that of my colleagues is not significantly more than our customers are paid. In my own case, a battery of nine different levies and deductions at source halves my take-home pay to less than €13,000 per annum. I can assure our social welfare customers that I know exactly how difficult it is to survive on that kind of money. I would hope that the public would deplore the pay cuts to public servants as I deplore the moves to cut their benefit. It is the Government that has done this and not low-paid public servants.

In the recent Budget which cut our pay, the basic social welfare rate was also slashed. We and social welfare recipients have the same prize specimens to be angry at without bickering with each other. Perhaps the people who cannot contact civil servants during phone bans, etc, might contact their local Fianna Fáil/Green TDs at their clinics or cameo public appearances. I’m sure they would be happy to clarify why the modest pay adjustments that would settle our grievances are not being made, not to mention explaining the Government’s role in provoking this situation in the first place.

People on skeletal pay in the public service have no choice but to resist these cuts and the further ones planned down the line. Our actions are the forced moves in an endgame with implications for the future of all workers and the kind of society that must emerge.

There is unfortunately no way I can think of that public servants can withdraw their labour (ie public services) without affecting the public, but they are unwitting victims in a campaign of aggression launched by the Government and their friends in Ibec, the most powerful and successful trade union of them all.

By all means be angry with a broken bottle if you step on it. But the anger should be directed at the idiot who put it there in the first place. In this case, the idiots who got us here are those in comfortable ministerial office and not the ill-used drudges labouring in the foothills of the civil service. – Yours,etc,

DAVE FAY,

Leix Road,

Cabra, Dublin 7.

The juxtaposition of the Civil Servant bemoaning the difficulties imposed by pay cuts with the point about the incentive being created for internationally mobile peak earners to GTFO is interesting….particularly when the Civil Servant – worthy or not – and the internationally mobile peak earner are on such different ends of the issue when it comes to paying back the twenty plus billion borrowed in 2009 and 2010 and 20xx.

Of course, not all high earners have the possibility of leaving. Tribunal lawyers and TDs aren’t in demand anywhere else.

Ah well

@ Mark Dowling

Thanks for your link above which interestingly includes the following observation…

“Presumably there is some maximum level of debt burden that a population is willing to accept, because they are paying taxes, but getting nothing in return. (Well, they did get something in return, but that was yesterday’s deficits, paying for yesterday’s generation’s benefits). Past a certain point, if the debt burden gets too high the population may refuse to pay, or may emigrate to avoid the burden, which just raises the burden on those who remain.”

The author is correct about “yesterday’s deficits” being incurred to pay for “yesterday’s generation’s benefits” but sadly, a substantial amount of our borrowing is to pay for todays generation. Fact of the matter, whether we like it or not, as a country, we are spending other peoples money and other peoples wealth. As CJH famously remarked “we are living beyond OUR means.” What I would like to know is this, who are the people who are so important that their salaries and benefits must be paid not from Irish taxes but by foreign debt?

Bad enough to be railroaded into unsustainable debt levels, to have NAMA dumped on us. However, it strains incredulity that more debt has to be piled on top just to cover their own salaries.

Debt levels are not the only reason people will leave Ireland. People will go because of the sheer scale of crony capitalism. When you have one of the most successful Irish business people, Niall Fitzgerald boss of Unilever and later Reuters telling us bluntly that he could not pursue a business career in Ireland without compromising personal principles. Obviously, we have a huge problem. http://www.irishtimes.com/newspaper/frontpage/2010/0306/1224265713249.html Mr. Fitzgerald is right we can do without these people.

Krugmans swipe at us about crony capitalism is not isolated, it is all too obvious now that citizens are saying, why bother to take risks, when I can go abroad just as Michael O’Leary did. The whole business culture from monopoly style upward only rents to the nexus between developers and banks says, “beware” of setting up business in Ireland. 10 developers dumping 17bn in loans on the tax payer, because nobody was able to tell them they were mad. Prognosis, economy to continue to shrink, debt burden to continue to grow because we still have not got politicians who can pronounce two letters of the alphabet NO.

@Michael Hennigan

Regarding ‘soft’ things for long term economic growth, I would like to see the Freedom of Information act expanded. This greater openness would reduce the scope for mismanagement and increase accountability.

Also I would like city/county councils have more power. This would put less pressure on TDs to deal with local, rather than national issues.

I think expanding the Freedom of Information act would be fairly cheap and could be done during our recession. I doubt the government has much appetite for it however.

@Rory O’Farrell

In what way would you like to see the FOI Act expanded? Did you have something specific in mind? I’m interested to hear.

I’m not a journalist, so not an expert in the area.

However I would like the charge for FOI requests reduced, and I think it should apply to everything the government does, with the exception of criminal investigations and maybe some Dept. Defence activities. I should be able to find out how much Bord na Móna spend on staplers.

I like the Missouri idea. With advances in IT it should be possible to put all the accounts online (not just end of year reports). This would mean the hassle of putting in a FOI request would not be needed. Then it would just be up to the journalists to look at the accounts and see how much is being spent on limo transfers or the rationale behind certain decisions.

@Michael Hennigan
“The state of Missouri (pop 5m) put all its public spending online in a searchable datbase for $200K.”

The next government should make it a top priority. No chance with current corrupt cronys.

If I may, I would like in my own common way to make the point that the rest of us stakeholders in this Nation of ours are fairly sure that breaking open the piggy bank and giving it to a government agency is the opposite of “investing”. It is a political vehicle to win votes in your favourite marginal constituency.
It is overspending on prestige projects without the discipline of impending bankruptcy if you are not absolutely on top of your costs and can predict your ROI to the cent at all times.

Further, government agencies certainly cannot convince me or anyone else trying to hold onto their hard-earned that they have the first clue what the country will need in the future, how much we should be paying for it and how we should run it.
No State agency that has been forced into market competition ever led the way in successful innovation in that market. The ones who survive do so by leveraging their political connections to fend off competition as long as they can and end up scrambling to copy the business model of the successful privates.

Proposals such as this one scare the bejaysis out of me.

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