Do More, Go Faster Post author By Philip Lane Post date August 10, 2011 I assess the implications of the new phase of the global crisis for Ireland in this Irish Times article. Categories In Uncategorized 21 Comments on Do More, Go Faster ← Austerity and social unrest since World War I → Michael Lewis on Germany 21 replies on “Do More, Go Faster” ‘However, Ireland has a new Government with a large majority. It should be well placed to take on this new challenge.’ Well said! @Philip I enjoyed the article and there are good suggestions in there… but… “so the US Federal Reserve will be mainly responsible for ensuring that the US does not fall behind in its recovery process” What recovery? The sounds of distress coming out of the US at the moment don’t seem to suggest a major recovery in the next couple of years. Maybe weak/sluggish growth at best? Back in 2008 I wondered whether the global economy would recover before the states’ ability to mimic growth with injections of capital ran out, and let’s face it, it was fairly rhetorical. I guess we have our answer now. It would be more comforting however if the pace and tone of the commentary if not precise events weren’t in such lockstep with the last Great Depression. ‘The stance of the ECB is that it can only purchase the sovereign bonds of troubled member states through its secondary market purchase programme under two conditions. First, there must be evidence of disruption in these markets, in the sense of a rapid climb in the spread that is driven by destabilising momentum trading strategies. Second, there must be a demonstrated willingness of the government in question to allay concerns about its fundamentals through measures to improve its fiscal position and underlying growth prospects’ What are ‘destabilising momentum trading strategies’ ? Markets are not completely thick. The blow out in Italian and Spanish yields is driven by fundamentals. They cannot be reversed by ECB bond purchases, although their impact can be slowed for long enough to put something else in place. Lets hope the something else displays a bit more nous than the efforts to date. ‘The main implication for the Government is that the darker fiscal environment in Europe means it should “do more, go faster”.’ I am tired already. There is no reason to believe that fiscal consolidation will lead to growth in Ireland or elsewhere. Public sector deleveraging will simply add to the accelerating private sector deleveraging. That is not to deny the need for reforms, but some serious global re-regulation of so-called financial services is top of the list. A few suits in jail would cheer the public. Why on earth should people submit to a programme of austerity for the benefit of plutocracies ? As for the US, ‘never mind the quality, feel the width’ is the expression that comes to mind in relation to Dodd Frank. http://www.salon.com/news/opinion/glenn_greenwald/2011/08/08/sec_fraud/index.html Excellent piece. Even without an increase in the budget adjustment in 2012, we are left wondering why reform items are taking so long. If they are necessary for economic recovery, then the delay in introducing them is therefore delaying recovery (or even a bottoming out of the domestic economy). The initial target for bankruptcy reform has been missed. The house-price index that has been produced, for all the effort the CSO put into it, is somewhat incredible – there is still no publication of prices. Even apart from reforming protected sectors, those sectors have not really been formally identified nor the cost of their protection quantified. The bonfire of the quangos has not happened, a date for termination and a run-down strategy could at least have been expected by now with immediate low-impact savings. Agree with paul quigley and PRGuy. Times reporting today that OPEC has cut its world oil demand forecast for this year and next, with possibility of cutting further. It’s about prioritising jobs and growth over sending messages. “First, the Government could improve the clarity of its fiscal strategy by announcing multi-year expenditure and taxation plans in early autumn.” Agree. “Second, it could commit to a larger adjustment target for its 2012 budget.” Disagree. Doggedly sticking to the programme whilst being alert to rapidly changing international conditions is the way to go. Also, with regard to a post by paul quigley a while back, it’s about the government attempting to govern for the general good of the state with a larger vision than being the best cutters in the class. @PL: “Excessive debt levels are at the heart of both problems …” “prospects of overall growth …” “measures to resolve the economic drag imposed by high levels of personal indebtedness could also be introduced more quickly.” OK its the debt predicament again. So, where is the rising income to come from which will pay down the accrued principle and the continuously rising debt? Reduced incomes? I really wish any and all commentators to this blog (with some exceptions) would explain what ‘growth’ actually means. It seems to be a term tossed about with abandon – with little or no thought to the implications for ‘fundamentals’. These latter are in the dustbin at the moment. Hence, we have an intractable problem. You MUST clear the debt levels (state, commercial and private) – and I mean clear, not some political cute-hoor, half-arsed attempt at a partial write-down. That would not cure the debt predicament – its simply too massive. It seems we still have some way to go across the Desert of Arid Ideas before we reach the Oasis of Reality on this one. “However, Ireland has a new Government with a large majority. It should be well placed to take on this new challenge.” – provided they could beat their way out of a wet paper bag. Brian Snr. @Philip “the Government could improve the clarity of its fiscal strategy by announcing multi-year expenditure and taxation plans in early autumn.” What disadvantages are there to doing this? What is happening in Greece and to a lesser extent in Italy, shows that reforms will happen because of international pressures ,not from the voluntary decisions of elected governments.I am affraid that little will change in Ireland until 2013 when a second bail-out will have to be put in place. 2011 Greek State Budget Deficit Widens 24% Through July “Remember how the Troika said Greece has its “budget situation” under control, and as such is a worthy recipient of the second €120 billion bailout tranche? Then perhaps they can explain to us how the following makes sense: according to Bloomberg, Greece’s state budget deficit widened to €15.5 billion in the January to end-July period from €12.5 billion euros in the year earlier period, according to an e-mailed statement from the Athens-based Finance Ministry today” http://www.zerohedge.com/news/2011-greek-state-budget-deficit-widens-24-through-july Philip, A fine article, and all things being equal, the prescriptions for action no doubt make eminent good sense,although I’m not really qualified to comment. However, it would be a bold government that would decide to move forward on all of these fronts at once. As you put it, this “new government with a large majority…should be well –placed to take on this new challenge.” Too right, but not quite how it may work in practice… In the end, there was no choice for Enda Kenny except to opt for a coalition arrangement with the Labour Party. Theoretically, he might have opted for a minority administration with the support of some Independents and a Tallaght-type strategy arrangement with Fianna Fail on economic and fiscal policy measures. But the numerical strength of the post-election Labour Party and, by extension Sinn Fein, would have made such a government inherently unstable and possibly very short lived. However, the size of the current government’s parliamentary majority is liable to become, in due course, a curse of a different order. In our system, the opposition are excluded from any power over policy direction. For example, unlike some other liberal democracies, government Bills are subject to all-party committee scrutiny only after they have been accepted in principle by parliament, not before. Even at the committee stage, amendments are accepted only at the sponsoring Minister’s discretion. As regards other policy issues and instruments, parliamentary committees have an inbuilt government majority and in the Dail itself, governments can simply ignore the outcome of various private members’ resolutions where they lose a Dail vote, as happened several times in the period 1987-89. The ‘real’ opposition thus emerges from among the backbenchers of the ruling parties. The executive can’t ignore them, for fear of splits, and ultimate destabilisation from within their own ranks, as plagued the Fitzgerald/Spring administration of the late ‘eighties. The more backbenchers there are, the greater the potential for the formation of cabals to stymie particular measures, however desirable such measures may appear to those outside politics. As Paul Hunt has pointed out in various posts on this site, this government already exhibits precious little appetite for parliamentary reform, apart from a few token gestures, and even less for structural reform. There’s no media pressure on them to reform the way the Dail works, in any case, as media critiques tend to concentrate on what politicians are paid rather than what they actually do, or are allowed to do within the constraints of the current parliamentary system and its elite culture. As for the structural reforms implicit in your points 3 and 4, the very existence of such a large parliamentary majority may act as a drag rather than a spur to such actions. As always, I could be wrong, but I won’t hold my breath. @Paul Quigley “There is no reason to believe that fiscal consolidation will lead to growth in Ireland or elsewhere. Public sector deleveraging will simply add to the accelerating private sector deleveraging. That is not to deny the need for reforms, but some serious global re-regulation of so-called financial services is top of the list. A few suits in jail would cheer the public.” Paul while we await global efforts to rein in the global FIRE economy we need to rebalance use of resources in Ireland. We have a large unproductive element in our public sector and by whatever means it needs to be starved down a bit and the savings reallocated to the building of sustainable profitable export business. Not by the state – by entrepreneurs. While this process is in hand and a minor reduction of 290m euros in pay and 308m in non-pay costs were achieved Mar ’10 to Mar ’11, most of these savings were wiped out by pension cost increases as over 5000 people left the service. This simply isnt good enough and mans must be found to move it along faster. As for serious reforms to the workings of the public sector – this would happen very quickly if transparency were enforced through more extensive FOI laws, realistic whistleblower protection and an affordable legal access for all. Given that there is little evidence that any of these fundamental reforms will be permitted to happen, a torrent of badly-needed consequential reforms should not be anticipated. It would therefore be simpler (if more brutal) to simply shrink the service by starving it of budget and allowing private sector provision to fill the growing supply/demand gaps in service delivery and quality. @Tony Owens The problem with abolishing public services by such simple and brutal means is that once they are gone, they’re gone forever. Moreover, there is no guarantee that private sector gap-filling services will be to an acceptable standard or quality. In this country you only have to look at some of the nursing home provision, for example. Even ten to twenty years ago those of us who had ageing parents at that time who could no longer live alone in isolated areas in the country were more keen to see them placed in publicly run facilities than in any private nursing homes on offer, because there was such a huge disparity in the quality of care available between the two. Meanwhile, whilst there are undoubtedly some excellent private care facilities some appalling horror stories have come to light in that area. There’s lots of scope for reform of existing public services and elimination of duplication and superfluous programmes at both local and national levels. Don’t let’s give up hope just yet! @Tony Owens Making the public sector more efficient will just increase unemployment. The large scale unemployment we see is a artifact of efficiency in the private sector illustrated in stark relief as credit deflation cuts the unnecessary wasteful investments. However our consumption is extremely inefficient – much of the income gets misspent in unnecessary consumption thats a artifact of our built environment , long supply chains & transport infrastructure. We do not have to export everything including the Kitchen sink to fund our lifestyles , we need to reduce our consumption inputs to sustain our real end use domestic consumption. Cutting income & thus consumption from one party to transfer to another will not cut it as no new net wealth is created. You just cannot freeze interest bearing money & expect it to work , it will rot from the inside out. There are capital projects that we can engage in to increase the efficiency of our consumption but it is impossible in the current environment of bailing out shadow bank players so that they are the only ones consuming the now smaller surplus. Cutting wages will only grow a economy when the new surplus is invested intelligently & not on interest payments to dead & dying investments. Capitalism without capital growth is quite some spectacle. http://www.geograph.ie/photo/76745 @ OC: “… …reforms will happen because of international pressures, ” Surely your joking! @TO: “… more extensive FOI laws, realistic whistleblower protection and an affordable legal access for all.” Good effort. You are correct. The real, proper name is Political Economy, hence political reforms (or should that be radical restructuring) must precede economic ones. Actually, they could be simultaneous. Constitutional protection for the Ombudsman (Supreme Court cannot challenge any action by Ombudsman). Constitutional prohibitions on deficit budget for day-to-day spending and any sorts of tax write-off. Full-Monty FOI – no exceptions. Info can only be withheld by direction of Ombudsman. These would be a start. The financial and economic changes could follow. Brian Snr. @Brian Woods Snr “political reforms (or should that be radical restructuring) must precede economic ones…” Naturally – and thanks for the name of the discipline! But we know these reforms won’t happen. William Kingston and others have charted the evolution of political economy in Eire over four decades now: http://www.tara.tcd.ie/jspui/handle/2262/29206 and evolution towards transparency with all its disinfectant properties has been slow and at times regressive. No transparency = little accountability. Little accountability = low achievement and tendency towards self-service rather than public service. Against this background, given the low value-add associated with certain parts of gov and public sector, it makes no sense to prioritise such spend over support to indigeneous and insourced exporting (non-FIRE sector) businesses. For example, why not reallocate national budget from the FAS Dept of Welding Instruction to the doubling of the R&D Tax Credit and pay it out over one year rather than three – which would undoubtedly create a lot more value for the taxpayer? There are various obstacles and objections to getting this to happen, most of them political. Rather than grapple with endless prevarication and glacial change, just starve FAS down on the basis of the greatest good for the greatest number. @Veronica “The problem with abolishing public services by such simple and brutal means is that once they are gone, they’re gone forever. Moreover, there is no guarantee that private sector gap-filling services will be to an acceptable standard or quality” Veronica I would say that many UK and Ireland public services are intentionally designed to be of triage level, are unattractive to those with a choice, and have been so for decades. Mental health and parts of child support are examples. Even in the present depression I believe around 50% of Irish taxpayers pay private health insurance premiums i.e. pay for health benefits twice, reflecting their undoubtedly accurate perceptions of quality, timeliness and relevance of at least some of the health services they might need. The point about guaranteeing quality and customer focus is important. That it seems to me is the real job of Gov i.e regulation, monitoring, reporting. Ferinstance: The HSE may find it impossible in practice to persuade a radiologist in an expensive cath lab to work later than 4:30 pm in the face of union lobbying, thus curtailing perhaps 30% of the potential productivity of an entire cardiology team. But I am quite certain that this sort of waste would not arise in contracted-out services, especially if procured and inspected by a slim health services procurement agency and regulated by DOH. If people wont or cant change and work collaboratively to produce services that delight rather than suffice the paying public, there is no reason to sustain such arrangements. @ Tony Owens I wish I had your faith in Irish regulation. Doubtless there are honourable exceptions, but the goings on (or rather the absence of goings on) in the Financial Regulator and CBI were probably illustrative of the general standard. Do you imagine for a moment that the collective bargaining power of professionals is any less outside state agencies ? Medical monopoly is exercised in conjunction with Big Pharma. Prices are contolled by cartel in the prestige institutions. These are voluntary, ie not for profit( in the usual sense) but have a great many profitable positions associated with them. The public sector ‘negotiators’ and DoHC are drawn into the net, and are usually price takers. Lets face it. There are more entrepreneurs within our public sector than outside it. Shooting fish in barrel is great sport. Such folk will be quite happy to take the lead in shrinking the public sector, as long as their own hunting rights are preserved. What about this… “Analysts at Standard & Poor’s, the credit rating agency, said yesterday that the problem with the European banking system is that it is “not aligned to the single currency area” and that larger banks with operations across the region (not BoI not AIB) were likely to replace smaller single country-focused lenders. “We envisage that banks operating on a more EU-wide basis, alongside an ECB with appropriate powers. So goodbye Irelands “Pillar” banks?? Basically, this reminds me of Morgan Kelly’s earlier logic that the ECB have put so much money into Irish banks that they should be handed over to them as they are never going to get repaid by those banks or the state. Are our “pillar banks’ going to be assimilated into banks that operate on an EU wide basis? There is a certain perverse logic to this which seems to make the thesis of this article fairly academic. Professor Ray Kinsella may not be too wide of the mark with his calls to plan for exit. “It’s about prioritising jobs and growth over sending messages.” @ Gavin Kostick It sort of reminds me of something a general said about LBJ’s bombing of Hanoi. If you want to send a message you use a postcard, not a B-52. The fundamental problem is that policy makers are using supply side solutions for what is fundamentally a demand side problem. The last major crisis was the oil crisis, and then policy makers used demand side solutions, which had a poor result. Some people are looking at studies of what worked over the past 30 years or so, and ignore the totally different scenario we are in. This is the sort of thing where the Lucas critique comes into its own. But back on topic, no reason was given in the article as to why we need to offer sacrifices to the market gods. We aren’t funded by the markets, and I think the markets would actually like a clearly presented plan that includes tax rises (not necessarily on labour though), infrastructure spending to boost long term growth, and write downs of debt. I think when Trichet goes it will be a wonderful opportunity to move away from the incorrect policy prescriptions of the past 3 years, and start tackling the fundamental problems which caused the crisis. @RO’F: “The fundamental problem is that policy makers are using supply side solutions for what is fundamentally a demand side problem.” Nice when you see someone hit the bullseye. Now if only the ideologues could get their little neurons around that one. But how do you ‘free-up’ fossilized neurons? Brian Snr. “The main implication for the Government is that the darker fiscal environment in Europe means it should “do more, go faster”.” Why? Comments are closed.