Ireland Debates the Limits of Austerity

No new ground in this Reuters report, but it’s a worthy summary of the current situation in Ireland, and perhaps a guide to the debates to come.

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

18 replies on “Ireland Debates the Limits of Austerity”

Over in Greece this week for a cheap and dirty package. The limits to austerity are showing here. I have been told about the *german* company that owns the airport that has never paid vat (by which I took it the very nice person I was speaking to did not pay their own tax), that outstanding german wartime debts outstrip current greek debts, and how german soldiers printed their own money and and demanded change in drachmas during the war, and a property tax of between EU4.00 and EU10.00 per square metre. I am told that the weather may be unusually hot now but it is going to be an even hotter winten. A day on the beach listening to Pete Seger fitted in perfectly (“Which Side are You On”, “We shall overcome”, “This land is our land”, “little boxes”, “Wimoweh”)

I am showing my complete ignorance of the public sector here.

303,500 work in the public sector? What on earth do they all do? Surely they can’t all be economics lecturers 😉

What % of the Irish workforce does that (303,500) represent?

From the article:

“IMPACT even opposes wage reductions for the higher paid public servants, saying that before the cutbacks, only 15 percent of public workers earned more than 60,000 euros annually. ”

We need to define ‘austerity’. Whatever else austerity is, it should not seek to protect people whose incomes are over twice the average industrial wage.

Any protests that seeks to protect such people form income cuts, or from increases in income tax, are in reality calls for the impoverishment of the already poor. Because if the better off refuse to shoulder the burden as they are doing, then the axe will fall on those already poor.

It is the attitude of the well off that makes Ireland a ‘miserable little country’.

@tullmcadoo, zhou:
on the london claims conference 1953 Germany reached an agreement with all relevant parties and paid down its debt due until 1973.
No default, and no greek claims. The tranche due after reunification was paid down until 2003. To discover such claims 60 years later, a little bit delusional, isnt it ?

Greece has already gotten 20 Marshall plans over the last 30 years from the EU. Greece is the text book example of all times, that throwing more money against problems makes things only worse.

Now the electrician union wants to decide which taxes are paid or not. Next thing is that the insanity asylum inmates want to vote on the director

P15 has a section on contingent liabilities, which the EU (and DSK’s IMF) could have borne in mind in the spring of 2010, and which the German constitutional court paid such close attention to last week.

The first annex assesses DSA in selected countries prior to 2009, including Ireland 2007. The realised figures of course were very different. Rather than the faulting the IMF, I’d see this as a reminder that governments need to follow sensible policies, and that no one could have foreseen the giant contingent – soon to be real – liabilities that the incumbent government of the time took on.

@Ciarán O’Hagan

Don’t overdo it on the day job. I hear the IMF are recruiting … business must be booming. Won’t mention La Tribune ce matin. Stay cool …

“no one could have foreseen the giant contingent – soon to be real – liabilities that the incumbent government of the time took on.

The Greenspan defence. nobody could have predicted it.
HRH the Queen of england wouldn’t take that for an answer.

Marxists have been writing about debt since Ronald Reagan took over.
Ann Pettifor wrote “the coming first world debt crisis” in 2006.

She sent this latter to the Guardian in September 2008

“Robert Reich calls for “new regulations related to disclosure” (The £700bn question, September 26). This suggestion proposes closing the door fully 30 years after the herd of Wall Street bulls has escaped. And it would do no good, for the real point is this: Wall Street and the City – ie the whole of the finance sector – cannot disclose what it does not know. And regulators – central bankers and politicians – cannot regulate the unknown.
We are in this mess because regulators allowed investment banks to use sound financial products – solid bricks-and-mortar mortgages, credit-card loans and loans to the productive sector – to create a tottering tower of artificial products, far removed from the reliable income streams generated by those good people and businesses paying their mortgages, loans and credit-card bills. This tower of financial products, now teetering above a shaky housing market, is known as “unfunded”. A straightforward mortgage is funded – at least until default. These fancy liabilities are not – yet our regulators, including the Bank of England, tolerated their creation.
At the end of 2007, the US Federal Reserve estimated financial sector debt at 110% of US GDP, or $15.4tn. It was 63% just 10 years ago. The trouble is we can’t be sure of this number, as much of this debt, or these liabilities, are either fraudulently hidden, or else buried in incomprehensibly complex computer models. That is why there is no trust in this business.
US regulators and politicians are now trying to insert a brick of $700bn into a tottering tower of at least $15.4tn. A Sisyphean task if ever there was one.
Ann Pettifor
Executive director, Advocacy International

@ seafoid

Thanks for the Ann Pettifor quote.

The “…no one saw this coming..” mantra is just laughable, but is still astonishingly the mainstream narrative. MMT economists were warning for years before the crash, notably Prof Randall Wray.

Equally notable, former US regulator William K Black was warning of the control fraud on a massive scale perpetrated by major US banks & financial institutions. Nor were the large US operations of EU banks’ untainted by the fraud casino. In particular RBS and Deutsche Bank are up to their necks in securitisation of NINJA & Liar Loans. Is it credible their EU parent Cos didn’t know? I don’t think so.

Are there any Irish mainstream economists or media talking about this even now? Not that I’ve seen – ostriches all.

One might think that the implications of all this might ring a few bells as regards who exactly the ECB & euro authorities are actually representing when it comes to consideration of Ireland’s situation in this sorry mess.

So, to see a sensible discussion of the European crisis, and Ireland’s prospects in it, one must go to non-mainstream media and commentary, ironically, in the US.

Discussion on RT news with a panel including Michael Hudson spells it out:

“Euro SOS”

http://www.nakedcapitalism.com/2011/09/euro-sos.html

I was at a conference on Friday that featured a presentation by KPMG who audit UBS and have been doing so for 8 years. They were talking about their super duper Basel model that calculates the level of risk on the balance sheet. Someone pointed out they got it badly wrong in 2008. If they were a hurling manager they would have been sacked after such a trimming but finance is different.

Here are the presentations

http://www.ccfz.ch/events/past-events/rd2011.html

The Embrechts presentation on financial maths was magnificent

http://www.ccfz.ch/files/rd_1_embrechts.pdf

He was talking about option pricing models that didn’t allow correctly for tail risk” We (mathematicians) knew it couldn’t work. We told them (bankers) it wouldn’t work. It didn’t work. “

And how about this for AIB and Anglo and the rest :

D.J. Hand: «On Wall Street, gain‐maximisation often
leads to constrained optimisation problems moving
ever closer to (*) the ethical boundary»

@all & seafoid & Hall

Mortgaging Irish Independence – A specter is haunting Ireland—the specter of James Connolly.

Julie L MacArthur

As the political and economic crises deepen, the usual suspects are out in force, trying to convince an angry citizenry that there is no alternative. Corporate tax rates, they argue, must stay at 12.5 percent or all business will leave the country. Debts to bankers must be paid back, or financial ruin will ensue. These claims are not without merit. Certainly, financial markets will punish an Irish default, and multinationals may very well set up their ghost companies in a country with even lower corporate tax rates (if they can find them). The Irish business elites making these arguments neglect to mention that the country is already in financial ruin, and that “staying the course” will do nothing to build a more sustainable or resilient economy for the future. These arguments are fundamentally disempowering: they lock in even further Irish dependency on foreign corporations and capital.

http://monthlyreview.org/2011/03/01/mortgaging-irish-independence

… and this is a Canadian PhD student. Time the MonthlyReview had a mention here …. as it is avidly read under the desks by all those heterodox economists in Irish universities!

@ DOD

Have you come across this MR book ? It’s very, very good.

http://monthlyreview.org/press/books/pb1849/

The bursting of the housing bubble and the ensuing financial debacle have left most people, including many economists and financial experts asking: Why did this happen? If they had been reading Monthly Review, and were familiar with such articles as “The Household Debt Bubble,” “The Explosion of Debt and Speculation,” and “The Financialization of Capitalism,” they would not have needed to ask.

@seafoid

Haven’t read it yet – I tune to the articles and summaries at times – clears the head of all the bullsh1t – and then I can make up my own humble mind. Ta for reminder – will get it …. but I’ve seen The Financialization of Capitalism for quite some time – over a decade – but I did not see BigBang coming – I wasn’t lookin …. but I didn’t bubble either … banks had me be the balls once and once is quite sufficient …..

@ DoD

There’s a great graph in the book that shows the level of total debt as a % of GDP for the US and it explains a lot.

Another book I really like is “Wealth and democracy” by Kevin Phillips. He looks at the transitions from capital power to labour power and vice versa over 200 years or so and another transition is due …

@seafóid

The change could be messy – The Derivatives Death Star and all that – now where is Greg when we need him?

Every Irish Government since 1922 has graduated Summa cum laude in incompetence. It’s all about sinecures for the boys and girls and buying your vote using your money. The amazing thing is we vote them in every 3 to 5 years expecting change. Reality is for people who are capable of implementing political changes.

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