“Stones taught me to fly”

Sorry, couldn’t resist.

The quarterly national accounts are out, and it is not pretty. The domestic economy has contracted, quarter on quarter, by 2.2%. Things look even worse when looking at the components of GNP. From the report:

Personal Consumption (-1.3%), Government expenditure (-1.3%), Fixed Investment (-20.9%) and Imports (-1.5%) decreased on a seasonally adjusted constant price basis between Q2 and Q3 2011 while Exports (+0.8%) increased over the same period.

You can see the change in the figure below for GDP and GNP. Combined with the unemployment figures Kevin highlighted earlier this week, the picture is far from good heading into the holiday season.

QNA

Luckily we have the omnipresent Little Mix to cheer us up. I’ve heard the, ahem, song, 5 times already this morning. And I feel much, much better about things. Really.

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

87 replies on ““Stones taught me to fly””

I’m shocked. Contractionary economic policy is contractionary.

Any chance we can increase gov’t spending now and start hiring loads of people and building the infrastructure we need? Or must the beatings of the poor and middle class continue until they finally get pissed off enough to start lopping off heads?

@ Kevin L,

I also need some infrastructure, in the form of a fully detached house with a sun parlour in which I can install one of those chess table, and in the 600 sq m garden, an in-ground swimming pool and my own tennis court.

Perhaps I will go to the bank and present them with my “needs”, then tell them how hard it is to have to work for a living and suggest a permenant line of consumption credit, so that I can go down to half-time, and spend more time enjoyed the aforementioned infrastructural amenities I “need”.

After all, if they lend me this money, just think how it will help them when the tennis court installation company booms from the extra orders…we’re on to a win-win situation here.

Great your feeling much better 🙂

The euro is doing fine today as well. Speaking to the euro earlier, I was reassured to hear, http://www.moviesounds.com/2001/alright.wav

Seems above everything is on the way under the line negative. Big closures in retail coming 2012, layoffs in financial services and banks have to do their long postponed cull. Sadly Clery’s, I believe is on the way out as well.

GNP/GDP going down will pull the bailout under the water.

We badly need a properly structured orderly default.

Quote from summary of CSO document:

“Personal Consumption (-1.3%), Government expenditure (-1.3%), Fixed Investment (-20.9%) and Imports (-1.5%) decreased on a seasonally adjusted constant price basis between Q2 and Q3 2011 while Exports (+0.8%) increased over the same period.”

Looking at those numbers, I’d say consumer & government spending and net exports were around where they might have been expected. Fixed investment -21% is a horrible number though. We will hopefully see some bounce back in Q4.

I agree that we do need some sort of captial investment programme. The NPRF recently announced a plan to set up a modestly sized infrastructure fund with some partners. I think it is a good idea but the scale is too small. The NPRF could put up €1 billion and look for equity partners to put up another €0.5 billion or so. The government could even mandate pension funds to put in 0.5%-1% of their assets in to the fund. Then gear it up 2x-2.5x and you have a €4bn+ size investment fund which could build out the Dublin metro and other projects around the country. It’s time for the government to think outside the box a bit now I feel.

@ Carson,

Spending money you don’t have on pieces of infrastructure you don’t really need is not “thinking outside the box”.

Bringing prices of unproductive property assets down to levels which allow a cost-led resurgence in competitiveness – now that would be thinking outside the box.

is 1q significant?

@constant mkt prices
2009Q4-2010Q3: 159,989m
2010Q4-2011Q3: 160,786m

so are we not flatlining rather than contracting?

‘jobs initiative’ not showing much promise so far.

NAMA is sitting on a cash mountain of €1bn which is costing the Agency 1.7% per annum now and that is set to fall to 1.2% in March when the interest rate is reset to the now-lower 6-mth Euribor.

If NAMA can lend its cash into projects in return for more than 1.7% or 1.2%, then that makes more sense than NAMA redeeming its bonds which do not need be redeemed until 2020. There is nothing in the Troika agreement to force a 25% debt repayment by NAMA by 2013, despite hints and references otherwise.

NAMA should throw its (our) cash away but are we seriously saying we don’t need additional schools and third level facilities, hospitals and care homes and at least one prison. It might only be €1-3bn in the next 12 months but it would be a start.

@LHE

But the money is there already for the small infrastructure fund already announced. And there is money available to scale it up in the sources I outlined above such as the NPRF, private pension funds and other equity partners whose arms can be twisted to ‘wear the green jersey’.

With an internationally respected infrastructure manager running the fund on the basis that it will make commercially viable returns, we should be able to persuade the EFSF or some other official financing body to gear it up or perhaps provide insurance to cover commercially sourced loans. As I say, you could have a €4bn infrastructure fund investing in Ireland over the next 5 years making up the shortfall in government capital expenditure.

On your point regarding falling property prices, that may well be in the long-term interests of the country but it will certainly not provide a short-term stimulus to 2012/2013 GNP growth.

The bulk of the drop in GNP from Grand Bubble year 2006 (G.B. 0 maybe) from drops in construction activity and taxes. Not a surprise but still depressing to read the scale. Curiously ag, fish and forest are more or less static in value over the period; not sure what this says about prices, volumes and the prospects for sectoral growth in the short term.

Not being an economist I am puzzled at how the government plans to manage its budget with little growth likely in the economy next year. Presumably another run of bad figures like this will put Croke Park back on the table.

Presumably another run of bad figures like this will put Croke Park back on the table.
yes, because that will solve everything….

Presumably these figures have already shown up in the tax receipts, which were somewhat buoyant mid year but have now fallen back. At least this shows that tax will respond to growth. Such growth will not happen immediately, but in a two or three year horizon the Euro economoy will rebound if things stabilise and Ireland can take advantage of that. I suspect that the outcomes in 2013 or 2014 will be similar.

I think the best way to avoid recession is to redefine the term quarter and adopt the year of one of the neighbouring planets

Pick one: http://www.exploratorium.edu/ronh/age/

Now having rescued Ireland from recession, can I have one of those big cheques from the target 2 thread… I wont open it (I promise) and therefore it wont cost ye anything 🙂

@all

Yes – placing all quarterly accounts over the past few years in the Category “JAYSUS” neatly captures its local vernacular lunacy and its universally recognised idiocy.

@Ludwig Heinrich Edler:

Seriously? How do any of those things provide any long term economic benefit? Improving public transit has obvious benefits. Improving drainage systems and water networks has obvious benefits. Improving broadband, road and electric networks, etc, etc.

And you compare that to buying a chess set? Really?

@ Jagdip

“There is nothing in the Troika agreement to force a 25% debt repayment by NAMA by 2013”

True. But there is a requirement to delever the banks to 110% loan to deposit ratio, and NAMA paying back out helps that challenge.

It looks just as bad in German

http://www.blick.ch/news/wirtschaft/irlands-konjunktur-bricht-ein-126513

DUBLIN – Die Wirtschaftsleistung des Euro-Problemstaates Irland ist im dritten Quartal wieder geschrumpft.
Aktualisiert um 14:06 | 16.12.2011
Nach ermunternden Zahlen in den beiden ersten Quartalen 2011 brach das Bruttoinlandprodukt in den Monaten Juli bis September im Vergleich zum Vorquartal um 1,9 Prozent ein.

Im Vergleich mit dem Vorjahreszeitraum steht ein Minus von 0,1 Prozent zu Buche, teilte das zentrale irische Statistikinstitut (CSO) am Freitag in Dublin mit. Vor allem die um 5,4 Prozent eingebrochene Inlandsnachfrage habe zu dem Minus beigetragen.

Irland war vor einem Jahr als erstes Euro-Land unter den europäischen Rettungsschirm geschlüpft und hatte von IWF, europäischem Rettungsfonds und EU Kreditzusagen in Höhe von 67,5 Mrd. Euro erhalten. Irland hatte alle Auflagen erfüllt, seine Haushalte konsolidiert und zuletzt eine deutliche Aufwärtsentwicklung gezeigt. Das Land braucht dringend Wachstum, um seine immense Staatsverschuldung von mehr als 100 Prozent des Bruttoinlandprodukts abbauen zu können. (SDA)

“Ireland did everything it was told to do”.

Breastbeating and powering up the banshee won’t get us far.

There are about 108,000 employed in construction compared with 126,000 in the industry in 1998 which was a year of optimism and growth.

We also had a severe recession in the 1980s following a period of excess. The challenges are greater today because the international market is more competitive and growth is mainly in the developing world.

There is no simple solution in response to the changing global economy and
the world’s biggest economy relies on 5% of its consumers for 37% of its consumer spending.

On the cost side of running the economy, I repeat again below a statistic that I used earlier this week. Of course, on spending, tax and job creation, there is no simple solution.

Minister Joan Burton:

In 2001 spending on social protection stood at €7.84 billion; by last year this had grown to almost €21 billion – an increase of 266%. Inflation increased by around 30% during the same period.

So while some of the expenditure increase is clearly due to the dramatic rise in unemployment since 2007, the most significant factor is a surge in both rates and the number and size of schemes over a very long period of Fianna Fail government.

@ Christy

sharply lower yet again, but everyone’s are. 5yr back below 8%, at 7.90% or so. Spain like a runaway freight train today once again.

I’m fairly bearish at the moment but this exceeded my expectations. What can we expect from other EZ countries over Q1 and Q2 2012 for they will surely follow? I’ve been convinced since September that Europe is already in recession. I also suspect we’ll be getting another budget before December 2012.

The signs are there Merkozy. Change course now. If you don’t…..

Surely now the time has come to bring our budget immediately into balance with massive adjustments on the spending side. Could I propose the following:

1) 100% cut in all public sector income salaries over 100K
2) 25% cut in all public sector income between 50K and 100K
3) 15% cut on all public sector income under 50K
4) Maximum ceiling of 25k on public sector pensions
5) Abolition of child benefit. You want kids, you pay for them.
6) 25% reduction in social protection rates including OAP and then means test before payment
7) Closure of all 3rd level institutions outside of Dublin, Cork, Galway, Limerick and Waterford
8) Closure of all hospitals outside of Dublin, Cork, Galway, Limerick and Waterford
9) Immediately privatise all semi-state companies
10) Closure of all primary schools with less than 100 pupils
11) Closure of all secondary schools with less than 350 pupils

To stimulate investment in the economy I would propose the following:

1) Elimination of all taxes on capital
2) Reduce the higher rate of income tax to 35%
3) Reduce corporation tax rate to 5%
4) Abolish the minimum wage
5) Abolish PRSI permanently for any employee recruited during 2012 only
6) Join NATO which would require a significant investment in the military industrial complex.

Lets not get ahead of ourselves on the pessimissim here! All of numbers were as we expected except for investment and thats easily explained – the 1.2bn fall from Q2 was mainly due to a drop in aeroplane expenditure, 900bn of the 1.2bn in fact. Michael O’Leary has alot to answer for! These quarterly figure are notoriously volatile, but that wont be explained in the sensationalist reporting we’ll see over the next day. We’re still there or there abouts to grow by just under 1% this year, in line with the governments conservative forecasts and investment cant go anywhere but up in Q4. Lets just pray exports stay strong!!

@Stephen Kinsella

The title of this thread reminds me of that Douglas Adams line (something like): “The Vogon ships hung in the air in much the same way that bricks don’t.”

I’m sure there are parallels to be drawn in the state of some European economies.

Apologies for quoting something so geeky as that….. I’ll get my coat.

@ Richard M

Merde.

1) 100% cut in all public sector income salaries over 100K

Typo ? What about a cap at 125K?

2) 25% cut in all public sector income between 50K and 100K

How about leaving it alone they spend most of their nomey domestically?

3) 15% cut on all public sector income under 50K

How about at 5% increase to boost local demand and VAT revenue?

4) Maximum ceiling of 25k on public sector pensions

Why not? With provision for additonal voluntary contributions for those that wish to?

5) Abolition of child benefit. You want kids, you pay for them.

Bring it back to where it was before the Budget see 2. & 3. above. (Have you something against children?)

6) 25% reduction in social protection rates including OAP and then means test before payment.

See 2. and 3. above

7) Closure of all 3rd level institutions outside of Dublin, Cork, Galway, Limerick and Waterford.

Why not. Additional expenditure on public transport would be a good thing. I am open on that one.

8) Closure of all hospitals outside of Dublin, Cork, Galway, Limerick and Waterford.

Can I take it you don’t live in Mayo? Nuts

9) Immediately privatise all semi-state companies

Who is going to buy them? Why not get rid of half the board, half the middle management and incentivise what is left in a profit share scheme?

10) Closure of all primary schools with less than 100 pupils

Have you seen the costs of transporting kiddies to school these days? Marginal cost savings to be had in transporting 99 pupils 30 miles twice a day than pay for 5 teachers – excluding social costs off course.

11) Closure of all secondary schools with less than 350 pupils

See 10.

To stimulate investment in the economy I would propose the following:

1) Elimination of all taxes on capital

Increase it 10%

2) Reduce the higher rate of income tax to 35%

Increase it 5% per annum for the next 5 years – we won’t notice.

3) Reduce corporation tax rate to 5%

Increase it to 15%. See 2) above

4) Abolish the minimum wage

Increase it by 1 Euro per hour. See 2) & 3) first section.

5) Abolish PRSI permanently for any employee recruited during 2012 only

Can’t. Government needs the money.

6) Join NATO which would require a significant investment in the military industrial complex.

Ireland only has one world class indigenous company in the MIC – they make suspension systems.

Any increase in Military spend would require additional imports (money leaving the country you know – no added value and all that).

The Defence forces have aquired and continue to aquire the best of technology and equipment available within their budget. They do a marvelous job.

Richard M
“Surely now the time has come to bring our budget immediately into balance with massive adjustments on the spending side. Could I propose the following:”
You could…but it would be best f you costed it. A good start would be here http://budget.gov.ie/Budgets/2012/Documents/CER%20-%20Estimates%20Final%20Part%204.pdf
Prediction: even ignoring the second third and higher order effects the programme you outline wont get next nigh or near a balanced budget.

David
“Lets not get ahead of ourselves on the pessimissim here! All of numbers were as we expected except for investment and thats easily explained – the 1.2bn fall from Q2 was mainly due to a drop in aeroplane expenditure, 900bn of the 1.2bn in fact. Michael O’Leary has alot to answer for! These quarterly figure are notoriously volatile, but that wont be explained in the sensationalist reporting we’ll see over the next day. We’re still there or there abouts to grow by just under 1% this year, in line with the governments conservative forecasts and investment cant go anywhere but up in Q4. Lets just pray exports stay strong!!

Tis but a scratch…
Oh, and exports…http://www.irishtimes.com/newspaper/finance/2011/1216/1224309148051.html

@phillip II

Putting Croke Park back on the table won’t solve everything, but it is necessary to reopen that agreement in the current circumstances.

A couple of days back a contributor to this blog Johnny The Foreigner, I recall, mentioned that on January 1st university professors will get a pay rise of 6000 euro bringing their salaries just shy of 150000. How many are affected? One thousand, two thousand, more?

I read recently that increments are still scheduled to be paid to public servants. Why isn’t a pay freeze in operation?

Alchemist
No ideas what the figures are and havent seen that reported anywhere. I suspect much much less than thousands.
Pay freezes are not in operation perhaps because of contracts? Anyhow, I suspect JF and others grossly overcalculate the amount of money to be saved from those evil pests that nurse and teach and police us…

@Philip II

Don’t know exactly how much would be saved by stopping increments. But let’s say it’s more than 100 million euros (not just 3rd level obviously). That’s how fiscal policy works – lots of small changes rather than one big change. See this year’s social welfare budget. Which inflicted a lot more pain than would be experienced by stopping increments for the PS.

Btw I get increments.

JF

Will you then be giving this increment up to the Minister for Finance as a gift ? I think thats the best way, lead by example and all that 🙂

Got a link to the ‘professors to get 6k rise’?

@Philip II

“Will you then be giving this increment up to the Minister for Finance as a gift?”

Would my argument be more valid if I say yes?

“Got a link to the ‘professors to get 6k rise’?”

The main universities all have roughly the same scales. Here is the scale for UCD. The largest increments are 6500 euros.

http://www.ucd.ie/hr/add/salary_scales/scales.htm

The foreign sector usually creates some distortion in the national accounts.

Leasing firms based in Ireland own over 3,000 aircraft.

It’s an old refrain of beneficiaries of public largesse to argue that x or y program is no big deal in the context of the national budget.

€700K payoffs for civil servants; severance for politicians and ‘independent’ TDs trousering tax free gifts of over €200,000 in a parliamentary term, thanks to negotiations with Bertie Ahern in 1997, but they will not pay €100 on a point of ‘principle’, is no big deal; 6,000 quango directors and so on.

It all adds up and is it not reasonable to ask in a bankrupt country why it is necessary to incur costs in respects o f members of parliament that are 50% higher than in Sweden, a country with a sound economy; ditto for medical consultants and so on.

We ask that Europe share the burden of the bank bailout but it’s OK at home for the private sector to bear the brunt of the crash in job losses, pay and pensions?

The strategy group on higher education that reported to the Government last January said salaries account for three-quarters of total current expenditure on higher education in Ireland, compared with an international average of two-thirds. This means that Irish higher education operates with lower (nonpay) recurrent expenditure than is typical in other countries.

As Ernie Ball pointed out on these pages, that doesn’t mean everyone is overpaid.

University presidents have the ambition of creating ‘world class’ universities. It’s always easy to make decisions on spending others’ money and as for payback, well that is something that can only be guessed if at all.

The Irish Examiner reported in Nov that more than 30,000 teachers will receive pay increases worth almost €22 million next year, while students and their families suffer another round of cutbacks.

The increases are part of a €250m annual increase to the public sector pay bill arising from salary increments guaranteed under the Croke Park deal between unions and the last government in return for productivity measures.

The increases range from just over €1,000 to €3,615 a year — up to €301 extra a month — for those working full-time. But because most teachers’ increments do not take effect until September, the average cost to taxpayers next year will be about €670 per teacher.

Just over half of teachers will receive increments. The cost for more than 19,500 at primary levels is estimatedat €13.8m, while about €6.4m will be added to the salary costs of almost 11,000 second-level teachers.

Public Expenditure and Reform Minister Brendan Howlin said suspending increment payments would affect a higher proportion of lower-paid workers because it takes longer to reach top pay rates within lower grades. But the increments being paid to teachers include increases of €2,500 to €3,615 payable to some of those with 15 to 25 years’ service on basic salaries of €50,000 to €60,000 after the January 2010 public service pay cut.

Increments are a quaint concept; whether in the private or public sector, the longer a person works may in reality mean the less productive he or she may be.

JF
Ah, so its not “all university professors to get a 6k pay rise” but increments of up to 6k to apply to those on a scale. Which is optically at least rather different.

And yes, I think so. Small steps recall, so your giving up your increment will act as a spur to all others.

@Philip II

How would you describe the pay increases on the link I gave – in your own words what amounts do you see?

@ Philip II

I suggest you read up on the long-term success of Chile’s economic reform programme as devised by The University of Chicago in the 1970’s. As a result of painful short-term reforms the long-term results included a balanced budget and zero (yes zero) government debt. Chile ultimately became the first Latin American state to achieve fully developed economy status.

Like it or not a €15bn adjustment is coming, nearly all of which will be expenditure cuts. Only then can Ireland begin to recover. Britain & Germany have both endured incredible hardship and austerity during the 20th century and both have since prospered despite two ruinous wars. Ireland wants sympathy for bankrupting itself three times since WW2 and adopting a cowardly and parsimonious neutrality policy.

Irish people have not yet seen public expenditure austerity. I awit their reaction with interest when it arrives.

Hang on are not all of the figures for the negatives explained. The drop in personal consumption coincides with the car scrappage scheme ending and car sales fall off the cliff. Ditto for imports. We knew that Government Expenditure was also down because the CS would not allocate and spend the Capital Budget for 2011. And as a contributor here has stated Mick O’ Leary stopped buying and registering aircraft here in this quarter reducing fixed investment. Anecdotally as far as I can gather plans for fixed investment are well up in Q4 which will probably start to come through in 2012. There is only so many years businesses can defer making capital investment in their infrastructure without affecting productivity i.e Guinnesss at James Gate. The Food companies have to make massive capital investments but have been sitting on their backsides here. The quality and supply of Water here is in the dark ages just like the pipe transmission system which must have substantial investment which water rates will have to finance. There is hope whilst there is need !!!

Richard M
Actually, I agree with you. We have a 21b gap to close. And its not going to be pretty. I just think we should conduct the debate honestly and openly. suggesting there will be pay rises implies in the irish debate (JF is a F after all..) that there is a rise in the base. Incements may have the same effect, but they are different in perception.
BTW – we cannot cut 15b. Not possible. 10, an outer limit. Theres going to be tax rises. And lots of them.

@ Ludwig — You are offering a compelling but false analogy. The fact that it is compelling keeps it alive. The fact that it is false, yet believed, is leading to an ongoing tragedy. Please take a moment to consider whether there is more to the story than your analogy suggests, and why this might open the door to a set of counter-intuitive conclusions.

Two questions:

Do you think that everyone can simultaneously save, which is to say, that all can spend less than their income?

If so, do you also think that all countries can simultaneously run a trade surplus, which is to say, that all can spend less than their income?

In both cases, the obvious answer for improving a local financial situation encounters a uniquely global adding-up constraint. That’s one reason why macroeconomics is counter-intuitive, and a reason why you should not necessarily trust your intuitions, no matter how compelling they may be.

Please step back and consider whether you have really thought this through. Please also note that your social context may make it difficult to change your mind — which is part of what makes the tragedy continue.

@Philip II

So to summarise your argument.

1. Not all professors get 6.5k pay rises – some have to settle for 5k. And another bunch don’t even get a pay rise (the poor dears) because they’re at the top of their scale (ie close to 150k).

2. It doesn’t add up to that much, sure you’d hardly miss it.

3. It’s not really a pay rise. Even though the people getting the ‘not a pay rise’ see their pay, er, rise

4. I’m a foreigner.

Why are you even bothering to have a debate about this? I thought that Plan A was to keep schtum and hope no one notices?

Few professors get such increments as few have being appointed in the last couple of years.

What about the many people that would be professors in any reasonable country, but who are not as posts are being held vacant?

There are many such people and people of sufficient erudition to know the difference between a pay rise and an increment.

@Philip II

Do you honestly believe that Irish private sector workers (ie the non-foreigners who can’t possibly understand our quaint habits) understand the “nuances” that we in the PS cherish? To these people a pay rise is a pay rise. And a pay rise that you get for simply getting 1 year older with no credible link to performance is not even a pay rise – it’s fraud. I guess you think they are as ignorant as the UK academics who laugh out loud at our salaries? And the German central bankers who wonder wtf we’ve been up to recently? All we need to do is sit these fools down and give them a lecture on our “nuances”.

@dearg doom

“Few professors get such increments as few have being appointed in the last couple of years.”

So what? There aren’t many ex-ministers either – do you think we should ignore their grossly inflated pensions?

I completely agree re the people who deserve promotion. If we cut all salaries and linked increments to performance we could re-introduce promotion and start filling vacant posts and start to get back to a meritocracy rather than the closed gerontocracy we seem determined to defend.

@ Phillip

Entirely seriously, as I am not familiar with them, but what in your view is the difference between an increment and a pay rise?

Also, I would suggest most people not directly exposed to the public sector (ie themselves or their spouses) know about increments really.

@phillip II

The late MOF Lenihan decided to not pay medical consultants at the pay scales promised in their new contract because circumstances had changed. As I understand it the consultants are now working the hours and terms and conditions of the new contract but being paid the salary of the previous . Still generous, but he set a precedent. It is politically easier to chop at the medical consultants or a couple of dozen civil servants retiring with generous pensions, but digging into vested interests in the teaching professions seems to frighten politicians. It is a numbers game in the end – number of votes, I mean.

And despite more than a decade, may be two, of free rides on the Smart Econimy roundabout, the results aren’t exactly head spinning.

I used to refer to the Irish pressure group that always wanted to dismiss the idea the country would be forced to get more into line with foreign practices – and were keen as mustard on the ‘bailout’ and not resolving the banks – as “incrementalists”. That could have been more accurate than I realized 😉

‘Continent Isolated’ watch:

When you throw a stick for a corgy, you say “fitch!”

Relative to other ‘AAA’ Euro Area Member States, France is in Fitch’s judgement the most exposed to a further intensification of the crisis. It has a larger structural budget deficit and higher government debt burden relative to Euro Area ‘AAA’ peers. Moreover, relative to non-Euro Area ‘AAA’ peers, notably the US (‘AAA’/Negative Outlook) and the UK (‘AAA’/Stable Outlook), the risk from contingent liabilities from an intensification of the Eurozone crisis is greater in light of its commitments to the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM), as well as indirectly from French banks that are less strong than previously assessed as reflected in recent negative rating actions by Fitch.

The Alchemist: “Not being an economist I am puzzled at how the government plans to manage its budget with little growth likely in the economy next year. Presumably another run of bad figures like this will put Croke Park back on the table.”

By selling off assets at bargain-basement prices (for that one-year blip), and by more austerity.

Austerity economics is really sweet, like bleeding patients used to be: the more you do it, the more you need, until the patient dies by the Will of God/general economic collapse happens due to not being 100% pure economically.

Hey what do you know; The predicted growth figures which were going to save us all from default were wrong all along and Morgan Kelly was right–again.

Who could have predicted this?!

I’m really tired of commenting in blogs, saying along with many others that the “company consensus” is wrong, only to be ignored and then proved right six months or so later. I don’t think anyone in power or positions of influence is listening to anything other than the sounds within the echo chamber corridors of power.

Well to all those wilfully deaf people: Please stop talking, step aside, and allow others to try to fix the mess you’ve created. Preferably, allow those who have been proved right so far to have a shot at fixing things, because I think they will probably do a far better job.

I don’t know why people are getting so hysterical about the austerity…Ireland had a whopping bubble…fake money everywhere in the economy:
– too much wages
– too much public spending
– too much capital gains

We are now undergoing a structural adjustment, and duh….it’s downwards

@Ludwig – It that what you think of the unemployed? That they’re all just dreaming of ways to rip off the hardworking German people?

Perhaps if you weren’t such a lazy git you might have learned a little economic theory, which tells you not to cut government spending in a recession. Ireland was running a surplus before the financial crisis. Then the Irish government agreed to guarantee the debt owed by Irish banks to German banks. And presto Ireland has a sovereign debt problem.

The unemployed want to work. They want jobs.

@Desmond – What was the deficit level of the Irish government in 2007? If you can’t answer, do some research before posting.

Ireland had a surplus. So tell me again how there was too much public spending?

The financial crisis and ensuing worldwide recession was caused by the private sector. It was caused by arrogant bankers who thought they could securitize away risk. The housing bubble was fueled by private lenders. It was not caused by high wages. It was not caused by government spending. It was not caused by taxation.

I don’t know why people are getting so hysterical about the austerity…

I think it’s time to start getting—if not hysterical—at least agitated.

The Department of Finance’s own figures on general government debt, put its at being over €203 billion in 2015. This will put Irish debt to GDP at 111.4% of GDP.

But these figures are based on Irish GDP growing each year. Specifically growing from €156 billion in 2011 to €182 billion in 2015. The GDP growth targets for the first year now won’t be met. In addition, the projected budget deficit of €18.2 billion also won’t be met, but no surprise there.

Now, I don’t mean to get all “mathematical”, but the Debt to GDP ratio, being a ratio, is a lot more sensitive to changes in the denominator(bottom figure) that the numerator(top figure). Assuming less growth tends to change ratio a lot. (Assuming Morgan Kelly’s total debt figure of €240 billion make things even worse)

Rather than waffling on any more, I’m just going to post a table of possible figures and let people make up their own minds.


|-------------+------------+-------------|
| Debt (2015) | GDP (2015) | Debt/GDP(%) |
|-------------+------------+-------------|
| 203.6 | 182.7 | 111.4 |
| 203.6 | 170 | 119.8 |
| 203.6 | 160 | 127.2 |
| 203.6 | 156 | 130.5 | Today's Estimated GDP
|-------------+------------+-------------|
| 240 | 182.7 | 131.4 | Morgan Kelly's Debt estimates
| 240 | 170 | 141.2 |
| 240 | 160 | 150.0 |
| 240 | 156 | 153.8 |
|-------------+------------+-------------|
| 203.6 | 200 | 101.8 | Mad optimism, back to '05 bonanza!!
| 240 | 200 | 120.0 |
|-------------+------------+-------------|

In every single case, Irish debt to GDP is over 100%.

On the basis of this, I predict that at the end of the EU/IMF bailout in 2015, this country will simply enter another IMF bailout for another 5 years.

*Sigh* Let’s try that table once more time Dave.

|——-+—–+——-|
| Debt | GDP | D/GDP |
|——-+—–+——-|
| 203.6 | 183 | 111.3 |
| 203.6 | 170 | 119.8 |
| 203.6 | 160 | 127.2 |
| 203.6 | 156 | 130.5 |
|——-+—–+——-|
| 240.0 | 183 | 131.1 |
| 240.0 | 170 | 141.2 |
| 240.0 | 160 | 150.0 |
| 240.0 | 156 | 153.8 |
|——-+—–+——-|
| 203.6 | 200 | 101.8 |
| 240.0 | 200 | 120.0 |
|——-+—–+——-|

Hopefully that’s a little more readable. The above still applies.

@OMF

Most people listen to the slushy sound of their wallet as they glide it out of their pockets. The remainder are idealistic and number at least some entrepreneurs, the risk takers.

These are inconvenient facts in a ‘debate’ about growth that is almost entirely massaged by bureaucratic stakeholders.

@ Stephen Kinsella

Do you think that the girls were miming in that video? Not that I’d mind, they can mime all day if they want.

PS
Fuel oil for electricity generation use was still substantial in 2003 at 565 KTOE , its now about 100ish I think.
But still we are paying much more for less BTUs

This is the fundemental reason why the rich can concentrate so much wealth – fine art for example is not effected much by these numbers.
All the CB / commercial bank has to do is print / create more money units and it will flow upwards.
Me thinks this is why there was such a forceful deindustrialization agenda – why would I want to swim in a polluted seashore ?

@I recently changed my mind

Good points.

It’s a bit like classical mechanics – theories that work well at one scale fall over when applied at other scales, such as the very large or very small.

While eliminating all debt would be a good thing for a single household, if every household, firm and government eliminated all debt there would be no money left in the world, which would be less than ideal at both the macro level and the household level.

Trying to address large-scale macroeconomic problems with principles taken from the “swabian housewife” school of economics is like trying to accurately predict planetary motion with classical billiard-ball mechanics – it seems straightforward and plausible, but it doesn’t work.

@ Andrew

There was an Exchequer deficit in 2007.

No lessons learned from the petro-economy model?

Tax cuts, property tax incentives and light touch regulation was the work of some deity?

It was magic while it lasted — over 400,000 jobs added in domestic sectors and guess who many jobs were added in those areas where something is made or sold overseas e.g microchips, software, leasing and cheese – – 100,000, 50,000 or surely not as low as 5,000?

@ Bond, Eoin Bond
I think that increments are a little like bonuses in banking. Only difference is that you don’t have to destroy the world economy to get one

@Michael does it matter where these people worked?

Does Krugman not preach that war is good since it leads to more employment and stimulus 😀

For ObsessiveMaths,

you are right, but debt/GDP ratio above 100% were not a problem if the ECB would step in and drive interest rates back to normal.

And remember the denominator is nominal GDP, while the numerator is only in part linked to the deflator.

If the ECB were a central bank, this would help.

Not being a central bank, this would hurt. Deflation will make the denominator even smaller.

Economically speaking, increments aren’t a pay increase. The fact of an incremental salary scale simply means that you get paid less than the average wage for a position when you start the job, and if you stay in it for long enough, you’re paid more than the average. Eliminating increments would mean that some people’s salaries would be adjusted down, and others’ would be adjusted up. Stopping increments would simply be a pay cut that targeted lower paid public servants, as opposed to applying to everybody equally.

Whatever happened to the concept of being paid based on “performance” and “productivity” and not how long one stuck around for. I suppose these would be alien concepts for the PS.

@Kevin Walsh

Jaysus. Do you really think Irish academics get paid less than the average wage for a position when they start?

I don’t think we should eliminate increments – we should make them contingent on a credible performance assessment linked to publications and getting grants. And make them standard! Why does a Professor get an increment of 6,500 euros and a lecturer only get 1.5k?

Question for the wingnuts in the audience (LHE, Richard M, etc): what country in the world has EVER implemented the “reforms” you propose without either being a fascist dictatorship or winding up in utter ruin after a few years? If slash’n’burn free-for-all economics is so great, why is it that only the Third World seems to practice it?

Ian Whitchurch Says:
December 17th, 2011 at 12:54 am

Spot on.

@ Christy

+1 😉

@Johnny Forgeigner 7.41pm

Can’t find fault in that +1

@Ian Whitchurch on the resurgence of the myth that the Chicago Boys were not incompetent fools who could not make their policies work – even when collaborating with a ruthless mass murdering military dictator.

+1

It is some comfort to us that the Friedmanite/Fascist tools “saved” Chile by not destroying the country so totally that a minerals boom and a total reverse in economic policy could not save it. Perhaps if huge deposits of rare earth metals are discovered in Limerick Ireland will recover from the Bundesbank/EPP alliance of doom?

It is interesting how gloriously free the political right feel now that an alliance of Europe’s least progressive politicians and most powerful banks makes European policy. They no longer even pretend to be that concerned with democracy or some idea of the common good beyond protecting the private property of the virtuous rich from the clasping hands of the undeserving poor.

@EIS

I’ve had to have a performance review every year since I joined the Civil Service, and if I got a bad review, I wouldn’t have got my increment. As I understand it, this was also the case prior to PMDS.

@Johnny Foreigner

What I meant is that an Irish academic who is at the bottom of the scale gets less than the average wage for an Irish academic. And I’m not sure it’s mysterious that Professors get paid more than lecturers.

Don’t be so sarcastic, Ludwig Heinrich! Must you put your nose to the stone and forever grind it? Think of sunshine, flowers, humming birds and butterflies in your greensome garden, the light shimmering on the water of your pool, a G&T at your side and a half-opened book dangling from your hand ! That wouldn’t have happened except for your expansionary policy! You’d still be peering through rain spattered panes in your living room, shuddering from the cold and wondering how you will pay your credit card. Nasdrovia!

@Andrew
No need to get testy (especially as you are wrong)

The 2007 tax revenues included huge bubble windfall (both direct as stamp duty etc and percolations). This is widely recognised.

As I said the problem is there was fake money all over the economy – there remains need for more of a structural adjustment – and absent good global headwind – this means most indicators for the Irish economy will tick downwards.

-Public spending remains too high (tax revenues are tens of billions from it)
– Wages still have to come down (and as global headwinds poor, we can’t assume a freeze will mean real/effective decrease)

Further contraction is a necessary thing.

@Desmond Brennan

I don’t think there’s such a thing as a good headwind unless you want to slow down, not currently the position in most economies.

@EIS

Yes, of course it’s other civil/public servants. I understand that it’s normal practice everywhere for performance reviews to be carried out by local managers rather than outside consultants who would have to be hired at enormous expense and then told what to put in their reports by local managers.

@Stephan
My response to Obsessive just disappeared from the blog ether ?

Were those historical import figures just too shocking for you ?

I did not use the words Brits this time , I promise

paying 2.7 times more for oil while importing less BTUs is disturbing I agree but……………..

Even if you don’t agree that there is a difference between importing real goods & being in defecit rather then importing the pure energy to use them to the maximum level possible you should not consider such words Blasphemy.

Whats so difficult about this idea – to give a classic extreme example I may have bought imported a 4*4 truck in 2003 and been able to use that for my business but now that investment is a drag on my life – it was a bad investment given the rising input costs on that capital good.
The same could be said of inappropriately placed housing units etc etc.

Ireland is a malinvestment freak show.

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