Austerity as an Idea

Henry Farrell writes about a forthcoming book by Mark Blyth on the history of austerity as an idea, I’ll certainly be picking up a copy. Given that Ireland is currently the poster child for austerity, the book is timely.

By Stephen Kinsella

Senior Lecturer in Economics at the University of Limerick.

44 replies on “Austerity as an Idea”

The government is capable of implementing austerity in order to reign in debt levels or balance the budget without hampering growth if monetary policy is accomodative. The problem at present is that monetary policy is ineffective because the credit channel is saturated and blocked. In order to create stimulus that will enter the economy directly just modify the central bank to bypass the credit markets and conduct monetary policy directly with the public.

internationalmonetary.wordpress.com

“If Blyth is right, we are only going to get out of the mess we’re in by developing new ideas that work better than austerity and can shape a new economic order, at least for a while. He doesn’t know any better than I do where those ideas will come from, but at least he has some understanding of why and how they are important.”

That’s not a very reassuring end to the review….and there is no new Keynes on the horizon. The modern aspirants to that role possibly spend too much of their time in television studios.

Looking at the footnotes, it appears that California, the ninth largest economy in the world, does not merit a mention even though it has had to implement severe austerity in recent years. It pays about 20% more in federal taxes than it receives in transfers.

Blyth writes on austerity:

“The cost of this epistemic arrogance and ideological insistence, has been and continues to be, horrendous. [….] The euro has turbocharged this problem by effectively turning the twentieth-first century European economy into a classical gold standard. The results are once more predictably awful.”

In addition to inflation, devaluation, end of austerity and default, he proposes financial repression and an effort to “seriously collect taxes on a global scale.”

As previously highlighted, the struggling economies have had long-term problems that have predated the euro. While the euro did encourage reckless cross-border lending, the big rises in jobless numbers in Spain and Ireland followed massive property booms and busts, not specifically imposed austerity. Rather than comparing the situation to the hungry 1930s, there has been external support and 1.3m Irish could holiday in Spain last year!

In 1996 Robert Skidelsky, a biographer of Keynes, wrote in Prospect Magazine:

“The champions of the welfare state have a seductive alternative strategy. If European governments were to pursue expansionary monetary policies, unemployment would come down, growth would be faster, and budget deficits would dissolve in higher revenues and lower spending. [….] This would be fine if budget deficits were purely cyclical, as they were in Keynes’ day. But they are now structural products of steady upward pressure on spending, combined with tax resistance.”

The IMF did support George Osborne’s public finance strategy in the UK. It is indeed in need of a growth strategy but the dystopian imagery is overdone — there is record employment (there are some caveats but people are in jobs) and health, pensions and schools accounting for 40% of spending, are excluded from cuts while GDP has been flat overall rather than plunging.

The power of transnational companies has grown with the huge expansion of the global market and before the crash, the status quo was maintained for the insiders and members of powerful groups by allowing dual labour markets to develop.

It would be good if the EMU omelette could be unscrambled and countries would then have to make their own choices on sinking or swimming.

Many problems to handle: The secondary school dropout rates are about 20% in Italy, and 25% in Portugal and Spain. Spain and Portugal have cut the rates from over 30% by reducing education expenses.

Whether it is fast, slow or no adjustment in the face of challenges ahead, there are no guarantees that current European standards of living can be maintained. There are over 7m with mini-jobs in Germany that enable people to earn €400 monthly without any tax deduction. There are 120,000 Germans over 75 years of age, with mini-jobs because of inadequate pensions.

Don’t criticise the Germans because that is what is also ahead for the outsiders in Ireland.

In a decade, China will be spending as much as the US on R&D and the OECD has predicted that Brent crude will rise to $190 a barrel in 2020 — as every rise in income in EM economies is matched by rising oil demand.

The US is in a much stronger position to withstand this situation than Europe.

So lots of breastbeating on austerity but few new ideas on responding to a changing world.

@Michael Hennigan

Without a euro, the capital flows into Geman bunds, banks and companies during this crisis, would have propelled the Dmark into the stratosphere.
Its exports would be severely reduced and imports from other EZ countries would have increased, thereby getting rid of the ‘spreads’ problem and rebalancing employment within Europe.

Germany in such a situation would be an equal victim of the crisis rather than the clear and continuing victor in the crisis.

The fact is that the whole EZ , and possibly the western world, is subsidising German exports through its undervalued euro exchange rate.
It is of no comfort and of little economic relevance that such an export surplus can be lauded as helping to produce an ‘EZ export surplus’ or an ‘EU export surplus’, which are irrelevancies to each individual country within the EZ or EU.
The extent of the irrelevance can be seen in the disparity of unemployment rates in the EZ.

Regarding competition from non EZ countries, I am old enough to remember Japanese cars being a major problem for the US economy in the late 1970s and early 1980s. The US promptly introduced import quotas and the Japanese responded by relocating production of US cars to the US, mostly to areas well away from Detroit. Problem solved.

Intra trade block surpluses or deficits can be dealt with either through imports taxes or negotiation.
The EU, as we saw from a recent legal case in this country, still has a 200% import duty on garlic!!

@ Joseph Ryan

If your analysis is correct, why are UK exports not booming?

The core issue is a disparity in competitiveness/productivity which cannot be resolved by fiddling with exchange rates or tariffs. (The US car industry had to be bailed out again!).

Germany cannot be faulted for the excellence of the products that the country produces, no more than Japan. However, Germany is a member of an economic and monetary union and this brings with it certain obligations. One of these is to run her economy in a manner that is not detrimental to other EA economies. The labour reforms introduced by Schroeder do not fit into this scenario. Steinmeier, who was his right-hand man and who is now leader of the SPD in the Bundestag, has defended the reforms asking “where would Germany be without them?” but conceding that there have been “excesses”, especially in relation to pushing a large part of the workforce into low-paid and precarious employment. Insistence on a balanced budget in the present downturn is probably the most serious and glaring example.

As the author linked to remarks;

“We do not live in the tidy, ordered universe depicted by economists’ models. Instead, our world is crazy and chaotic.”

This is especially true when it comes to the period prior to elections. No dramatic change of direction can be anticipated. But changes are taking place both in Germany and her biggest trading partner, France. Whether they will be sufficient remains to be seen.

I’ll hazard a guess. Its our longstanding Permagrowth economic paradigm that is the predicament – that and increasing pressure on the energy sources needed to power that paradigm.

Looking for a ‘new Keynes’ is akin to searching for you keys (sorry!) beneath the street light, when in fact you dropped them further back the path where there is no light. As a joke this may be funny, – but its real life, and lots of folk are being harmed.

So, how do you unwrap Permagrowth? Simple: you cannot! Seriously.

We WEIRDoes* have a worldview with ourselves at its epicentre. Very useful in many contexts, but not in the context of ‘austerity’ which is in the control of persons who are at best clueless, at worst have hazardous ideological mindsets, and all we can do if we are foolish enough to believe the economic claptrap emanating from those suspect sources – is to lie down in front of that austerity steamroller. Because – “THERE IS NO ALTERNATIVE!” Now where have I heard that before? There are alternatives. Just not ones that suit the current incumbents.

Want some suggestions? Sure, but you will not like them one little bit – I guarantee. Its a Political Economy predicament. There is no valid response outside of a political context. And the very best that will be achieved is that we slow the rate of our economic regressions. These cannot be halted (temporarily perhaps). Do not be seduced into believing that “all will be right – soon!” or , “All we need is a return to confidence” or “We need growth!”. Yes, some economies will thrive, but remember they are chewing OUR lunch as they ‘grow’! The only thing that is ‘growing’ for us are our debts. These MUST be repudiated – if the truth be faced.

Our politicians will never tell the truth (I doubt they even know what it is) that borrowing for day-to-day state spending is actually spending some of your probabilistic future income. So you actually have to do do two things (1) you MUST NOT increase your current spending levels; (2) you MUST increase your future income levels. Parse that one into political PR speak. Its not funny.

@ MH: I might differ with you on Chindia. Are these two not heading for Basket Case status? Most of Africa ditto. The US has decided to emulate Japan. Europe? Russia? Globalization seems like a wonderful idea – on paper and in the minds of WEIRDoe economists – but when it goes pear-shaped (as it will in a decade – maybe two), then what?

“…crude will rise to $190 a barrel in 2020 -”

Its not the pecuniary cost Michael, its the damn quality of that energy (derived from hydrocarbon fossil fuels) – and the nett amount of energy available for importing by energy poor states. And if you want to be economical about it – its actually the energy Opportunity Cost of a consumer-ready unit of energy. This OC is increasing! Seriously!

Nature is in control of this one – not us with our brilliant innovations wonderful technological wizardry. Nature.

*Western, Educated, Industralized, Rich, Democratic (societies).

Another comment from MH denigrating a comment/viewpoint for not offering solutions while he himself declines to offer solutions…pot, meet mr kettle
Seriously Michael, what.would.you.do? Besides rare up on people who ask that I mean….

@ Brian Woods
I agree. The solutions are along these boring lines:
1: Sovereigns cannot raise debt
2: A community funds the services it wants through tax
3: Deposit banking is separate from investment banking and can be zero interest zero risk or interest commensurate with risk

@ Joseph Ryan

A d-mark wouldn’t rise to stratostrophic levels. Germany would implement capital controls.

Switzerland has taken action to stem a big rise of the franc. It has a jobless rate of above 3% and managed GDP growth of 1.4% in 2012.

Local value added in German exports is lower than in US exports and while a rise in the currency would hurt some exporters, it would gain from cheap inputs and the big companies can manage currency changes within their supply chains.

German companies do not generally compete on price. Obviously there is a limit.

@ Brian Woods Snr

Yes, energy efficiency is better in the developed world and Brazil hit a middle income trap in the 1970s and then stalled for two decades.

The World Bank estimates that of 101 middle-income economies in 1960, only 13 became high income by 2008 – – Equatorial Guinea, Greece, Hong Kong SAR (China), Ireland, Israel, Japan, Mauritius, Portugal, Puerto Rico, the South Korea, Singapore, Spain, and Taiwan. By contrast, although many countries in Latin America and the Middle East reached middle-income status as early as the 1960s and 1970s, a great majority of them have remained there ever since. In Latin America, for instance, income per capita relative to the United States fell almost continuously from 1960 to 2005, especially after the debt crises of the early 1980s.

China has a lot of companies competing on price with poor QC but the bigger companies are building experience trading with other emerging economies.

There is no perfect world and the Japanese never managed to run multinational operations efficiently.

The Chinese are seeking to acquire existing companies in the West. They are likely to be more enduring rivals than the Japanese.

So Austerity is just an idea? And all we need is a better idea? Silly me, I thought the Government Budget Constraint was something real not just a capitalist conspiracy.

Sean O’Rourke of RTE questioned Madame Legarde about austerity. She corrected him: “you mean fiscal consolidation”. But this is not mere euphemising. Madame Legarde seems to have a greater understanding of the English language than many economic commentators. Borrowing €1bn per month is not austerity.

Since BWII is also commenting I am switching to a chemical alias – Acetic Anydride. BWsnr.

@ Eureka: Thanks for that.

@ MH: Thank you also.

“The Chinese are seeking to acquire existing companies in the West.”

To what purpose? Rival whom? Create new employments? Pay minimilistic wages? They will export back to Chindia? to BRICs? – they will in their glue! Maybe the ‘west’ has become so morally corrupt that Chinese politicia leaders and mercantilist elites will feel quite at ‘home’. Beats me!

Jesus Michael, its NOT about energy efficiency, its about the damn quality of whatever hydrocabon-based fuels folk can lay their little paws on!

Thermodynamics and engineering tolerances set an absolute upper limit on energy efficiency – we could get there – but the energy Opportunity Cost may be too high. And as I mentioned above, the energy OC of extraction from new fields [coal,oil and gas] is increasing! Energy engineers use the term ERoEI [energy returned on energy invested]* to describe the quality (not the quantity) of hydrocarbon and non-hydrocarbon based energy fuels. This metric is declining for all existing fossil hydrocarbon fuels! Worse, the total volume of liquid hydrocarbon fuels available for export from the 30 major producers is also declining! The global economy is headed into a very dark space with respect to its energy resources and the energy needs of ’emerging economies’.

Coal = Oil (near enough in energy quality – with severe caveats!) but gas is a poor third and bio-fuels have a NEGATIVE ERoEI! PV solar is fine – south of 42 N and north of 42 S – provided you have very large acreages to site the panels and their transmission infrastructures.

Not to be too biblical about it, but its “gird your loins” time!

@Brian Woods II

Sean O’Rourke of RTE questioned Madame Legarde about austerity. She corrected him: “you mean fiscal consolidation”.

Oh for god’s sake, Lagarde eliminating the problem of austerity by calling it something else is the sadly typically response of technocrats when confronted by the unpopularity of the failed policies they advocate. – rename the policy.

It is what any intern at Minitrue would do.

@Seamus Coffey

It seems people are talking about different things. Is there a broadly accepted definition of “austerity”?

I think shrinking the number of people in state employment and cutting capital spending during a recession would tick the boxes as austerity for most people. More light heartedly perhaps austerity is just theoretically flimsy, counter productive and inhumane conservative economic dogma implemented when the negative effects are immediately obvious rather than a delayed outcome.

Would you disagree?

@ Seamus Coffey

‘Is there a broadly accepted definition of “austerity”?’

It appear not.

A rich Italian tax dodger who opposes paying his tax dues, likely is an opponent of austerity.

Tyler Cowen commented last year: “austerity is a misleading and often misunderstood word. It is better if we describe policies more concretely, and in fact that is not hard to do. Furthermore, insisting on a clearer accounting should not be equated with ‘austerity denial.’”

@ Brian Woods II

A minority of the Irish population have suffered real austerity.

As for the rest, tax and social security revenues as a percentage of GDP were at 30% in 2011 compared with an EU average of 40% and 44% in Finland and Austria. Use GNP as a metric and the ratio is still well below the average.

While Irish taxation receipts in 2012 were above 2004 levels, the gross voted expenditure of Government Departments and Offices in 2012, at €56bn, was about 37% above the level it was in 2004.

Seamus Coffey has put the estimated deficit ex bank support and debt interest in 2008-2013 at €60bn — almost 50% of GNP.

Contrast that with California.

Last year welfare payments, healthcare for the poor, and benefits for elderly and disabled Californians were immediately cut by around $8.3bn – – 17% of Governor Jerry Brown’s entire discretionary budget. And state offices, which employ roughly 200,000 people, were forced to operate on a four-day, 38-hour work week.

San José, the biggest urban area in Northern California in the midst of Silicon Valley, one of America’s richest regions, has been struggling with its budget for a decade.

This was after several years of cutbacks and last November, voters supported a rise in the sales tax to avoid education cuts.

American economists seem to be more interested with what is going on in Europe.

@ Seamus Coffey

The short answer is no. But, as has been pointed out above, borrowing one billion a month to maintain a level of government expenditure that would otherwise be impossible certainly does not fit any credible definition.

Fiscal consolidation, on the other hand, has a clear and unequivocal meaning i.e. bringing tax revenues into line with expenditure by altering one or the other or both. This, as far as I know, is a description that is not in dispute.

Maybe we could settle for the term used by the French; rigour!

The best thing for people wanting to improve their understanding of austerity might be to read the Crooked Timber thread referenced in the OP.

For those without time to read the whole thread this post is useful:

http://crookedtimber.org/2013/03/08/austerity-as-an-idea/#comment-456376

with the most reduced version of the theory of austerity being “It’s a claim that if you cut public debt you will grow” and that growth is expected to come from the powerful effect our missing friend the confidence fairy.

@DOCM

You can quite happily have a substantial budget deficit and be engaged in austerity – prioritizing managing the level of the budget deficit over over measures of economic health (as measured for example by unemployment, emigration, debt/GNP or GNP) fits in perfectly with the dogma of austerity.

@MH lost me with the Cali references…is their a point ?
“Governor Jerry Brown declared an end to California’s chronic fiscal crisis, projecting the first surplus in a decade thanks to spending cuts and $6 billion in new taxes approved by voters in the most populous U.S. state.”
http://mobile.bloomberg.com/news/2013-01-11/brown-with-surplus-proclaims-california-s-crisis-is-over.html

The book is still not available over the pond,author gives a decent speech here,explaining his take on austerity.

The prevailing notion that Germany is a victor in the present crisis is put in terms that Germany is benefiting at the expense of the PIIGS. Germany is exporting to the world outside the EU which the PIIGS did before their economies ramped up construction and decimated their manufacturing industries. There is evidence of German manufactured goods export success all over the world and nowhere more than the NAFTA countries.

It is largely Germany’s balance of trade that is propping up the Euro, enriching German banks and allowing the ECB to keep the show on the road by generously lending large amounts at low rates to Central Banks, backed by national governments and in turn their tax payers.

Before we cast aspersions on Germans we should ask ourselves why we priced ourselves out of foreign markets. The Germans certainly ask why they are propping up countries where incomes are higher than in Germany where workers have not had a raise higher than inflation for over a decade.

Time we took ourselves aside to take a long hard look at why we have caught the American/British disease where they blame foreigners for all their own shortcomings.

The wailing and gnashing of teeth over bad decisions wrt bank rescues continues unabated. That is spilt milk, water under the bridge. Commitments entered into in 2008 and subsequently are binding. The only constructive action left is to get on with rebuilding an export capability. As it stands the country is losing able bodies every week. Further weakening the country as a smaller population services debts incurred. Historically we exported bodies, that does not mean it has to go on forever. At some point we will come to our senses.

@ shay

You are confusing austerity with pain.

Consider somebody trying to give up excessive drinking. Let’s say she cuts back from a bottle of vodka a night to half a bottle. There is no doubt she is suffering, though I don’t think we could accuse her of having achieved austerity levels of drinking.

What about the other word beginning with an A? Accountability?

I’ve seen a recent document where some people were legally ‘ultimately accountable’ for something and those people pocketed their high wages (coming with the accountability) and then proceeded to publicly blame their subcontractors and subordinates when things went sour.

Would it only be begrudgery to hold someone accountable or does accountability come with some positives?

Austerity does have some interesting PR, every time there is a demonstration against corruption and waste the media-headline is: Anti-austerity rally.

Mother of God – how hard is this to grasp:
Austerity = everyone making a sacrifice that is essential for survival and common good

Financialism = international money lenders insisting tax payers cough up more dough to keep them rich

Are yis thick or wha’

Professor Sinn strikes again!

http://www.voxeu.org/article/european-imbalances

The article is fundamentally correct in identifying the core problem causing the euro crisis but completely simplistic in terms of the options offered i.e. internal devaluation or exit from the euro.

Greece, Spain and Portugal were lagging behind the rest when they joined the euro and it is little surprise that they are still in major difficulty. Ireland had a good chance of existing this group but blew it in construction bubble without parallel. However, the country is still an outlier and has the best chance of (i)escaping from the quarantine and (ii) preventing contagion.

The analysis of trade movements is also simplistic in the extreme. Deutsche Bank does a better job.

http://xa.yimg.com/kq/groups/17389986/1473140226/name/Deutsche+Bank+Focus+Europe.pdf

To add to the mix, a bit of “Ricardian equivalence”.

http://www.voxeu.org/article/another-look-ricardian-equivalence-case-european-union

It certainly holds true in the case of Ireland. A degree of optimism is, however, justified. The general population seem to be getting a very sound grasp of the accounts of Ireland Inc. The major discovery is that, despite a long-running popular belief, there is no goldmine in the basement of the Department of Finance. If one group of taxpayers are gaining benefits that seem unjustified to another, it is not the “government” that is losing but other taxpayers, including themselves.

There are too many different interpretations of what “austerity” means. I think its use has become unhelpful.

Oddly enough though, you can rearrange its letters thus:

“I Treaty us”

“I stay true”

“Years I tut”

“At Ye I rust”

“I eat rusty”

“Aye, Sir Tut”

Which is the most appropriate?

@ DOCM

The general population seem to be getting a very sound grasp of the accounts of Ireland Inc.

Poor me, I thought this was a country, not just a set of accounts.

@ Michael Hennigan

Tyler Cowen commented last year: “austerity is a misleading and often misunderstood word. It is better if we describe policies more concretely, and in fact that is not hard to do. Furthermore, insisting on a clearer accounting should not be equated with ‘austerity denial.’”

Funnily enough, I don’t regard sociopathic libertarians as an authority on telling me what “austerity” is.

This, from the comments, rings true:

As Krugman wrote recently, at first advocates for austerity used to call on the Confidence Fairy. The Confidence Fairy never showed up, and no one really believes in it any more. Similarly, the other ideas that were cited as justifying austerity have fallen away. But austerity itself has not, because it is the policy that oligarchs prefer based on their interest, not on their ideas.

I’m guessing we’re still at the stage of Mr. Kenny waiting by the door for Mrs. C. Fairy to arrive, as IBEC, Colm McCarthy etc. have told him she’ll surely be along any minute…

@ Mickey Hickey

Time we took ourselves aside to take a long hard look at why we have caught the American/British disease where they blame foreigners for all their own shortcomings.

Unfortunately, we are suckers for fairytales and the last official report which presented the unvarnished facts on exports, was published 9 years ago.

Mark Blyth writes:

Martin Malone of Mint Partners (a London broker) put it bluntly, “The entire increase from 2007-2012 in Ireland’s service exports is almost complete fluff…they are overstated by €30bn which as a measure versus GNP comes to almost 25% of the total.”

Malone was possibly quoting from research that I did myself in this area:

http://www.finfacts.ie/irishfinancenews/article_1024185.shtml

I have asked the Department of Finance why the following statement that was made last month by Minister Noonan is not false:

“The services sector is playing an increasingly significant role in export growth, having grown by 9.4% over the first three quarters in 2012, and now exceed the level of goods exports by just over a billion euro. This owes much to the significant price and cost adjustments that have taken place in recent years.“

It’s not only the official sector that spins yarns with the enterprise agency chiefs acting as forelock-tugging cheerleaders and Oireachtas members out of their depth, this week the vice president of the Irish Exporters Association, in the presence of Eamonn Gilmore, minister for trade, cited [growth rates in Irish exports to China of up to 11% per annum up to 2030 are expected, followed closely by growth in exports to India, Vietnam, Malaysia and Indonesia. “By 2017, China is projected to overtake the US as the largest economy in purchasing power parity (PPP) terms and by 2050 India is set to become the third largest economy in the world after China and the US.”]

The source for these claims, HSBC Bank, was not cited. Projections of what are now mainly exports by foreign firms into global supply chains 17 years forward, should have no credibility.

One advantage of these exports is that there is no need to know the equivalent of ‘f–k off’ in Cantonese as you only need to sit at a desk in Ireland and await delivery instructions from elsewhere — and while China is a challenge, the Chinese find Indian haggling exasperating!

Each year, 20 Irish students who win a scholarship to study for a Masters in Asian Business Studies, split their time between studying in  University College Cork (UCC) and Nanyang Business School (NBS) in Singapore and working for their sponsoring company in Asia.

The initiative could be a good thing. However, operating in the first-world city state of Singapore is quite different to hustling for business elsewhere in Asia where a business degree is not necessarily the most important attribute to have.  

Seamus Grimes, professor emeritus, of NUI Galway who has spent several periods living in China, said in 2009: “One bright young consultant for a multinational, who spent two years in an Irish university and had also been educated in Australia, spent a few years working for a small Irish software company in Beijing. He feels that these small companies cannot make it in the Chinese market, which is very tough, very competitive and has a huge number of Chinese companies, both large and small in the marketplace. Language and culture are serious barriers and few outsiders know how to do business effectively in China. Hence most multinationals have localized their management.”

Annual exports (goods +services) to the BRICs are 3% of total export value and beyond China, exports to Brazil, Russia and India are decimal points. Goods exports to India in 2012 were lower than to Greece.

According to the 2004 official report ‘Ahead of the Curve’, produced by the Enterprise Strategy Group: “Over the period 1990-2002, exports by agency-assisted indigenous enterprise grew in nominal terms at 5.5% per annum (versus 15.9% for foreign-owned companies). When inflation is taken into account, the real growth in both sales and exports was negligible.”

In 2002-2011, indigenous tradeable exports rose 4% annually in current price terms. Industrial production in traditional industries fell in the period 2001-2010.

Central Bank economists estimated that in 2008 Irish-owned SMEs accounted for just 7% of exports and fully 64% of private sector workers were employed by indigenous non-exporting firms.

Why are the comfortable able to get away with their fairytales?

How can a credible export strategy be developed if the facts on teh ground are ignored?

A few months ago, I sent an analysis on enterprise policy and the failure of the ‘smart economy’ strategy to Damien English TD, chairman, Joint Committee on Jobs, Enterprise and Innovation and John McGuinness TD, chairman, Committee of Public Accounts.

I suggested some names of people they should talk to and said I wouldn’t be available myself because of my location.

I got no reply.

It’s strange given the struggle to fund other areas, the importance of job creation, and the crowding out of other investments, that the Oireachtas has steered clear of this area.

Nevertheless, each week, ministerial propaganda and doling out of public funds to the mainly well-heeled, has become a ritual while the apprenticeship system for unemployed youth is the worst in Europe.

http://www.finfacts.ie/irishfinancenews/article_1025641.shtml

On a more positive note, I will be toasting President Higgins on Thursday night at the Sheraton Imperial in KL with a pint of Guinness, the local brew. Hopefully, there will not be too much evidence of austerity!

Austerity as a word has multiple meanings which shift over time, not all of them closely linked to economics.

The policy of ‘austerity’ in Europe seems to me to be the governments attempts to raise income, usually through higher taxes, and lower expenditure during a downturn. This under pressure from the ECB, EU Commission, etc.

As noted by various above, this was initially sold as being not necessarily economically harmful due to the possibility of expansionary fiscal contraction. JC Trichet backed this idea, and the early IFAC reports took the notion seriously. This argument was put to the test and comprehensively failed. It is now impolite to mention it.

The new meme seems to be, we all knew it was going to be harmful (contractionary), but, essentially, whadd-a-ya going to do and anyway who could have guessed that the international climate would be so ‘disappointing’, and anyway 90% is a very large percentage – and will you please stop looking at Japan, or historical data or anywhere else.

The IMF is the main organisation which has attempted to assess why the impact of austerity was not as predicated at the time. This failure may be up to the extent of not even actually reducing deficits and/or debt levels, which is the aim of the programme. For example, the huge rate of youth unemployment in the EZ is a human disaster, but is also wiping out growth and costing the states directly.

There is constant talk of the need to create jobs but reform always seems to be presented as liberalisation of the jobs market, leading to more insecurity, lower demand and companies hoarding their cash mountains. Europe would be stronger with stronger unions.

Say ‘hello’ to the President for me Mr Hennigan, by then I should have welcomed him to Fishamble’s ‘Tiny Plays for Ireland 2’ at Project Arts Centre on Tuesday.

Bloggers who fancy engaging with ‘where we’re at’ on a human and conceptual level should come along – previous visitors have been very positive (thanks Zhou). Those who can’t make it can read two of the plays here:

http://www.irishtimes.com/culture/stage/two-tiny-plays-for-ireland-soul-mates-and-slanesman-1.1319635

Or indeed, read all 50 tiny plays as published by New Island. I think if you read ‘Slanesman’ closely Mr Hennigan, you may find food for thought.

http://projectartscentre.ie/programme/whats-on/1674-tiny-plays-for-ireland-2

@ Gavin Kostick

“Expansionary Contraction” is the name of the ship that the Confidence Fairy is expected to arrive in at the Dublin docks any day, or so I hear.

On a more serious note, it was ridiculous at the time – as noted by a few, reality-based economists – and it’s not surprising to see attempts to flush it down the memory hole in embarressment now. I suspect a look back through past statements by certain high-profile economists here might prove entertainung, in a morbid fashion. The final line of the epitaph on the gravestone of the PDs?

@ mickeyhickey

‘The only constructive action left is to get on with rebuilding an export capability. As it stands the country is losing able bodies every week. Further weakening the country as a smaller population services debts incurred. Historically we exported bodies, that does not mean it has to go on forever. At some point we will come to our senses.’

You have many sound views, but we can’t get to Killarney fom here. Michael H is like a dog with the bone on the export story, and rightly so. The services figures are ever more dodgy, and we don’t have control over most of the flows. The day of the FDI low-skills manufacturing plant is over so no joy for the many thousands of ex-construction or would-be construction workers. Global supply chains, have, in any case, undermined the craft skills very seriously.

As Michael also unfailingly points out, we continue to support a knowldege-economy ‘industry’ which contributes little to our real economic prospects. I would guess it is just aother branch of our elite system, which seems satisfied with reproducing itself, and its privileges, from one generation to another. It’s all about co-optation.

Ireland is not, and never was, going to be like any of the major European nations, with their advanced mercantile strctures and industrial revolutions. We were poorer than the Russian muzhiks in the 19th century, FGS.

Joe Lee said it all in his ‘Ireland 1912-85’. We did not develop, or look outwardly, as some other small European countries did, and we threw away the potential of national independence. With rare individual exceptions, the government, and its supportiing institutions, represent the triumph of the possessors over the performers. There is little capacity for creative thinking.

More generally, it may be that the European elites have no real ideas as how to progress matters economically, and are merely attempting to preserve as much of ‘core Europe’ as they can, for as long as they can. Irrespective of the biological age of the faces on TV, it’s a gerontocracy.

@ DOCM

Thanks for links. Fiscal responsibility is a necessary, but not sufficient step to economic development. Germany has been exporting capital and importing demand, and is going to pay a high price for that unbalanced approach. Absent the kind of global rebalancing which Michael Pettis nicely describes in his recent book, the EZ and global economies must continue to sink, and us along with them. It follows that we need to pay as much attention to global, as we do to European, or national factors.

http://www.amazon.com/dp/0691158681/ref=as_li_tf_til?tag=chinfinamark-20&camp=14573&creative=327641&linkCode=as1&creativeASIN=0691158681&adid=0X2WXTVKJV6VVMN98PEX&&ref-refURL=http%3A%2F%2Fwww.mpettis.com%2F

@ Gavin

Nice summation. Keep up the good work, but I wonder why our trade union movement has become so concentrated in the PS. One of the top union leaders was on the board of the CB during the bubble, and has been as unaccountable and untouchable as the rest of the elites. Something is amiss with the internal strucutre of the unions.

@pq: “Something is amiss with the internal strucutre of the unions.”

Well spotted. It goes something along the line – the verse of the same coin. And guess whose on the obverse? Most folk do not even bother to look, let alone have a concern about it. Members of trades union pay subs to ensure they are kraaled by their leaderships to ensure ‘compliant behaviours’ – in line with the wishes and desires of the aforementioned leaderships. It seems irionic, but its true. I was there for a wee while!

@grumpy

There are too many different interpretations of what “austerity” means. I think its use has become unhelpful.

The word has certainly become very unhelpful to the people forcing its implementation, or sympathetic to its aims.

I think “fiscal consolidation” has been the preferred rightspeak for austerity for a year or two now as “consolidation” does sound so very serious and important while austerity was starting to give off a bad smell in public discourse. Who could argue against consolidation? Or rigour? (On a similar note who would not want “sound money policies”, “labour market liberalization” or “structural reforms”? You might as well be against motherhood and apple pie!)

The battle to control language is obviously a key part of the political struggle over the political right’s big assault on social democracy (democracy full stop even) in Europe but everyone in the reality based community agrees whatever alias you want to give the policies which omprise austerity they are not working – nor were they ever likely to.

So why are we following them? Qui bono?

Japan weakened the private sector Labour Unions, China has almost wiped out Unions in companies competing internationally whether that be by exporting product or being displaced domestically by imports. Unions being confined to public services and noncompetitive parts of the service sector in the developed world is a trend that continues. Albeit slower in some countries like Germany than others. I would not single out unions as being particularly backward, they fit quite well into the Irish culture.

Post secondary education that is still producing graduates better suited to 1950 than 2013 is considered to be a widespread problem in the developed world. A university degree is now often a requirement for low level clerical jobs. Even more alarming is the drop in lifetime income caused by highly educated people lacking salable skills flooding the market. The University Degree premium in many disciplines has vanished.

Canada is one country where the provinces are responsible for education. The Federal Gov’t subsidises post secondary education. Now that there are jobs going begging in the skilled trades while university graduates have to be retrained the Federal Gov’t is reducing the University subsidy and redirecting funds to skills training, apprenticeship schemes and so on. The consensus is that resources are being wasted by the provinces currying favour with the middle class by making a university degree into Grade 16. University graduation in Canada is now as common as Primary school graduation in 1910 , Secondary school graduation in 1955.

In Germany bragging rights went to the mother who had a son apprenticing as a Machinist at Mercedes as opposed to the one with a son in law school.

Ireland for 50 years longer than it should have forced Latin, Greek and Gaelic down the throats of unreceptive pupils. Gaelic is still being foisted on the gullible. We start wasting scarce human capital at age 6.

We are competing with countries who have their eye on the ball and are not hanging on like grim death to outmoded ideas that still confer status in Ireland.

In Europe, the audience that must be convinced ‘austerity’ is a bad idea in order for policy change to occur is the electorate in the Eurozone core.

First of all though, people are going to look at a state like the UK, Ireland or Greece and ask themselves whether they believe that “austerity” is happening there before they can decide whether it is appropriate or not.

The problem with the term “austerity” is that it is up to the audience to decide whether it is a comparative term or an absolute one. Is it first or second derivative?

We are not being clear about what we mean.

If you complain for example about there being “austerity” in Ireland, some international listeners will assume:

(i) you mean that wages, transfers, services, terms of employment etc are “austere” now in Ireland compared with what they were during the boom

(ii) you mean that wages, transfers, services, terms of employment etc are “austere” now in Ireland compared with what they are like in the country of residence of the listener

A complaint from Ireland of “austerity” looses a significant portion of the audience straight off – they just stop listening, because those people have interpreted the meaning as per (ii) above.

Take for example a UK observer. Unemployment transfers are usually about £71 per week (about €82 per week compared to Irish rates of roughly €188), lawyers and other professions earn a lot less and the government of the UK, a country which could print as much money as it wanted and is not being funded by the IMF and EU, is imposing rather than seeking agreement for, changes to terms and conditions, pensions etc for the public sector.

That observer might assume interpretation (i) in which case he is probably open to persuasion by the argument that attempting to quickly eliminate the Irish budget deficit is a counterproductive idea.

However, he is just as likely to assume interpretation (ii) – in which case he will probably think “austerity, what, in Ireland – who are they trying to kid?!” He is likely to stop listening there and then.

German observers are likely to have a similar choice of reactions.

It would be more effective I think for the ‘left’ in Ireland to dial down the use of the term “austerity”, appealingly emotive though it might be, particularly where there is an international audience, for the above reasons.

Try to persuade all the audience, not half of it.

If it walks like a duck and quacks like a duck, it is a duck!

What Ireland is experiencing is a long overdue process of fiscal consolidation which is undoubtedly causing austerity in the sense of pain to many but also leaving many unscathed.

What is at issue is the nature of the “withdrawal” medication and the possible risk of it killing the patient cf. thread just opened by John McHale.

The patient in Ireland’s case is raising such an active fuss that an experienced medic would come to the conclusion that many of the symptoms are feigned.

From today’s SBP the headline; “Third of TDs declare rental properties in Dáil register”.

Well, I never!

No wonder the Finns are fed up! Their flagship company Nokia is shedding a third of its workforce and they are not blaming its fate on malign outside forces but getting on with the job of adapting it to the requirements of a harsh international business world.

Luvly hurlin!

Serious outbreak of ‘postmodernist thought’ on the blog; the ‘universal’ is no more as the ‘particulars’ claim practically all the space and finally, finally, ‘The Linguistic Turn’, as distinct from the spinners turning the corners, takes centre stage in the War against the Ideological OrdoLiberal gougers.

Postmoderinst sortie of the month: Michael Hennigan on the Illusary Nature of Irish Service Exports and its accompanying blatant politico & quango spinners.

@DOCM

Blind Biddy wishes you a happy and universal Mother’s Day.

[p.s. the BAU of the BBHF estimates that you may be female – 13%; statsig *. Do let us know!]

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