The six mile tail back on the road into Newry, splashed in glorious full colour on the front page of today’s Indo, helped yesterdays strike undermine the strongest argument opposing cuts in public sector pay. With various studies putting public sector pay approx. 20% higher than equivalent private sector pay levels (without taking into account superior benefits), the main argument against cuts was that they would reduce the amount of money being spent in the Irish economy, leading to a shrinkage in the total size of the economy and in tax returns to the state.
Union economists such as Michael Taft have produced estimates showing that the size of the deficit reduction of a given cut in spending may turn out to be a fraction of the size of the cut. It is highly unlikely that the models employed took into account the “Newry Effect” – that with significant pricing differentials between north and south, money borrowed by the Irish state to pay state employees is not being spent in this state. In all likelihood spending cuts may well be less deflationary than first thought. Regardless, those who travelled north to shop yesterday fundamentally undermined the argument that the rest of us should borrow more money, and pay more tax to maintain their salary levels because it is beneficial to this (southern) economy.
No bio, some books worth reading – The Rational Optimist: How Prosperity Evolves – Matt Ridley .
Crisis Economics: A Crash Course in the Future of Finance -Nouriel Roubini, Stephen Mihm