The Left’s Awake?

Two articles worth reading – in Monday’s Irish Times the Tasc / progressive-economy folks had an article published that attacked the government’s approach and outlined their favoured alternative (largely tax rises & increased government spending). Yesterday evening Constantin Gurdgiev responded with a masterful demolition of their arguments.

All the wrong options have been pursued

28 Alices in Wonderland of Tasc economics

[Update : Nat O’Connor’s response to Dr. Constantin Gurdgiev]

Quote from Constantin Gurdiev’s article..

“Equally damaging have been the cuts in public investment at a time when private investment has plummeted. This has laid the foundations for a low-growth, high-debt future where unemployment will remain high and inequality endemic.”

One can relate to this statement. The problem is that while some of the cuts were to productive investment, the real error of the Government policy has been the lack of systematic approach to assessing the value-for-money of various projects and freezing or canceling outright the ones that do not yield sufficient returns. For example, parts of road building programmes relied on the outdated and often utterly unrealistic expectations of development in remote locations. Binning these ‘investments’ is ok – they are the luxury we cannot afford. Ditto for Metro North – which in its current incarnation is a White Elephant.

Another highlight – the Tasc approach seems to involve having our cake and eating it too. I.e. A roll-back of any spending cuts along with an increase in capital spending. Gurdgiev argues this isn’t possible & given the Greek Socialist Party are now implementing cuts does anyone seriously agree this is possible within the Eurozone?

The authors do not understand that increasing consumption – by borrowing at 5-6% per annum to give the money to our welfare system and to pay public sector’s obese wages is taking money out of investment. Instead, they seem to think that both: welfare payments increases and public sector wages can be sustained while increasing state spending on capital projects.

So do the simple additions. To maintain NDP investment at previously planned levels, on top of the current budget deficit we will need some odd €6-7 billion more. To return welfare payments to their 2009 levels, and to reverse pay cuts in the public sector and reductions in employment there, we will need additional €3.4 billion. These are all net of receipts. So the Exchequer will be borrowing some €29 billion this year – 18% of our GDP. What would the Greeks say with their current 12.7% GDP deficit and heading for 10.7%?

Update: Although in fairness to the Tasc position GDP would be higher under their expansionary route and thus the deficit may not quite scale the heights of 18%.

Philip Lane also has a response on Irish Economy.ie

  • mack

    It seems to me otherwise intelligent people are allowing the very people who got us into the economic mess, to set the bench mark for recovery.

    Where were these economic geniuses when the US ran a massive deficit due to the war, no where to be seen, as the main beneficiaries of that were their masters in the multi nationals and their gofers in government. When it comes to cutting benefits and what I will call State infrastructure they are all for that not least because it would not hit them and theirs.

    Mack you are singing the same old song. chill out, don’t panic, try and look beyond your ridged economic dogmatism. Economic neo-liberalism is not the only show in town, and to believe it is must make life very boring, a bit like seeing the phantom of the opera over and over again.

    By the way are these the same folk who were predicting if massive cuts were not made immediately, the UK’s credit rating would be downgraded.

    You are allowing the money markets to completely influence economic strategy, which is criminal stupidity, as these markets have no responsibility beyond the bottom line and thus they have no moral compass.

    If you wish to live in a sweat shop of a country, awash with poverty and workhouses, fine, thankfully most people do not.

  • Mack

    Mick

    If you wish to live in a sweat shop of a country, awash with poverty and workhouses, fine, thankfully most people do not.

    I don’t live in a sweatshop of a country – I live in one that pays benefits at a rate 3 times higher than yours (e.g. £69 versus €190 per week) & that pays public servants much better than yours (compare £13k for an AA in Belfast, with €25,000 starting for a clerical officer in Dublin). That taxes lower paid workers incomes at much, much lower rates than your country or any other EU country (very close to 0% versus a 20% EU average).

    I want to live in a country that can continue to provide a higher standard of living for all our citizens than yours can provide for your own citizens. Despite, what, 13 years of socialist government – our ‘neo-liberal’ economists and politicains seem to have gotten better results, agree?

  • FitzjamesHorse

    Ah the Left.
    I remember the Left…….it was the early 1970s.
    We were gonna change the world.
    We got side tracked but Alex Glasgow & Henry Livings summed it all up for us.

    I could have done it yesterday if I hadn’t a cold,
    But since I’ve put this pint away I’ve never felt so bold.
    So as soon as this pub closes, as soon as this pub closes,
    As soon as this pub closes, the revolution starts
    I’ll shoot the aristocracy and confiscate their brass,
    Create a fine democracy that’s truly working class.
    As soon as this pub closes, as soon as this pub closes,
    As soon as this pub closes, I’ll raise the banner high
    I’ll fight the nasty racialists and scrap the colour bar,
    And all fascist dictatorships and every commissar.
    As soon as this pub closes, as soon as this pub closes,
    As soon as this pub closes, I’ll man the barricades
    So raise your glasses, everyone, for everything is planned,
    And each and every mother’s son will see the Promised Land.
    As soon as this pub closes, as soon as this pub closes,
    As soon as this pub closes … I think I’m going to be sick

  • Marcionite

    bravo FJH bravo.

  • Mack

    By way of comparison this chart might be interesting –

    http://www.ronanlyons.com/wp-content/uploads/2010/01/ilo-chart.png

    At purchasing power parity the poorest 10% in the UK have an income similar to the average income in a south American country – in Ireland they earn nearly twice that (as they also do in the neo-liberal USA).

    We’re not talking about Thatcher’s Britain here, and cut backs in Ireland are not the same as cut backs in the UK. It’s about taking appropriate measures to protect the solvency of the state.

  • Alias

    It’s pointless citing living standards and welfare payments that were only created as a by-product of borrowing 300 billion a year from the eurosystem (but now has to repay 1.67 trillion to the eurosystem, seeing the bogus prosperity that spending borrowed wealth created being replaced by the austherity that repaying borrowed wealth will create).

    Give it another 2 or 3 years, and the underlying reality will have kicked in by then.

  • mack

    It is not that the country I live in is incapable of paying people the same amount of cash you write about, far from it. But because we are governed by people who have such a low opinion of humanity, they believe those at the bottom of the economic heap must be encourage by paying them less, and those at the top by GIVING, oh sorry, paying them more.

    Unlike you it seems, I don’t only call that gross stupidity but also theft, or do you really believe Tony Blair was given a three million pound book advance by Murdoch because his sales would easily cover such an advance.

    I digress, by the way if you intend to use the example of English governments as an argument to help impoverish Irish workers, might I suggest you may be on a somewhat sticky wicket historically.

    I am at a loss to understand your last sentence, in what country has there been a socialist government for the last 13 years? We socialist’s nationalise state banks and cut the throats of there former owners, we find it a far better way to control the market than pouring hard earned tax payers coin down their greedy gullets, whilst cutting workers pay.

  • FJH

    Your looking a tad dated, we have 24 hr opening hours over here.

  • FitzjamesHorse

    yes it shows Mickhall 🙂

  • FJH

    Nice one 😉

  • Mack

    The reason the Irish govt pays more in welfare than the Brits is because it costs more, a lot more, to live here. In addition the Brits cover more in ‘additional payments’. I often wonder how people in both countries manage, but I honestly believe it is harder for the people here.

    The main problem, as I see it, is the govt here have a freeze on low paid govt jobs in, for example, the health sector. The unemployed cannot afford to spend so the private sector takes a battering.

    Low paid govt workers have been among the hardest hit with pay cuts. A decision not much short of criminal.

  • Mack

    Pippakin –

    The reason the Irish govt pays more in welfare than the Brits is because it costs more, a lot more, to live here

    Alias’ reasons above are closer to truth. The cost of living is higher in Ireland, but not _that_ much higher (maybe 20% higher, rather than 300%). Incidentally I’ve been on the dole a couple of times in the UK and I didn’t notice much in the way of extra payments…

    The UK pays the lowest welfare rates in Europe – and historically while they had Thatcherism we had Social Partnership.

    Low paid govt workers have been among the hardest hit with pay cuts

    I broadly agree with this – it was badly handled. You still, within that have a situation where graduate front line staff can earn an income about 50% higher than the average graduate (€24k versus €36-38k for Teachers, Nurses, Guards once all allowances etc are calculated).

    And again it’s important to note that low paid is a relative term. The median salary in Ireland is around €25,000 (source CSO 2006) the entry level on the salary scales provided for full-time clerical staff on the CPSU website starts above this level. This means that full-time clerical staff – the low paid workers in the civil service having starting salaries higher than the income of 50% of the working population.

    I’m not saying their salaries should be cut, just that some perspective is worthwhile – public sector employees have been very well looked after under the social partnership process.

  • Mack

    I lived in England for years, mind you never unemployed, although I knew people who were.

    I agree the UK rate is too low, but the additional benefits count for a lot.

    The prices here are no way 20% higher. I would say its about three times higher here than there.

    It is the reason so many people go north to shop.

    Govt employed cleaners, care and support workers have also been badly hit. I refuse to believe that someone on almost a hundred thousand a year cannot afford to give up appreciably more than someone on twenty thousand.

    Govt workers in both countries have been, to some extent protected, jobs are usually safe, pensions gold plated and protected, but the low paid are still the ones hurting most and that has a serious effect on the private sector.

  • Mack

    The prices here are no way 20% higher. I would say its about three times higher here than there.

    Ok. Tesco said it’s prices were 20% higher so that was roughly my basis for that. I shop in both the north and the south and you certainly can get things reasonably cheaply here – if you’re careful. There’s a load of discount stores on the top floor of the square in Tallaght. DID / Power City for electricals, Penny’s for clothes etc.

    According to the OECD stats for Purchasing Power Parity for individual consumption (what people actually buy) – €1 in Ireland is roughly equivalent to £0.63p.

    So it’s 37% cheaper in the UK (bearing in mind Sterling has fallen significantly in value).

    http://stats.oecd.org/Index.aspx?datasetcode=SNA_TABLE4

  • Mack

    Mick –

    By the way are these the same folk who were predicting if massive cuts were not made immediately, the UK’s credit rating would be downgraded.

    You are allowing the money markets to completely influence economic strategy, which is criminal stupidity, as these markets have no responsibility beyond the bottom line and thus they have no moral compass.

    They’re not the same people – the people most likely to give that warning are the ratings agencies themselves.

    Lenders have no responsibility to provide us with services or schools – neither do they have a responsibility to lend us. The only reason they do is to get some sort of return (in at least some cases the primary motivation is merely to protect the value of their life savings e.g. pension funds moving into gov. bonds as workers approach retirement).

    The current system affords a lot of power and influence to the ratings agencies. If they cut a country’s credit rating to below investment grade, many lenders (pension funds and the like) will be forced to sell – forcing up interest rates on government debt (increasing the probability of default and perhaps setting off a vicsous cycle). Having such a system might be criminally stupid, as is acting like this danger doesn’t exist.

    But because that danger does exist governments have to be aware of it. It’s why the Greek Socalists are following the same path as Fianna Fail…

  • Tochais Síoraí

    I have some experience of an all Ireland body (one of the six under the GFA) & one of the things that never ceases to amaze me is the fact that northern public servants are so badly paid in comparison with their southern counterparts for the same job. The wage rates for low grade public servants in NI are jaw droppingly low (ok, the cost of living is lower in NI but not anywhere near wage levels). It’s like an eastern bloc economy in NI, everyone seems to have a public service job but they get paid sfa.

    Dunno what the shopping costs differential is now but the ASDA car park in Enniskillen suggests that it’s way less than it was six months ago.

  • Greenflag

    Tochas Sora ,

    ‘It’s like an eastern bloc economy in NI, everyone seems to have a public service job but they get paid sfa. ‘

    When everybody or nearly everybody has a ‘public service job’ then under the present economic system it stands to reason that average public sector pay will be low . Where does the money come from to pay the public sector ? Ultimately it has to come from those sectors of the economy that generate ‘financial ‘wealth i.e the private sector . If the private sector is relatively weak and is overly dependent on the public sector (as is the case in NI) then there should be no surprises at the current NI wage levels in the public sector . There is also the ‘off shore regional factor ‘ differential which has always been the case as between some regions of the UK and the South East’

    We know from ‘history’ that when the public sector reaches 100% what we have is a ‘communist’ state . We know that when the ‘wall’ finally came down that GDP per head in the former Communist zone countries was less than 3,000 dollars per capita in western financial terms . The fact that the Soviet Union had some 12 million highly educated and trained scientists and engineers mattered not when it’s GDP per capita was compared to Botswana in Southern Africa who’s GDP per capita was greater than that of the former Soviet Union.

    If public sector pay was increased in NI tomorrow to ROI levels the prospect of any major recovery or expansion of the NI private sector would be severely diminished .

    It’s catch 22 when an economy is up there in the 70% public sector dependency zone .There are no easy answers . Astute management by the politicians will be required which is one reason why Gordon Brown may yet be returned as PM in the UK Westminster elections and why even if P&J has been finally devolved to NI -the full finanacial devolution which would be required to allow NI to extricate itself from it’s present predicament -won’t be and indeed can’t be .

  • mack

    There is absolutely no way the UK government under the present circumstances would default on its debt, I watched the three heads of the ratings agencies admit this on a recent news-night programe.

    Two out of the three also said there is absolutely no sound economic reason why the UK should be downgraded, the third hedged his bets.

    What is happening is pressure being brought by the markets and media etc for political reasons not economic.

    The reason the Greek government caved in, was due to bullying nothing more nothing less, again for political reasons, for if germany had not gone down this road, but bailed out Greece properly, it would have exposed the germans and other EU governments of spreading the Euro zone to thin and we cannot have the truth, now can we?.

    If there is one thing the banking crises exposed it is the market does not always no best, indeed such talk is and always has been self interested balderdash.

    Yes, the deficit will need to be dealt with, but sensibly, and without talk of hitting hardest those least able to afford it, which is the city’s option. We could start in the UK by taken the renewal of the nuclear option off the table for good and withdrawing UK military from useless military adventures like Afghanistan. but hey who bother with options when you can just cut benefits and the wages of low and medium paid workers

    And I said it is politics which can solve this problem, not economics alone, but be my guest if what you wish for is one hell of a societal upheaval, in my experience such thinks quickly gain a momentum of their own and become far more difficult to stop than they were to start..

  • Mack

    Mick

    The reason the Greek government caved in, was due to bullying nothing more nothing less, again for political reasons, for if germany had not gone down this road, but bailed out Greece properly, it would have exposed the germans and other EU governments of spreading the Euro zone to thin and we cannot have the truth, now can we?.

    I think the German’s have been pretty upfront about their reluctance to open their cheque book for the rest of Europe, and why should they?

    All of the nations of the Eurozone signed up to the Stability and Growth Pact – but balked at the formation of a fiscal Union. The SGP limits the size of the deficits member states can run & there is no mechanism to bail them out if they get into trouble. The Franco-German bail out under those circumstances is pretty generous.

  • Greenflag

    mickhall,

    ‘If there is one thing the banking crises exposed it is the market does not always know best,’

    According to George Soros the man who broke/took the Bank of England for a billion pounds back in the early 1990’s under John Major’s premiership the current crisis emanated from the assumption that the market would always ‘self correct’ it’s excesses without government intervention . This assumption is what Reagonomics and UK Conservative economic policy under Margaret Thatcher was built on . The rest of the world including the post communist eastern european countries followed suit . They were powerless to do otherwise . And anyway it was working up to a point anyway or so the economic genii said .

    According to Soros what’s required is not so much ‘more ‘ regulation but better and more effective legislation . Government is responsible for the ‘regulatory’ climate but as we have seen even the ‘regulatory ‘ agencies have been bought out/hoodwinked /got around take your pick of any and all of the above .

    BTW the reason the Greek Government caved in was because they know (i.e the Greek Government ) that their predecessors in 2000 who negotiated Greece’s entry into the Euro Zone -lied/undervalued the country’s budget deficit at the time of entry.

    Falsifying application forms even for an entire country is still a lie and sooner or later it will out and it has .

  • I have to say I agree with much of what Mack says.

    Greenflag

    Everyone knows the Greeks ‘cooked the books’. It was the EU empire builders that sleep walked us into this mess.

    The one thing we could all do with less of is Soros. The Brits will do whatever, but no one person or company should ever be in a position to damage a country. The world is mad to allow it.

    The phrase ‘too big to fail’ is frightening in a world where we vote governments in and out, only to find we are ruled by big business.

  • Greenflag

    ‘Everyone knows the Greeks ‘cooked the books’’

    Not just the Greeks . Wall St , the City of London and the USA Congress not to mention the many other ‘democratic’assemblies -it’s seems an exaggeration to call them parliaments around the world -who turned a blind eye to what was happening .

    ‘The one thing we could all do with less of is Soros.’

    Even Soros has admitted that the lack of regulations and almost non existent international financial protocols allowed him to take advantage of ‘dumb ‘ governments of which the UK’s under John Major’s Conservatives was just one example . And you can be sure that there are many others of the Soros ilk who are now looking at the UK pound as a speculative prospect for a financial killing . Indeed one of the reasons as to why the Germans did not move quickly to bail out the Greeks was to try to prevent the ‘speculators ‘ in theis case Goldman Sachs from making a fast couple of billion in the financial markets.

    ‘the phrase ‘too big to fail’ is frightening in a world where we vote governments in and out, only to find we are ruled by big business.’

    We should remember Bill Clinton’s words shortly after he was inaugurated in Jan 1993 . When his principal economic advisor former Goldman Sachs Chairman Robert Rubin persuaded the new president to defer to the debt markets -it prompted Clinton’s famous reply . ‘You mean to tell me that the success of my (economic ) program hinges on the Federal Reserve and a bunch of f***ing bond traders ?’

    I’m going to have a re read of Aldous Huxley’s Brave New World . It may prove to be a clearer view of the world ahead than Orwell’s 1984 😉

    ‘The world is mad to allow it.’

    Your last three words in the above quote seem superflous in the circumstances 😉

  • “but as we have seen even the ‘regulatory ’ agencies have been bought out/hoodwinked /got around take your pick of any and all of the above.”

    Mack and Grenflag

    Does this include the credit rating agencies? 😉

    As to cooking the books, the Germans must have been well aware the Greeks were cooking the books, after all they had been turning a blind eye to the Italians for years, so it is a bit rich when it all goes pear shaped for any EU nation to claim surprise. It is like buying a company, then when it goes bust, refusing to accept you brought a dud, but instead blaming the previous owners.

    That is what I meant when I wrote they spread the Euro to thin.

    Still, I suppose part of the blame is todays politicos have advisers who are about 12 years old and their only experience of an economic down turn was when their dad cut their tuck money because they were getting to fat.

    pippakin

    I have a soft spot for Soros, I think he is a wise old bird, who took the blame for the crass stupidity of the Major government, not that he cared, as he sat in his European castle converting his winnings into a solid currency.

    Theres the clue, they way we run our economies is along the lines of a casino and until we start taking economics as serious as mack does, even though at times I disagree with his conclusions, the perpetual cycle of boom and bust will continue.
    “that’s capitalism”

    If only UK and Irish political elite could get it through their numskulls,, whether it is house prices or the economy as a whole, the bigger the boom, the bigger the bust, much better to have a steady rate of growth.

    Just look at the infantile way the media judges economic progress by house price inflation, what a bunch of greedy morons.

  • ‘You mean to tell me that the success of my (economic ) program hinges on the Federal Reserve and a bunch of f***ing bond traders ?’

    Greenflag,

    I love that quote, it should be tattooed on every idiot politician and journos forehead.

  • Mack

    Pippakin –

    George Soros is probably not quite how you imagine..

    Here is some of the stuff Soros does in his spare time / funds ..

    Open Society

    http://www.soros.org/

    Open Society Initiatives

    http://www.soros.org/initiatives

    Articles at Open Democracy

    http://www.opendemocracy.net/author/george-soros

    Bio

    http://en.wikipedia.org/wiki/George_Soros

    A couple of his books –

    http://books.google.ie/books?id=-1-R45marGYC&q

    http://books.google.ie/books?id=pifdTGKY3YUC&dq;

  • Alias

    “If only UK and Irish political elite could get it through their numskulls,, whether it is house prices or the economy as a whole, the bigger the boom, the bigger the bust, much better to have a steady rate of growth.” – mickhall

    And the problem with that is…?

    Different economies grow at different rates, so if an economy gives control over its macroeconomic and monetary policies to a transnational agency then it is left with only fiscal policy as the means to control its growth. In reality, it isn’t even left with that since the Maastricht imposes conditions on the exercise of it such that it must support the macroeconomic and monetary policies.

    So why is your sentence – although very sensible – utter nonsense? One size would only fit all if all were the same size. The paradox is that those who now manage macroeconomic and monetary policies manage it for the needs of the German and France economies (with Germany being the biggest economic contributor to the EU) and not for the needs of parasite economies such as Ireland, so you may end up with sensible polices if you live in Germany but not if you live here.

    We actually have a situation that is worse than bad macroeconomic and monetary management in that if the Irish Central Bank managed these policies they could do so based on the needs of the Irish economy but those who now manage those policies do not address those individual needs in any targeted way, so you have a system that is not designed to help your economy but to ignore it. That is insane, but we now have that system because that’s the power of europhile propaganda.

    Ireland has no control over its macroeconomic and monetary policies and restrictive control over its fiscal policies, so there is no way to manage the economy in the sensible manner that you advocate. Hence we traded a successful and well-managed economy for this mismanaged and bankrupt basketcase when we joined the Eurozone.

  • Mack

    Cant get your sites, my B/B is not always all it could be. I understand Soros considers himself a ‘socialist’ and does many good deeds. In the recession of the eighties over a million people in England lost their homes, foreclosed is the word for the kind of failure they will never get over. I almost lost mine! Now here I am, not poverty stricken, but not far off! Mr Soros can afford to sit in his castle and tell himself he is socialist, I dont believe him and if he wants to do good works, he can do them here.

    Alias Mick Hall

    We in these islands have spent so much time fighting among ourselves we have never really looked at how powerful we could be as a properly organised group. Not, before you both start, the old ’empire’ but a trading group of almost seventy million is a big deal or it could be. Instead we look outside only to find others have their own groups, which in many cases has meant ‘forgetting’ old crimes.

  • Mack

    Pippakin –

    I doubt he considers himself a socialist – I would guess that is a slur emanating from the US Conservative Right (he backed the Dems heavily in 2004). His early experiences were of the evils of both German Nazism and Soviet Communism (his father was imprisoned in a Soviet concentration camp). He was instrumental in the transition of many Eastern European economies away from Socialism and toward capitalism.

    Liberal might be a better monicker, but he’s more like a tireless campaigner for liberal democracy and open societies.

    Btw, he didn’t cause the recession – quite the opposite in fact. Under the Exchange Rate Mechanism the British Chancellor had to raise interest rates (going into a recession) in order to keep the pound within it’s trading range against the DM. Soros correctly bet that this could not last (the ERM was forcing Britain to adopt inappropriate monetary policies – high interest rates when they should have had causing extreme pain for home owners – forcing some to go under). His bets against Sterling (he bet that the government would be forced to reduce interest rates and let Sterling fall in value against the DM) did cause the British Chancellor to raise rates further (because he felt that Britain could stay in the ERM and maintain high interest rates and a Strong pound – when they really needed the opposite). Needless to say Soros was right and Lawson was wrong. The Tories were forced to take Britain out of the ERM, the pound devalued and interest rates fell. The Tory press vilified Soros for making a call where he was fundamentally correct..

  • allias

    I cannot argue with you, again it is why I said Germany spread the Euro to thin.

    Pippakin

    70 million people is a drop in the ocean in today’s world, in any case we would have nothing much to trade with each other beyond hatpins, Thatcher and then Blair have all but destroyed the UK’s manufacturing base and Ireland has never recovered from partition when what industry it had remained in the UK and even that is gone now. Still, it does not take long to build a factory, it is having the will to do it.

    The EU is a good idea and could be viable, but for the short term advantage our politicians favor which makes them time and again keep putting the cart before the horse, whether it is the massive democratic deficit or the economic deficit allias mentions.

    Once the blood of profit went to their heads and they enlarged the union beyond the economic reality on the ground, believing by some miracle unregulated capitalism had ironed out its boom and bust shortcomings and had become the answer to all societal problems.

    There is a graph in the Guardian today which points out the UKs main trading partners, it is revealing. If the EU can survive this recession united and without massive 1930s style hardships, it will be a considerable achievement and I say if.

  • Mack

    Soros chose to bet against a country. No he was not the cause, that as ever was incompetent government. He just took advantage of it.

    Mickhall

    I was not suggesting we leave the EU, simply that the two governments should simply, like at least two others, unite to form a block representing these islands. Seventy million (ish) is a big market, and it is all about markets. Not in terms of India, China or the like, btw have you noticed they, in particular the Chinese, are distinctly protectionist. No way will they allow their market to be flooded.