how will we stimulate spending??

tallaght01

Now, I have to admit that, being in Oz, I'm not at the coalface of the the Irish recession.
But, I've been following it online, and obviously all my family and friends keep me updated.

I just keep wondering, though, where's the stimulus? We know nobody is spending. We know everyone is scared. So, the govt have increased taxes massively, and are talking about a clear out of the public sector.

Other countries are spending billions to stimulate their economies, and to keep people in jobs, by doing all the things that they'll need in order to be in a competitive position when their economies start to improve. Things like building new roads and generally improving infrastructure.

But not in Ireland.

Are we just going to try and piggy-back off the success in Europe if they manage to turn the situation around, so we get the best of both world (reducing our deficit, and minimising our debt)? That seems to me to be the political equivalent of syphoning off your next door neighbour's NTL supply.

I know we needed money, or bankrupcy was imminent. And I know we needed the money NOW.

But are there plans to stimulate spending, and increase confidence? Or are we hoping the banks will gain more confidence when their toxic assets have been soaked up and start lending again? Are we putting all our eggs in one basket? And are we attaching this problem in only one dimension?

Anyone got any thoughts?

mikemac

tallaght01 wrote: »

But are there plans to stimulate spending,

Yes, they increased Deposit Interest Retention Tax on savings which is an attempt in a round about way

With interest rates so low and now increased DIRT taxes, it's even less incentive to save.
Something I disagree with strongly. That tax hike wasn't a positive move to encourage spending, it was a tax on savers!

Now it wasn't a huge tax hike and I don't exactly have massive savings but it's hitting people, some who didn't contribute to the current mess by buying an overpriced house or take loans they couldn't pay back.

tallaght01

But the reduced interest rates are only really acting as a disincentive to saving. They're not coupled with anything else that incentivises spending. There doesn't seem to be any positive steps to increase the amount of money circulating.

segaBOY

You make good sense OP but Ireland is overpriced. We have slipped down the list in competitiveness and our exports have remained stagnant since 2002. Exports are where we generated our real wealth-not the recent monies which have flown in due to cheap interest on borrowed money. Money which we have to pay back, like it or not.

The fact is that for us to regain some levels of exports our prices must fall-even further than what they are now. Our cost of labour (unfortunately for those who have mortgages to pay etc.) must fall even further. Noone will want to do business in Ireland as it is so expensive. As a result I don't think stimulus is the way to go as of just yet.

Back in the 90s land was cheap, employing a graduate in Ireland was cheap, the grants from the IDA et al where high-coupled with a semi decent road network to the ports, the English language and low corporation taxes Ireland seemed like a good place to do business-bar the latter three all of the rest have gone by the wayside-in part due to the massive pyramid scheme of the so called "Building boom" driving wages and prices out of control, and then coming to an abrupt end.

Everyone talks about the "knowledge economy"-"Research and development" as the way forward to bring Ireland out of the recession, there is no reason why the likes of say Poland cannot do this-they have a good university system, a good share have a high standard of English, they get good EU regional development funds, bar lower corporation tax (which Ireland will not have forever) they can do the same things we do, cheaper.

We have to get realistic here, I think prices need to fall and stimulus will only facilitate less competitiveness in Ireland at the moment.

zod

the last thing we need is the government spending borrowed money. take the pain now .. let the market clean up inefficiencies.

what we need are incentives for business to invest like
1. reduce corporation tax on new FDI to 5%
2. reduce tax to zero on all green energy

etc


watch peter schiff in 2006 getting laughed at :

http://www.youtube.com/watch?v=Z0YTY5TWtmU

then his take on stimulus

http://www.youtube.com/watch?v=LiIYkFXUhHs

tallaght01

zod wrote: »

what we need are incentives for business to invest like
1. reduce corporation tax on new FDI to 5%
2. reduce tax to zero on all green energy

That's the kind of thing I'm talking about. I'm not talking about huge borrowing to incentivise spending.

ejmaztec

I think that low corporation tax doesn't entice anyone into Ireland anymore. The low labour and overheads costs of operating in Central and Eastern Europe far outweigh that advantage e.g. Dell. The government never moved with the times with that incentive (nor anything else for that matter).

ninty9er

I completely agree with segaBOY.

Ireland is an expensive place to live....if nobody spends prices will fall, and when prices fall, we can slash wage costs while maintaining the same standard of living.

There are billions in cash sitting in deposit accounts in this country. People won't spend when they expect lower prices, simple as that. When prices iron out to a 99/00 level it will be a stimulus in itself.

The housing bubble is the one that will really cause stimulus when it finally deflates entirely.

www.daft.ie/1441782

€85/90k is about the VALUE of that house. That's how deluded people are, and what's worse there's someone who'll buy close to the asking price.

LoveDucati2

You cannot stimulate spending now.

johnnyskeleton

We've already had our stimulus package - from 2001-2007 the government ramped up spending.

One thing we could do is instead of borrowing for the NAMA, we could borrow 80bn and invest it in profitable industries. However, that is not likely in Ireland.

nesf

The core problem is that we have a deficit of over one third of budget spending. So major deficit funded stimulus is simply not an option. Minor revenue neutral stuff is an option but it's debatable how effective small stimulus will be.

Carlow52

tallaght01 wrote: »

.... the govt have increased taxes massively, and are talking about a clear out of the public sector.......

Therein lies the problem combined with a promise that the next 3 budgets will be as bad if not worse.

Bankruptcy, and social unrest by end 2009.

Much of what they said they would do on the PS cost side wont happen, for example there was a proposal not to pay ministerial pensions while the recipient is still a TD.

In todays Sunday papers: the Attorney Gen says: no can do:D

tallaght01

My understanding of economics is no more extensive than the fact that I've read a few books on the matterm so it's pretty rudimentary. BUt they all agreed that deflation in terms of price is bad for an economy during a recession, as spending falls further while people wait for prices to keep falling.

ionix5891

tallaght01 wrote: »

My understanding of economics is no more extensive than the fact that I've read a few books on the matterm so it's pretty rudimentary. BUt they all agreed that deflation in terms of price is bad for an economy during a recession, as spending falls further while people wait for prices to keep falling.

now please lets stop with the whole deflation is bad talk, its only bad when it goes wild (same with inflation, too much and you end up in Zimbabwe)

you need to understand a few points

* Inflation figures and statistics are heavily manipulated (and are a lot higher in reality see http://www.shadowstats.com/), currently we are not in a deflationary environment, prices for imported items are inflating while prices for assets that were wildly overvalued such as housing in first place are deflating (but are still very high)

* printing money (which is what effectively what UK, US, Japan are doing) is never a good thing and if it gets out of control we will be all in much deeper trouble as it can cause high inflation or god forbid hyperinflation, theres reason why Germany didnt want to do that at G20 (last time they had hyperinflation Hitler came along)

* The irish economy needs to come back down to reality via deflation, we had it good for too long as we had a tap of cheap credit spitting a river of cheap money, overnight this tap was turned of and now we are waking up to the fact that our economy is a big sham and

* it is very expensive for ireland to borrow money (and we have to borrow alot already to cover our generous welfare state and huge fat public sector)



I would love to see money invested in infrastructure, that 20billion a year spent on welfare will build alot of roads and train tracks and fibre that will help this country in the long term economically...

but as always short term gain over long term profits path is taken


the whole world is in very deep trouble as the amounts of debts are huge, now how does one get out of debt?
* declare bankruptcy > leads to wars as seen from history
* print money > inflates your way out of debt > pisses of the creditors such as china as the money they invested becomes worthless > leads to war?

seems our leaders are going for option 2, lets just hope it all doesn't end in shambles

.

tallaght01

ionix5891 wrote: »

I would love to see money invested in infrastructure, that 20billion a year spent on welfare will build alot of roads and train tracks and fibre that will help this country in the long term economically...

I'm torn between being a great believer in a strong welfare state, and wanting to see investment in infrastructure.

But I'm no economist. I'm just trying to get my head around this. But it seems so many economists agree that deflation in a recession is a bad thing.

So, why are they wrong. I'm not saying you're wrong, but I'm just curious about why you think these people have it wrong.

nesf

tallaght01 wrote: »

My understanding of economics is no more extensive than the fact that I've read a few books on the matterm so it's pretty rudimentary. BUt they all agreed that deflation in terms of price is bad for an economy during a recession, as spending falls further while people wait for prices to keep falling.

I'll horribly abuse a medical analogy here, so forgive me in advance.

Say a patient comes in with two life threatening conditions. One will kill them in the short term if untreated, the second many years from now if untreated. To treat one you need to make the other worse.

Which do you treat first?

nesf

tallaght01 wrote: »

I'm torn between being a great believer in a strong welfare state, and wanting to see investment in infrastructure.

But I'm no economist. I'm just trying to get my head around this. But it seems so many economists agree that deflation in a recession is a bad thing.

So, why are they wrong. I'm not saying you're wrong, but I'm just curious about why you think these people have it wrong.

In a given theoretical economy deflation is bad for one simple reason: If a Euro today is worth less than a Euro tomorrow, they won't spend it today if they can possibly avoid it. Now the problem with this is that if no one is spending money other than what they need to subsist then the economy collapses for any durable or non-essential goods, which means that a very large portion of the society will end up losing jobs or reduced pay which makes them spend even less which aggravates the problem further.

Ireland is quite different given that our price level is far higher than that which is optimal. So in our case some deflation isn't as huge a problem because it will improve competitiveness and in the medium to long run will improve things so long as deflation is a temporary state and does not spiral out of control.

ninty9er

tallaght01 wrote: »

My understanding of economics is no more extensive than the fact that I've read a few books on the matterm so it's pretty rudimentary. BUt they all agreed that deflation in terms of price is bad for an economy during a recession, as spending falls further while people wait for prices to keep falling.

There's a very slight technical difference between deflation and negative inflation which is what we're currently experiencing.

ionix5891

tallaght01 wrote: »

I'm torn between being a great believer in a strong welfare state, and wanting to see investment in infrastructure.

But I'm no economist. I'm just trying to get my head around this. But it seems so many economists agree that deflation in a recession is a bad thing.

So, why are they wrong. I'm not saying you're wrong, but I'm just curious about why you think these people have it wrong.

economists were always split in an inflationism vs deflationism debate

dont mistake people with vested interests (such as anyone with alot of debt who wants to inflate their way out of it) as an "economist"

economies (like alot of other systems) are cyclical (despite people like Gordon Brown claiming things only get better ) and were growing very rapidly due to globalisation, move from the gold standard and exploitation of natural resources and energy since last depression

in recent years we had a series of larger and larger bubbles, with the most recent and biggest one just bursting loudly


all them trillions being chucked at the economy will lift it out of this recession but there will be side-efects and winners and losers (i hope Ireland doesn't endup one) and there will be another bigger bubble as all that money will eventually have to be spend somewhere and another bigger crash


what we have now are the US and UK printing money like no tomorow (and using euphemisms such as "quantative easing" ) basically they want to lift themselves out of this and kickstart another bubble, germany and france who we are tied to via the euro and rates on other hand are being more cautious and dont want to find the eurozone in another mess and want to put in tighter financial regulations, to quote @nesf

nesf wrote: »

I'll horribly abuse a medical analogy here, so forgive me in advance.

Say a patient comes in with two life threatening conditions. One will kill them in the short term if untreated, the second many years from now if untreated. To treat one you need to make the other worse.

Which do you treat first?

eitheway i dont think deflation is bad as such as its the markets way of shaking itself out

just sit back and enjoy the show, US and Obama have gone crazy with Keynesian policies

i myself heard all the economic arguments by now and some theories are very convincing (in theory) such as Keynes policies, but i did make up my mind on the deflation issue

.

ionix5891

btw there was a very good documentary 6 part series on channel4 recently (downloads available if you know where to look, ahem)

http://www.channel4.com/history/microsites/A/ascent-of-money/index.html

well worth a watch, produced after the book of similar name

.

ionix5891

NAMA is a form of gigantic stimulus i suppose

the government will take 90billion of the banks books which is pretty much the same as printing 90billion (which our government cant do since we don't have the punt anymore and ECB is in charge)

LoveDucati2

tallaght01 wrote: »

My understanding of economics is no more extensive than the fact that I've read a few books on the matterm so it's pretty rudimentary. BUt they all agreed that deflation in terms of price is bad for an economy during a recession, as spending falls further while people wait for prices to keep falling.

You read a few books.

I can bet you are more qualified then than some of the cnuts running this country:D

nesf

ionix5891 wrote: »

the government will take 90billion of the banks books which is pretty much the same as printing 90billion (which our government cant do since we don't have the punt anymore and ECB is in charge)

Not really. It's quite different to printing money for Government expenditure and in theory anyway because it's not injected straight into the economy in terms of wages it won't have the same inflationary effect.

ionix5891

nesf wrote: »

Not really. It's quite different to printing money for Government expenditure and in theory anyway because it's not injected straight into the economy in terms of wages it won't have the same inflationary effect.

yes the whole NAMA thing is about building confidence and improving rating of these banks, nationalizing them wont be seen in good light

silverharp

nesf wrote: »

I'll horribly abuse a medical analogy here, so forgive me in advance.

Say a patient comes in with two life threatening conditions. One will kill them in the short term if untreated, the second many years from now if untreated. To treat one you need to make the other worse.

Which do you treat first?

yes you have , to continue the analogy though if the cure for the first is bloodletting or leaches then the patient wll be put more at risk ?

nesf

silverharp wrote: »

yes you have , to continue the analogy though if the cure for the first is bloodletting or leaches then the patient wll be put more at risk ?

I haven't seen a single realistic argument for failing to address our deficit problem. We are unfortunately not the US and won't get the same treatment by the bond market.

aare

The only real answer to this may be an oblique one.

People cannot spend what they haven't got, and what they are petrified of losing in the next round...

NOT GOING TO HAPPEN, unless you tip e into the water supply...

But WAIT A MINUTE...ok, you certainly cannot dump tankers of a controlled substance off Poulaphuca Dam...

(No...REALLY you can't...because it would be WRONG)

...but you can, at little or no cost, throw EVERYTHING in behind boosting public confidence and morale...

HOPE spends money...despair does not (and all the "ruin him, not me" scapegoating and backstabbing breeds is despair)

Encourage unemployed people to get together and dig gardens, fix leaking taps, paint walls for other hard up people free of charge...

Hold big, free parties in Stephen's Green and the Phoenix park...

It costs NOTHING to "up the tempo"...

...and right now, in real terms, that is all we have to stimulate ANYTHING with.

Think about it.

silverharp

nesf wrote: »

I haven't seen a single realistic argument for failing to address our deficit problem. We are unfortunately not the US and won't get the same treatment by the bond market.

I might have lost track of who was disagreeing with that , Absolutely the deficit should be adressed , Ireland will lose any face off with the bond market. On the downside the gov here seem to have opted for protecting state jobs over private sector jobs and a policy of building up unproductive debt.

nesf

silverharp wrote: »

I might have lost track of who was disagreeing with that , Absolutely the deficit should be adressed , Ireland will lose any face off with the bond market. On the downside the gov here seem to have opted for protecting state jobs over private sector jobs and a policy of building up unproductive debt.

Oh, I completely agree there. They'll be forced to deal with in December if not sooner. I'm guessing that they somehow figured taxes would go down better than spending cuts before the European elections in June.

luckat

Only way to stimulate spending is to stimulate jobs.

silverharp

luckat wrote: »

Only way to stimulate spending is to stimulate jobs.

the correct sequence is production -> savings-> (profitbale) investment-> consumption. Jobs depend on the virtuous circle created during the process. As such you dont start by answering the question , how do you stimulate spending or jobs for that matter as bogus policies would result.