Why austerity is a good idea

realitykeeper

Ireland is a high cost economy. In a high cost economy, people do not get good value for their money. This leads to other problems.

Without good value for money the dole must be high so the unemployed can make ends meet. When the dole is high the minimum wage has to be a fair bit higher as an incentive for the lowest paid to work. A high minimum wage pushes up costs for retailers and service providers making everything we buy more expensive. A high minimum wage also makes it impossible for exporters to compete with low wage economies so they close up and move their businesses to those low wage economies.

When businesses close, unemployment rises and so do taxes to pay for the new unemployed. Higher unemployment also increases the governments deficit as it has fewer workers and employers to tax. As the government`s deficit rises, it has to borrow to maintain living standards. When the government borrows the national debt rises. When the national debt rises so do the interest payments required to service the debt. When interest payments rise so does the overall cost of running the country. In a a high cost economy, people do not get value for money and like I said earlier, this leads to other problems. The simple fact is this: In a high cost economy, everyone from the government to the guy begging on the street - everyone, has to pay much more for everyday goods and services.

So what it the solution? For a start, I think it is important for everyone in the country to understand that the causes and the consequences of a high cost economy are mutually supportive so we end up in a vicious cycle of events which ultimately lead to higher debt, higher prices for everyday goods, unemployment, emigration etc.

Secondly, having recognized the problem we ought to tackle it in one of two ways. One is to reverse the sequence of events as outlined above. Another way would be a coordinated and very sudden reduction of costs across the economy. For example, if the minimum wage was cut, the dole could be simultaneously cut, as could public sector pay, VAT rates and - within days, the cost of goods and services would also plummet. This would help employers to start recruiting again. By remaining on its present path of borrowing to live beyond its means, Ireland will remain at the mercy of creditors and the interest rates they impose. Austerity can free the country all all that and ultimately enable us to save enough to care for the sick and elderly independently - without relying on others to lend us the cost of caring at interest rates we can neither afford nor control. This is why austerity is a good idea. Am I wrong?

mikemcdeedy100

realitykeeper wrote: »

For example, if the minimum wage was cut, This would help employers to start recruiting again.

already has

JOBBRIDGE

Good loser

Good post OP. Wouldn't you think by now it would have occured to people here that the model to follow is the German one? Copy the winners for a change.

In time then we could be the begged-at rather than the beggars. We would have the pleasure of interviewing the Greeks, Italians etc re loans, bonds, structural funds and grants.

Noreen1

realitykeeper wrote: »

So what it the solution? For a start, I think it is important for everyone in the country to understand that the causes and the consequences of a high cost economy are mutually supportive so we end up in a vicious cycle of events which ultimately lead to higher debt, higher prices for everyday goods, unemployment, emigration etc.

Secondly, having recognized the problem we ought to tackle it in one of two ways. One is to reverse the sequence of events as outlined above. Another way would be a coordinated and very sudden reduction of costs across the economy. For example, if the minimum wage was cut, the dole could be simultaneously cut, as could public sector pay, VAT rates and - within days, the cost of goods and services would also plummet. This would help employers to start recruiting again.

So how do you propose to make privately owned business cut the costs of their goods and services?

I think you've possibly overlooked the fact that any business exists to maximise profit - not just cover their costs.

thebman

Noreen1 wrote: »

So how do you propose to make privately owned business cut the costs of their goods and services?

I think you've possibly overlooked the fact that any business exists to maximise profit - not just cover their costs.

That ignores competition... All it takes is one to reduce the cost to get an advantage over competitors as lone as it there isn't a cartel in which the consumer rights association should take care of it...

Banner12

Sort of agree with you OP in that we are a high cost economy. Was in town today and bought the small one a small portion of popcorn from a street vendor - €2!. But if we are to reduce costs we need to gut the old boys / protected sectors of the economy who screw the rest of us recession or boom - accountants still charging €400 - €500 an hour for an examinership ! Solicitors €200 an hour travelling costs, doctors / dentists, insurance costs, bank charges, price fixing cartels - I can't provide links but do I need to?? There is no point in having a go at the minimum wage etc. unless we are prepared to take on the real vested interests. Am I right in thinking that the Troika's first report recommended pay cuts for Sunday workers and the opening up of the 'professional' sectors. Which one was passed immediately, which one are we still waiting for?

Noreen1

If competition were all it took to have prices reduced, then I'd expect to see the prices of non-luxury goods reduced since the downturn.

Incomes have dropped, but the price of energy, rents, etc. have increased, or stayed the same.

I am certainly paying more for the same groceries than I paid in 2008.
Hence, the idea that austerity alone will reduce the price of goods is overly simplistic - particularly in a modern, global economy.

Companies will certainly compete - but they will also charge what they believe the market will bear.
Hence, with or without a cartel, it is inaccurate to state that austerity will drive down prices. It will (and has!) drive down the price of luxury goods.
Staples, such as a basic food shop? Not so much!
There are too many external factors that drive the costs of such goods, whether that be ever increasing energy costs, global weather patterns, global politics, companies maximising profit, etc. etc.
Austerity in a little Country like Ireland wont affect external factors one jot - and, because of external factors, will have a limited affect on prices in Ireland, also.

M three

thebman wrote: »

That ignores competition... All it takes is one to reduce the cost to get an advantage over competitors as lone as it there isn't a cartel in which the consumer rights association should take care of it...

You do realise that when it comes to food / groceries and fuel and medicines for example that cartels that fix prices at a higher level is exactly what exists?

beeno67

Noreen1 wrote: »

I am certainly paying more for the same groceries than I paid in 2008.
Hence, the idea that austerity alone will reduce the price of goods is overly simplistic - particularly in a modern, global economy.

I am certainly paying less for groceries than 2008. It seems I'm not alone.
http://www.businessandleadership.com/small-business/item/39572-food-price-inflation-low-in

In addition our inflation rate for the last 5 years is very low. We have become substantially more competitive than we used to as a country compared to the rest of Europe.
http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&language=en&pcode=tec00118&tableSelection=1&footnotes=yes&labeling=labels&plugin=1

Jawgap

Dole / SW payments are money that actually gets spent, in its entirety so there is actually a strong argument for increasing it because it's cash that will go straight into spending.

Cutting VAT and taxes won't have nearly the effect you think it will - for a start businesses will likely only pass on part of decrease and retain a portion to support their own cashflow / profits. Also, historically, there's plenty of evidence to show that income tax cuts don't drive spending - they drive real saving and they drive another form of saving - debt pay down, none of which really benefits the real economy.

Austerity drives the economy into a death spiral - those who can either leave or save do - businesses that survive postpone spending and investment decisions in the hope of cheaper wages, prices for equipment etc - demand increases for public services such as health, social welfare, policing etc.

Hindsight is brilliant, but a bit of austerity combined with a bit of stimulus and a lot of reform could have gone a long way.

Increase income taxes a bit and broaden the definition of 'income', decrease SW rates a bit, reduce the public sector payroll through redundancies rather than salary cuts and make it stupidly easy to set up and run a business in Ireland.

OMD

Jawgap wrote: »

Increase income taxes a bit and broaden the definition of 'income', decrease SW rates a bit, reduce the public sector payroll through redundancies rather than salary cuts and make it stupidly easy to set up and run a business in Ireland.

Isn't this exactly what happened. Increase income tax a bit: USC essentially did this
Decrease social welfare rates a bit: Small across the board cut occurred.
Reduce public sector through redundancies rather than pay cuts: average public sector pay is essentially unchanged but savings have occurred through redundancies.

Making it stupidly easy to set up and run a business in Ireland: ok. Fair enough on that point.

Jawgap

OMD wrote: »

Isn't this exactly what happened. Increase income tax a bit: USC essentially did this
Decrease social welfare rates a bit: Small across the board cut occurred.
Reduce public sector through redundancies rather than pay cuts: average public sector pay is essentially unchanged but savings have occurred through redundancies.

Making it stupidly easy to set up and run a business in Ireland: ok. Fair enough on that point.

The problem is a lot of what should be considered income isn't - child benefit being a classic example.

All the pay cuts have done is left the same number of people in place doing the same jobs - only they are more pissed off. Better to have the right people delivering the right services to meet current demands- in other words a smaller well paid and motivated public service is infinitely preferable to a large, poorly paid and poorly motivated one. In that way you get the savings and proper reforms.

As a 'by the way' this is a quote from the recent ESRI Nationwide (UK) Ireland Savings Index commentary......

When asked about how they would use any spare funds available, 52%, of people would pay off debts including their mortgage; 33% would save the money; 10% said they would spend it; and 5% said they would invest it. These preferences have remained consistent since the start of the year.

Also even though household incomes are rising, spending isn't - but savings rates are at historical highs. I'd say the 'hangover' from austerity will drag on for years with people reluctant to spend even modestly.

Perhaps that's a good thing, but a healthy economy needs spending to animate it - no one, except a bank, is going to open a business in an economy where everyone saves and no one spends.

johnnyskeleton

Banner12 wrote: »

Sort of agree with you OP in that we are a high cost economy. Was in town today and bought the small one a small portion of popcorn from a street vendor - €2!. But if we are to reduce costs we need to gut the old boys / protected sectors of the economy who screw the rest of us recession or boom - accountants still charging €400 - €500 an hour for an examinership ! Solicitors €200 an hour travelling costs, doctors / dentists, insurance costs, bank charges, price fixing cartels - I can't provide links but do I need to?? There is no point in having a go at the minimum wage etc. unless we are prepared to take on the real vested interests. Am I right in thinking that the Troika's first report recommended pay cuts for Sunday workers and the opening up of the 'professional' sectors. Which one was passed immediately, which one are we still waiting for?

Sadly, however, the world doesn't work like that. If Wayne Rooney can command tens of thousands of pounds per match, that is his right and it is up to the club to decide to pay that or not. By contrast, there are many young people playing football for clubs full time at no fee or notional fees. If we bring in a minimum wage for footballers, it doesn't affect Wayne rooneys pay but it could cost jobs at the lower end.

So the fact that professional fees can charge several hundred per hour (which is not equal to that professionals pay, as they have overheads etc) and some people/companies are prepared to pay this, does not mean that if the minimum wage is causing jobs to be lost we shouldn't change the minimum wage.

Reekwind

Good loser wrote: »

Good post OP. Wouldn't you think by now it would have occured to people here that the model to follow is the German one? Copy the winners for a change

Germany is a low cost economy?

johnnyskeleton

Jawgap wrote: »

Dole / SW payments are money that actually gets spent, in its entirety so there is actually a strong argument for increasing it because it's cash that will go straight into spending.

In tr short term yes but in the long term it is a payment for no return so is in effect supporting the unproductive part of the economy and discourages production. And after all, we can't build an economy based just on spending with no work beig done.

Cutting VAT and taxes won't have nearly the effect you think it will - for a start businesses will likely only pass on part of decrease and retain a portion to support their own cashflow / profits. Also, historically, there's plenty of evidence to show that income tax cuts don't drive spending - they drive real saving and they drive another form of saving - debt pay down, none of which really benefits the real economy.

What's wrong with a company increasing profits? It means that more companies will start to compete = ultimately lower prices. Again, what's wrong with saving/paying down debt in a country that has too much debt?

Austerity drives the economy into a death spiral - those who can either leave or save do - businesses that survive postpone spending and investment decisions in the hope of cheaper wages, prices for equipment etc - demand increases for public services such as health, social welfare, policing etc.

It is an absolutely necessary process for an economy to endure before it starts to recover. You can't have the party and then refuse the hangover.

Increase income taxes a bit and broaden the definition of 'income', decrease SW rates a bit, reduce the public sector payroll through redundancies rather than salary cuts and make it stupidly easy to set up and run a business in Ireland.

Why should people who work hard and already pay marginal rates of over 50% pay even more for people who do nothing all day to be allowed to spend more? Plus, this policy will only increase the demand for basic goods and so increase the price. That's how we got a high cost economy in the first place.

SpaceTime

The German economy is driven by very high value added exports built upon a couple of centuries of technological knowhow and engineering leadership.

We are trying to do that too but its not something we can achieve overnight.


The Germans do however have a terror of bubbles and inflation did to their experience with the hyper inflation after WWI which they feel triggered the rise of fascism and the Nazi party.

because of that, they have put a lot of effort into avoiding cyclical boom/bust economics and especially inflation.

A lot of German companies are also not floated on the stock markets which had generally allowed for much longer term planning. The American / British stock driven model only really cares about quarterly results.

Jawgap

johnnyskeleton wrote: »

In tr short term yes but in the long term it is a payment for no return so is in effect supporting the unproductive part of the economy and discourages production. And after all, we can't build an economy based just on spending with no work beig done.

When it gets spent, it gets spent in local shops on food (sometimes fags and booze too), clothes etc so its not wholly discouraging production.

johnnyskeleton wrote: »

What's wrong with a company increasing profits? It means that more companies will start to compete = ultimately lower prices. Again, what's wrong with saving/paying down debt in a country that has too much debt?

Nothing really, but I'd prefer if businesses were cash generative - profit is a concept, so while it might be sanity - cash is reality.

My point was that cutting consumption taxes will not lead to businesses automatically cutting their prices. I agree VAT should be cut, but it won't lead to reduced prices or increased spending.

It is an absolutely necessary process for an economy to endure before it starts to recover. You can't have the party and then refuse the hangover.

That's true, the point I made was that austerity measures on their own were a bad idea - a more dynamic, multi-faceted approach would be better.

You're right you can't refuse the hangover, but you don't have to make it worse by drinking bleach to clean out your system!

Why should people who work hard and already pay marginal rates of over 50% pay even more for people who do nothing all day to be allowed to spend more? Plus, this policy will only increase the demand for basic goods and so increase the price. That's how we got a high cost economy in the first place.

Prices only rise if supply is fixed - if demand rises then can't supply rise and won't that lead to more people being employed? Plus given that food is a basic good and that's something we could be a lot better at wouldn't that be an area we could exploit readily?

The point I was making was that if you want to put more money through the economy, SW is one way to do it - that money gets spent. Tax breaks etc increase saving and debt pay down - it's an economic point, I suppose one I shouldn't have made in this forum;)

Personally, politically and socially, I think work should be rewarded to the maximum extent possible. I think income tax is too high - or at least the level at which the marginal rate kicks in is too low- and job seekers allowance and benefit is too generous; children's allowance should be treated as an income and business rates are extortionate.

realitykeeper

Jawgap wrote: »

Dole / SW payments are money that actually gets spent, in its entirety so there is actually a strong argument for increasing it because it's cash that will go straight into spending.

It is true that those on the dole and minimum wage probably spend all their money in the economy but that does not mean all the money stays in the economy. For example, suppose they buy a foreign product - at least half of the money spent on that product is lost from the Irish economy because it had to be imported. So paying high dole means high leakage from the Irish economy. The government has to borrow the money to pay the dole so there is a net loss to the economy.

Jawgap

realitykeeper wrote: »

It is true that those on the dole and minimum wage probably spend all their money in the economy but that does not mean all the money stays in the economy. For example, suppose they buy a foreign product - at least half of the money spent on that product is lost from the Irish economy because it had to be imported. So paying high dole means high leakage from the Irish economy. The government has to borrow to pay the dole so there is a net loss to the economy.

I didn't say it was a closed system, but I reckon your estimate of 50% lost to the economy is on the high side when you consider the VAT (and where appropriate, the excise take), the shopkeeper's margin and the wholesaler's margin.

johnnyskeleton

Jawgap wrote: »

When it gets spent, it gets spent in local shops on food (sometimes fags and booze too), clothes etc so its not wholly discouraging production.

If you have two people working and producing, they can exchange their work for that of the other. If one becomes unemployed and gets a welfare payment from the other, now only one is working and the only way in which the same level of production can be maintained is if the other works twice as hard.

In Ireland, one in eight of the working population is unemployed. Of the total populartion, only 1 in two people are of working age and employed.

So it's cold comfort to the people who are working to work harder so that the unemployed can buy their goods and services.

Prices only rise if supply is fixed - if demand rises then can't supply rise and won't that lead to more people being employed? Plus given that food is a basic good and that's something we could be a lot better at wouldn't that be an area we could exploit readily?

From the point of view that unemployment means that those people aren't making anything of value means that on one level supply is fixed. Increasing welfare is just borrowing more money with no return in terms of good produced or services supplied for that. Aggregate demand increases, total supply stays static. Net result is inflation.

The point I was making was that if you want to put more money through the economy, SW is one way to do it - that money gets spent. Tax breaks etc increase saving and debt pay down - it's an economic point, I suppose one I shouldn't have made in this forum;)

Well you perhaps shouldn't make it in the absence of context. If the only goal is to achieve increased spending with no regard for the consequences, then obviously paying more in welfare will achieve that. No one is disputing this, but I am certainly disputing the wisdom of this course of action.

SpaceTime

The fundamental problem with the Irish economy is very simple really:

We borrowed loads of money to pay a wealthy elite of landowners and developers way too much money for property.

The net result is high housing costs - rent or mortgages which drives up wages and drives down disposable income.
Then add to that the fact that business pay rents that are ridiculously high and you drive up consumer prices.

Our economy acted as a giant funnel that simply took all of our combined cash and borrowing power (including the state's) and handed all that cash over to speculators abd elite labd owners.

We have to break the notion that rising property prices is an economically beneficial thing. We walked into a disaster and allowed ourselves to be asset stripped through total naivety and group think.

Austerity won't unwrite all those cheques!

I still think a structured default is going to be necessary.

Jawgap

It might also be worth remembering that the austerity model / policy is based on flawed research

I think our predicament is neatly summed up in the conclusion to that article.....

"Policy makers abandoned the unemployed and turned to austerity because they wanted to, not because they had to.

So will toppling Reinhart-Rogoff from its pedestal change anything? I’d like to think so. But I predict that the usual suspects will just find another dubious piece of economic analysis to canonize, and the depression will go on and on."

KyussBishop

It's a problem of fixed exchange rates (the Euro), lack of exercise of any monetary policy (due to the Euro and political discord), and a global decline in demand, meaning our exports are in less demand and our currency automatically devalues, unless we kill our level of production (thus leaving lots of unemployed) to match the rest of the world.

We have to fix our own economy (by 'ours' I mean Europe as a whole) as first priority, we can't wait on the rest of the worlds economies to improve so that their demand for our products (exports) increases.

This is inevitably going to involve our trade balance being off-kilter for a time, until the rest of the world recovers; that's not a bad thing either, that's desirable for us (everyone in Europe can ride out the crisis comfortably with these policies), and for the rest of the world, because our unbalanced trade-balance (imports greater than exports) actually helps stimulate and pump-up demand in other world economies.

This problem with the trade balance is only an issue because of other countries screwed up monetary policy as well; if they did the same thing as Europe would be doing, there would be no trade imbalance created, and the crisis would be a non-event; unfortunately though, there is not this much sense among most politicians and economists around the world, because politics/economics is heavily infected with the cancer of ideology.


The solutions aren't hard, but managing to enact the solutions is incredibly difficult politically, because economists/politicians care far more about ideology, and far too little about empiricism/science (a huge amount of economic teaching today is just flat-out wrong).

The entire economic crisis around the world, is a problem held in place almost entirely by bad economic theory; it's almost solely a crisis of bad economics, at the root of everything.

SpaceTime

The biggest currency problem is that the Germans were sold the idea of the Euro being a straight replacement for the DM.

They seem to be completely incapable of even beginning to recognise that the value of the Euro needs to reflect the state of all of the Eurozone economies, not just Germany's.

It now looks like their constitutional court is likely to put more dampeners on the ECB's ability to stabilise the economic situation through bond-buying as it's not able to devalue.

Also, I'm not entirely convinced about the strength of the German economy. It's very heavily reliant on global demand for German high-tech engineering and infrastructural products in particular but also luxury cars and other high end items.

The concerns that I would have are :

1) That global demand will contract, especially if China goes into slowdown mode. Those developing economies are the ones that are buying up German technological / infrastructural equipment / machinery etc etc in big numbers.

2) Are they staying ahead of competitors ?
Japan and the USA are both devaluing their currencies which would lead to their like-for-like products in that sector being a lot more competitive than their German counterparts.
The UK's also somewhat in that league as is Sweden.

Then there are rapidly emerging suppliers of high tech products in China, Taiwan, Singapore, South Korea etc.
Take a look at Chinese companies like Huawei winning major infrastructural contracts, even here in Ireland with eircom's FTTC rollout.
Then take a look at South Korean companies like Samsung and Hyundai.

Germany has a huge overhang from reunification and there are many areas of the country, including Merkel's own constituency that have eye-watering levels of unemployment.

I've also observed a lot of German major companies like Siemens, Bosch, VW, etc etc are increasingly off-shoring manufacturing to avoid costs in Germany. That's not something that can be dealt with by internal devaluation. They need to look at the currency too.

I'm just not convinced that German economics is necessarily appropriate or even all that intelligent. They're doing well largely down to a concentration of industrial / technical expertise. If anything, their currency policies may have been hampering their own industrial growth, never mind the rest of the EU's situation.

---

I honestly think we should be looking at what the Dutch, Swedish and other small, dynamic successful nations are doing not really taking what Germany's saying all that seriously. It's not that great an economic model to follow unless you've a huge manufacturing / technological / industrial base which isn't really where we're at. We're more a trading economy.

...

To solve this, I really think we need Eurobonds + devaluation in line with what's going on in the US and Japan.

AlekSmart

SpaceTime wrote: »

The fundamental problem with the Irish economy is very simple really:......

.....We have to break the notion that rising property prices is an economically beneficial thing. We walked into a disaster and allowed ourselves to be asset stripped through total naivety and group think.

Austerity won't unwrite all those cheques!

I still think a structured default is going to be necessary.

Quite the most incredible aspect for me,is how significant elements of our National Administration see a kick-starting of the "Property Market" as being just what's needed to get the ball rolling again.

The exact same movers n shakers who got us into the present mess are being facilitated to create another mess to ensnare the next generation of savvy-investors.

Are we mad or wha..?

SpaceTime

It's partially because that's all they know and partially because they are or they are too close to the land-owning / speculating elite who benefited from the asset stripping in many cases.

From what I can see, we've just been through the national equivalent of a leveraged buy out and have been left with all the debts.

daithicarr

Just wondering how exactly would reducing the income of the poorest section of society drop prices significantly.

about 300,000 people have already had a huge decrease income, not to mind everyone else still employed who have seen their income decrease.

But has it had a equally measurable drop in the cost of utilitys, transport, food, cost of living , etc. etc. ?

The consumer price index has only dropped a few percent during the height of the boom when so many people were made much worse off than they were before.

Is there any strong evidence to suggest by making this group even more worse off again there would be a substantial drop, more than a few percent and would the drop equal or beat their drop in income, if not it just leaves a huge portion of our people in even worse poverty..

johnnyskeleton

daithicarr wrote: »

Just wondering how exactly would reducing the income of the poorest section of society drop prices significantly.

How are they the poorest section of society? Are a family on welfare worse off than a family with one spouse earning minimum wage? You'd need to earn c. 40k gross to match benefits when mortgage supplement, full family welfare, additional payments, bus and medical cards and no tax are factored in.

You can also have people who are on the dole with 10k savings a house and a car so I question whether it is correct to simply assume that they are the poorest.

But to answer your question, prices remain higher than normal because the government is introducing too much free money into the economy.

But has it had a equally measurable drop in the cost of utilitys, transport, food, cost of living , etc. etc. ?

No because of a) increased fuel costs (imported inflation) and too much money chasing too few goods (domestic inflation)

Is there any strong evidence to suggest by making this group even more worse off again there would be a substantial drop, more than a few percent and would the drop equal or beat their drop in income, if not it just leaves a huge portion of our people in even worse poverty..

http://en.m.wikipedia.org/wiki/Demand-pull_inflation

You're asking the wrong question though. It's not a question of having the cost of inflation and the drop to welfare and deciding which is better for the country, the question is really how do we sustain such high levels of government spending? When the answer to that is "oh, Ireland is a high cost country so we need higher welfare and minimum wage" maybe people are putting the cart before the horse

If borrowing €15-20b per annum is austerity, then what do you guys have in mind for a stimulus??

professore

Young working families with big mortgages are in very many cases far worse off than unemployed families in social housing.

daithicarr

johnnyskeleton wrote: »

How are they the poorest section of society? Are a family on welfare worse off than a family with one spouse earning minimum wage? You'd need to earn c. 40k gross to match benefits when mortgage supplement, full family welfare, additional payments, bus and medical cards and no tax are factored in.

I didn't specify people on social welfare were the worst off, I was referring to both social welfare and minimum wage. Both have such a low level of income as to be termed the worst off. Both will leave family's on a very minimal level of living .

johnnyskeleton wrote: »

No because of a) increased fuel costs (imported inflation) and too much money chasing too few goods (domestic inflation)

Most of these costs are beyond out ability to influence, whether our minimum wage it 3 euro a hour or 8, it wont have any impact on international commodity prices . Fuel, electronic goods,cars, clothing are not much cheaper ( or sometimes more expensive) after tax differences in many other EU country's i have been too.

Less many means people will just be able to purchase less of these items. So im not convinced dropping income alone will fix it.
How are you maintaining there are too few goods ? There just seems to be a shortage of consumers with excess capital.

KyussBishop

We haven't got demand-pull inflation (in fact, our inflation rates are kept at a negligently low rate, given that we are undergoing an economic recession), we have speculative rent-seeking inflation in the oil and food markets, among many other markets (increasingly looks like practically any market you can think of, has prices being distorted by private financial interests, by controlling supply for monopoly/oligopoly profits).

We have lots of privately-led inflation, which is something all the inflation scaremongers never seem to bang on about with near the same intensity, as even the hint of overblown/exaggerated potential inflation, from government action.

It's basically:
Private inflation: Ignore, try to justify, or use every fallacious argument in existence to pin it on government.
Public inflation: Say any and every government intervention in the economy, will cause massive hyperinflation, and when pointing out existing instances of intervention not causing this, keep repeating "it's coming, it's coming - just around the corner" forever.


Again, repeating what I said earlier, there is no solution to this crisis within Ireland. Any solution has to be undertaken by Europe as a whole; the economic solutions are already known, but the political situation is impassable (and not looking likely to get any better - economics as a field, and most of politics, is infected with bad economics; led by theory that is just plain wrong, in fundamental ways).

rumour

realitykeeper wrote: »

Ireland is a high cost economy. In a high cost economy, people do not get good value for their money. This leads to other problems.

Without good value for money the dole must be high so the unemployed can make ends meet. When the dole is high the minimum wage has to be a fair bit higher as an incentive for the lowest paid to work. A high minimum wage pushes up costs for retailers and service providers making everything we buy more expensive. A high minimum wage also makes it impossible for exporters to compete with low wage economies so they close up and move their businesses to those low wage economies.

When businesses close, unemployment rises and so do taxes to pay for the new unemployed. Higher unemployment also increases the governments deficit as it has fewer workers and employers to tax. As the government`s deficit rises, it has to borrow to maintain living standards. When the government borrows the national debt rises. When the national debt rises so do the interest payments required to service the debt. When interest payments rise so does the overall cost of running the country. In a a high cost economy, people do not get value for money and like I said earlier, this leads to other problems. The simple fact is this: In a high cost economy, everyone from the government to the guy begging on the street - everyone, has to pay much more for everyday goods and services.

So what it the solution? For a start, I think it is important for everyone in the country to understand that the causes and the consequences of a high cost economy are mutually supportive so we end up in a vicious cycle of events which ultimately lead to higher debt, higher prices for everyday goods, unemployment, emigration etc.

Secondly, having recognized the problem we ought to tackle it in one of two ways. One is to reverse the sequence of events as outlined above. Another way would be a coordinated and very sudden reduction of costs across the economy. For example, if the minimum wage was cut, the dole could be simultaneously cut, as could public sector pay, VAT rates and - within days, the cost of goods and services would also plummet. This would help employers to start recruiting again. By remaining on its present path of borrowing to live beyond its means, Ireland will remain at the mercy of creditors and the interest rates they impose. Austerity can free the country all all that and ultimately enable us to save enough to care for the sick and elderly independently - without relying on others to lend us the cost of caring at interest rates we can neither afford nor control. This is why austerity is a good idea. Am I wrong?

Sum it up...we spend more than we earn.

sparksfly

OP, your opening 2 sentences are rubbish.
Have a look around and compare the high cost countries with the low cost ones.
Which ones provide the best standards of living?

Finland is a high cost country where its citizens get excellent value for money in almost every service, be it state or private.
Same for most of the worlds wealthiest countries, usually with the highest standards of living and the smallest gap between rich and poor, they are high cost countries. Eg, all of Scandinavia, Austria, Switzerland etc. The difference is that they manufacture and export high cost, high quality specialist goods and the profits are taxed sufficiently to provide excellent services while not stifling productivity, all this is helped by efficient public sectors.
Low cost countries are among the poorest and most uneven in wealth.
We are doing our best to join the latter gang.

rumour

sparksfly wrote: »

Finland is a high cost country where its citizens get excellent value for money in almost every service, be it state or private.
Same for most of the worlds wealthiest countries, usually with the highest standards of living and the smallest gap between rich and poor, they are high cost countries. Eg, all of Scandinavia, Austria, Switzerland etc. The difference is that they manufacture and export high cost, high quality specialist goods and the profits are taxed sufficiently to provide excellent services while not stifling productivity, all this is helped by efficient public sectors.
Low cost countries are among the poorest and most uneven in wealth.
We are doing our best to join the latter gang.

A superficial illusion, Scandinavia exports vast quantities of raw materials. That is the only thing that supports their existence. Entitlements for citizens follow directly from the revenue that this provides. Exclude that and they are the same as us.

Switzerland is a tax haven( they produce high-quality goods but strip out banking and they are buggered), don't know about Austria other than its has a big banking sector.

Having said that, their national characteristics seem to be true in that banking in Switzerland and Austria is a solid proposition whereas banking in Ireland???
One wonders is our national characterizations true?

Jawgap

rumour wrote: »

A superficial illusion, Scandinavia exports vast quantities of raw materials. That is the only thing that supports their existence. Entitlements for citizens follow directly from the revenue that this provides. Exclude that and they are the same as us.

Switzerland is a tax haven( they produce high-quality goods but strip out banking and they are buggered), don't know about Austria other than its has a big banking sector.

Having said that, their national characteristics seem to be true in that banking in Switzerland and Austria is a solid proposition whereas banking in Ireland???
One wonders is our national characterizations true?

All the countries you cite have a number of things in common. First, they may export some significant amounts of raw materials but they are also home to some of the strongest most innovative brands in the world and they all have strong manufacturing bases - Volvo (esp Volvo trucks), Carlsberg, G4/ Falck, Nokia etc. - does Ireland have any comparable indigenous brands (aside from Ryanair)? They also all rank well ahead of Ireland in terms of exports of high tech products on a per head basis.

The Swiss also have a significant pharma and chemical industry - they export more pharma than we do.

Second, consumption by consumers is intimately linked to salary / income, not debt - which enhances income flows to the government and smooths out income / wealth inequalities.

Third, they innovate - the Scandinavian countries and Switzerland consistently feature in the top 5 in the World Economic Forum's Innovation Index - currently, for example, Finland is ranked second, Ireland is 21st.

They also spend significant amounts on R&D - Finnish companies are ranked 3rd in terms of R&D spend, Irish companies, 21st (the Swiss ranked first) - finally both in both Switzerland and Finland there are over 275 PCT patents per million of population registered each year (over twice the rate in the US) - the corresponding figure for Ireland is about 90.

Finally, I worked in Denmark for a few months and I'd say the distinguishing feature between 'them' and 'us' is cultural - as a population they are just more mature than us and better able to grasp the notion of the public good - the project I was working on at the time was government funded, and while it did have it's own inefficiencies and problems, it wasn't plagued by the parochialism and parish pump politics that retards this country.

daithicarr

rumour wrote: »

A superficial illusion, Scandinavia exports vast quantities of raw materials. That is the only thing that supports their existence.

You might want to do a bit of reading.

Denmark does not produce or export a large amount of raw materials, and neither does Finland, apart from wood, but that doesn't even come near to being the largest componenet of their economy.

Finland is a great example of how a small , under populated country is able to manage its affairs to be a world leader.

Sure its not perfect, but there really isint anyone who does it better than them.

AlekSmart

Jawgap wrote: »

Finally, I worked in Denmark for a few months and I'd say the distinguishing feature between 'them' and 'us' is cultural - as a population they are just more mature than us and better able to grasp the notion of the public good - the project I was working on at the time was government funded, and while it did have it's own inefficiencies and problems, it wasn't plagued by the parochialism and parish pump politics that retards this country.

Excellent points.....I wonder if the Danes were in charge of building the New Liffey Bridge,would it be finished by now....?

The New Liffey Bridge,once again demonstrates,so VERY publicly,the cultural divide Jawgap refers to.

Just as with the O Connell St paving and LUAS projects we watch major infrastructional works being carried out on a Monday to Friday 9-5 basis.

The New Bridge site,for example ceased operations at 1600 yesterday and will not resume until 0830 on Monday.....In the meantime the longest days with best weather slip on by....what odds on us being able to watch the workforce struggling to complete it in Freezing,damp,dark conditions come November.....It's almost as if we HAVE to prove our thickness at times....

beeno67

AlekSmart wrote: »

Excellent points.....I wonder if the Danes were in charge of building the New Liffey Bridge,would it be finished by now....?

The New Liffey Bridge,once again demonstrates,so VERY publicly,the cultural divide Jawgap refers to.

Just as with the O Connell St paving and LUAS projects we watch major infrastructional works being carried out on a Monday to Friday 9-5 basis.

The New Bridge site,for example ceased operations at 1600 yesterday and will not resume until 0830 on Monday.....In the meantime the longest days with best weather slip on by....what odds on us being able to watch the workforce struggling to complete it in Freezing,damp,dark conditions come November.....It's almost as if we HAVE to prove our thickness at times....

And the reason to work evenings & weekends is????
Are we really crying out to have this bridge completed as soon as possible irrespective of the extra costs incurred. The bridge is mainly for the new Luas. Why waste money completing a bridge that won't be used?

goose2005

professore wrote: »

Young working families with big mortgages are in very many cases far worse off than unemployed families in social housing.

Look, a millionaire would be worse off than a beggar if he all of a sudden paid €20m of borrowed money to buy something that was only worth €5m. I don't see how bringing back workhouses would change that.

goose2005

beeno67 wrote: »

And the reason to work evenings & weekends is????
Are we really crying out to have this bridge completed as soon as possible irrespective of the extra costs incurred. The bridge is mainly for the new Luas. Why waste money completing a bridge that won't be used?

Why only build a bridge for 40 hrs a week and leave the site idle for 128? (The same goes even more for radiology, there's no special reason why X-rays can't be taken almost 24-7 but the HSE don't want to get round to it) And the new Luas bridge could well be one of the busiest in Ireland in terms of people crossing it per day.

beeno67

goose2005 wrote: »

Why only build a bridge for 40 hrs a week and leave the site idle for 128? (The same goes even more for radiology, there's no special reason why X-rays can't be taken almost 24-7 but the HSE don't want to get round to it) And the new Luas bridge could well be one of the busiest in Ireland in terms of people crossing it per day.

Because building at night costs a lot more, is more dangerous and creates noise pollution. Building at weekends cost more. Why rush the build at such extra cost? The bridge is for public transport & pedestrians only. Is anyone really desperate to get the bridge open at massively increased costs? I doubt many are. The bridge will be handy that's all. Certainly not worth wasting massive sums trying to get it built quicker. Anyway it may well have been stipulated in its planning permission that work could only take place at certain times of day.

AlekSmart

beeno67 wrote: »

And the reason to work evenings & weekends is????

Are we really crying out to have this bridge completed as soon as possible irrespective of the extra costs incurred. The bridge is mainly for the new Luas. Why waste money completing a bridge that won't be used?

It is perhaps,an Irish Pecularity of mind,that can regard the rapid completion of such a project as a "waste of money"...I must admit to struggling to grasp how it could be so...?

The new Liffey Bridge is First & Foremost a Public Transport bridge.

Its initial,and most important use is for Buses and Taxi's,as until it is complete and functioning,the O'Connell St/Parnell St/Marlborough St works cannot proceed.

So yes,that alone,is more than reason enough to treat the project as a major infrastructional one and proceed accordingly.

It's not that long since we had Senor Manuel Melis over from Madrid,where he had succesfully presided over the planning and construction of much of the Madrid Metro enhancements....some folks reckoned Manuel's opinions might be of assistance to the RPA...his advice was simple enough...1) Agree a Plan 2) Keep it as simple as possible 3) Commence Work on a 24/7/365 basis until complete.

Not unsurprisingly,the RPA thanked Sen. Melis,paid his fee and promptly ignored everything he said.

It's what makes us different I suppose ?

AlekSmart

beeno67 wrote: »

Because building at night costs a lot more, is more dangerous and creates noise pollution. Building at weekends cost more. Why rush the build at such extra cost? The bridge is for public transport & pedestrians only. Is anyone really desperate to get the bridge open at massively increased costs? I doubt many are. The bridge will be handy that's all. Certainly not worth wasting massive sums trying to get it built quicker. Anyway it may well have been stipulated in its planning permission that work could only take place at certain times of day.

Of course building at night costs more,but it's all perfectly normal methodology in many,if not most major urban infrastructural projects.

The issues tend to revolve around efficiencies and operational judgements whereby a mix of such work is allowed for.

For example,with in excess of 12 hours,of daylight during the summer period it behoves the Project Engineers to utilize this fully.

Instead we see,not for the first time in such projects,a fallow site with the longest days of the year ignored,whilst the same engineers will happily sign-off on a requestition for Generator Powered Flood-Lights come October....(The brother in-law has an oul plant-hire company y'see..nudge nudge..wink wink...)

It's not even about efficiency or engineering any more,it's about common-sense !

Doubtless too,the planning-conditions specified reduced hours of work,in order to reduce the impact on the centre city residents......of whom there are many,all crammed into the over-the-shop accomodation so very popular in Dublin City Centre....:rolleyes:

However,this is only using the New Bridge as an example,as the country appears full of such stuff....witness yesterday's lonnng awaited opening of the Road to Hansfield Railway Station,which finally allowed potential passengers to access the Trains passing through it....how many years did that take..???..George Orwell himself might have used it as an alternative to Wigan Pier

Austerity may yet prove to be the very best thing we could endure,as it will force us all into looking at more effective,efficient and FASTER ways of doing stuff....or perhaps we are grand as we are ???

beeno67

AlekSmart wrote: »

Of course building at night costs more,but it's all perfectly normal methodology in many,if not most major urban infrastructural projects.

The issues tend to revolve around efficiencies and operational judgements whereby a mix of such work is allowed for.

For example,with in excess of 12 hours,of daylight during the summer period it behoves the Project Engineers to utilize this fully.

Instead we see,not for the first time in such projects,a fallow site with the longest days of the year ignored,whilst the same engineers will happily sign-off on a requestition for Generator Powered Flood-Lights come October....(The brother in-law has an oul plant-hire company y'see..nudge nudge..wink wink...)

It's not even about efficiency or engineering any more,it's about common-sense !

Doubtless too,the planning-conditions specified reduced hours of work,in order to reduce the impact on the centre city residents......of whom there are many,all crammed into the over-the-shop accomodation so very popular in Dublin City Centre....:rolleyes:

However,this is only using the New Bridge as an example,as the country appears full of such stuff....witness yesterday's lonnng awaited opening of the Road to Hansfield Railway Station,which finally allowed potential passengers to access the Trains passing through it....how many years did that take..???..George Orwell himself might have used it as an alternative to Wigan Pier

Austerity may yet prove to be the very best thing we could endure,as it will force us all into looking at more effective,efficient and FASTER ways of doing stuff....or perhaps we are grand as we are ???

Still the same question. Why spend a huge amount more money getting this bridge built faster?

ardmacha

Austerity may yet prove to be the very best thing we could endure,as it will force us all into looking at more effective,efficient and FASTER ways of doing stuff....or perhaps we are grand as we are ???

You would think it would. But despite this there is no emphasis whatsoever on productivity, the concept seems unknown in government. Nothing is measured in productivity terms, only in total "budget". If your budget is limited you need more bang for your buck.

Jawgap

goose2005 wrote: »

Why only build a bridge for 40 hrs a week and leave the site idle for 128? (The same goes even more for radiology, there's no special reason why X-rays can't be taken almost 24-7 but the HSE don't want to get round to it) And the new Luas bridge could well be one of the busiest in Ireland in terms of people crossing it per day.

There's a 24/7 demand for radiology services in large hospitals with A&E departments - there's no urgency in having the bridge built, nor is there any huge demand for the labour and equipment being used to construct it - other projects are not being delayed because of this work.

In short, there's no imperative to rush ahead. On most projects, including construction ones, it's a case of balancing quality, financing and time - you prioritise one at the expense of the other two - in this case time is not important, but financing and quality are.......

.......saying that , given our tradition of poor project management, it will probable be slightly late, over budget, but adequately constructed:)

Chinasea

But, one of the main problems I see in this country is that we only cut our cloth to fit, when we as individuals or made pay for it.

Many of the Scandinavian, Baltic countries, and for all I know Asian countries would be horrified, absolutely horrified if they were to see the needless waste that we live by in Ireland.

i.e: was leaving someone into admissions in the hospital this week and the clerk printed off pages of labels for the patient and put in their folder. Max 10 labels would have been enough. Prescription at €1.50 written out for said patient with a supply of 60 tablets, when one months supply would have easily sufficed. And so on and so forth.

So for the wrong reasons OP, it would seem that austerity could be a good idea because of the needless waste and lack of collective innate foresight.

What I find jarring is that we continue to waste so much needlessly despite a full on recession..

AlekSmart

beeno67 wrote: »

Still the same question. Why spend a huge amount more money getting this bridge built faster?

Still the same answer,this particular bridge is of significant strategic importance to the greater Luas BXD programme,it is also of similar importance to Dublin's Public Transport on a broader scale,so why NOT ensure that it's construction and completion is expedited ?

Theres no evidence that a "huge amount more" would have to be spent at all,but rather the tender specifications need to be far more robust when it comes to duration of construction.

I am not suggesting this as a cost increasing measure at all,rather one of why the contracts are not drawn-up with efficiency and better scheduling as basic elements.

The current norms in these type of projects would appear to suggest a Manana answer to the question,when will it be finished....

realitykeeper

AlekSmart wrote: »

Quite the most incredible aspect for me,is how significant elements of our National Administration see a kick-starting of the "Property Market" as being just what's needed to get the ball rolling again.

The exact same movers n shakers who got us into the present mess are being facilitated to create another mess to ensnare the next generation of savvy-investors.

Are we mad or wha..?

This is true. What Ireland needs is to get back to manufacturing and not just value added goods but common everyday items which require cheap labour and assembly lines. Unfortunately two many young people ignored the advice of industry over the past decade and instead of focusing on maths, science and languages they wasted their time on social studies, the humanities and that type of quackery. Ireland can`t afford social workers. To balance the books the government has to abolish the minimum wage and encourage the manufacturing sector.

Farmer Pudsey

I do not think that we are a high cost economy any longer. Was in France was supprised at supermarket prices there across all supermarkets they are now as expensive if not more expensive than Ireland. 10 years ago they were way cheaper. Fuel is the same price as Ireland 10 years ago it was 15% more expensive however car costs are higher here. Agree about utilities energy is more expensive but was supprised that prepay mobile top up were 30 and 40 euro over there in the only shop I saw. We are not charge for water and there will more than likely be a pull back from continue austerity over the next two years.

Housing was way more expensive past a few auctioneers windows and any decent house was over 200K. I know that this was a holiday area however nothing was cheap. With internet shopping a lot of the price difference has been equalised. The UK supermarkets has sheltered it consumers from food inflation but this will change over the next while as food is increasing in price. 2 burgers were over 3 euro in French Supermarkets milk about 1.1/litre, cooked meats were more expensive as was fresh meat, fruit and veg was as expensive if not more so.

I think the biggest mistake we are making at present is our failure to put in place low skill employment. High cost in government supplied services has killed this sector. Another thing I saw was that we have gone completely over board on the H&S lark. Now France is the other extreme but there has to be a happy medium. Restarting the building sector as it getting it functioning and back to 10-12% of the economy from 6% will not cure our issue but it will help. there is no quick fix but instead a number of changes with in the economy could get it moving. Tourism is the same if we could increase this sector it would also help.

This idea that the private sector is filled with greedy business people is a bit of an urban legend rather it is filled with business some of which are just surviving other that are doing well and a lot that are going out of business.