Spend, Spend , Spend say the experts!!

simplistic · 20-01-2010 12:01AM #1

THREE OF OUR LEADING ECONOMISTS PROFESSOR JOHN FITZGERALD OF THE ESRI ,DR ALAN AHEARNE OF NAMA and DAN MC LAUGHLIN - CHIEF ECONOMIST OF THE BANK OF IRELAND -
ALL BELIEVE WE NEED TO GO OUT & SPLURGE .

http://www.independent.ie/

ALSO OUR ECONOMY WILL GROW IN REAL TERMS BY 2011 -12 .
MEANWHILE IN ' REAL ' IRELAND 300,000 HOUSES LIE EMPTY IN IRELAND ---- http://www.independent.ie/breaking-ne...

The_Honeybadger · 20-01-2010 12:05AM

Isn't that how we got here in the first place??

SLUSK · 20-01-2010 12:14AM

Me as an individual cannot get wealthy through consumption.
My whole family including the extended family cannot get wealthy through consumption but we are somehow to believe that a nation as a whole can get wealthy through credit fueled consumption?

This is something so crazy that you have to be an economist to believe in it.

P. Breathnach · 20-01-2010 01:41AM

SLUSK wrote: »

Me as an individual cannot get wealthy through consumption...

I bought blinds this week. Some of my spend goes to the government as VAT -- and don't they need every cent that they can get. The supplier makes some profit, which helps feed his family. The manufacturer (in Ireland) also makes some profit. The courier who delivered them from the manufacturer to the local supplier made a few euros. Okay, some of the materials were imported, so that helps the prosperity of people outside Ireland. But my act of consumption results in a number of people making a bit of money. So my consumption did not make me better off in financial terms, but it did make some other people better off. And I have blinds with which I am pleased.

So you see, folks, everybody is a winner.

ronbyrne2005 · 20-01-2010 02:35AM

P. Breathnach wrote: »

I bought blinds this week. Some of my spend goes to the government as VAT -- and don't they need every cent that they can get. The supplier makes some profit, which helps feed his family. The manufacturer (in Ireland) also makes some profit. The courier who delivered them from the manufacturer to the local supplier made a few euros. Okay, some of the materials were imported, so that helps the prosperity of people outside Ireland. But my act of consumption results in a number of people making a bit of money. So my consumption did not make me better off in financial terms, but it did make some other people better off. And I have blinds with which I am pleased.

So you see, folks, everybody is a winner.

where did the wealth come from to pay you to buy the blinds? An economy like Ireland in medium to long term can only become more prosperous by selling/exporting goods/services abroad.

P. Breathnach · 20-01-2010 03:09AM

ronbyrne2005 wrote: »

where did the wealth come from to pay you to buy the blinds?

Savings -- and that is not ducking the question. In these uncertain times, many people are actively saving, which might be a wise decision on an individual or household level. But for the economy as a whole, an increase in savings amounts to a decrease in consumption, which is bad for the business community, particularly the SME sector.

Herself and I made a choice to go the other way. We decided to proceed with some projects that we had been considering, but had allowed to remain on the long finger. When the recession hit, we thought it would be a good thing to spend some of our savings, creating some bit of business for our neighbours. We are not wealthy enough to make a huge difference to the Irish economy, but we can make a small but welcome difference in our neighbourhood.

It's not all bad news for us, or a set of unselfish acts: we are getting better deals than we would have got a year or two ago. As I said in my previous post, everybody is a winner.

An economy like Ireland in medium to long term can only become more prosperous by selling/exporting goods/services abroad.

That's not the whole story. Selling goods and services to one another is also valuable.

Count Dooku · 20-01-2010 07:46AM

It could work only if people could trust government and believe that government will solve problems with budget by massive cuts in public sector. But government decide to take opposite side and minimize impact on public sector. Government reduced capital spending by 7Bn with total saving of 4Bn. Extra 3 Bn went to public sector.
What is reason to borrow and spend, if your money will be wasted in inefficient public sector?
Spend, spend, spend actually means borrow, borrow, borrow and make state debt your own and then you will pay twice

murphaph · 20-01-2010 09:18AM

Ireland's open and small economy cannot dig itself out of recession through internatl consumption because we don't produce enough of the goods people want and because there aren't enough consumers in Ireland in the first place.

Can people not remember that we only started to make money when we started exporting en masse? Was it so long ago? I understand that folks in the public sector don't understand that the money all comes from abroad but anyone who worked in Irish design (not many) or manufacturing should know it.

Intel Ireland doesn't make all those chips for the Irish market, and buying a new car won't help the Irish economy one jot in the long term. There may be a short term exchange of wealth between the car buyer and the government (Taxes) but the bulk of the wealth of the car buyer has now left Ireland and gone to a German (etc.) bank account.

If they want us to spend money then it should at least be directed at Irish manufactured goods and services, where as little of the money leaks out of the Irish economy as possible. A blanket "go out and spend" instruction is ridiculous as anyone with half a brain can see.

The_Honeybadger · 20-01-2010 09:22AM

Money makes the world and our economy go round. However many people dont know if they will have a job going into 2011 and this is probably the reason they are not spending, they are also paying down debts like credit cards etc. I like Mr Breathnach have made a large purchase lately that I had been planning for some time, as I got a great deal and felt that the item I was buying could not come down much more, there are some good bargains to be got lately if you really take the time to look for them but we won't start spending as a nation again until things stabilise internationally and we see light at the end of the tunnel, no matter who tells us otherwise.

Seth Brundle · 20-01-2010 09:58AM

I've nothing left to spend!

Alcatel · 20-01-2010 09:59AM

The entire crises is caused by confidence - on every level, from banks and investors to Joe in the street. At the end of the day, all business is aimed at delivering services - required and luxury - to people, who are too afraid to spend what they have.

It's an economic joke that saving is good for the economy, but not spending is bad for it. Long versus short term. We need short term spending to keep the wheels turning.

Diarmuid · 20-01-2010 11:22AM

SLUSK wrote: »

Me as an individual cannot get wealthy through consumption.
My whole family including the extended family cannot get wealthy through consumption but we are somehow to believe that a nation as a whole can get wealthy through credit fueled consumption?

This is something so crazy that you have to be an economist to believe in it.

You made a huge jump there from "consumption" to "credit fuelled consumption". Big difference.

Sleepy · 20-01-2010 11:32AM

Would the positive effects of consumer spending of their savings be more beneficial to the economy than the negative effect this would have on bank's balance sheets and the leakage to other economies from the amount of this spending that would go towards imports?

I don't have any figures but my gut suggests not...

ardmacha · 20-01-2010 01:21PM

This is not a recommendation to spend spend spend. It is simply an observation by economists that when things are seen to be improving that people will save a bit less of their income. There is no suggestion of "credit fuelled consumption".

Government reduced capital spending by 7Bn with total saving of 4Bn. Extra 3 Bn went to public sector.

Is it possible to have any thread without the usual prejudiced suspects spouting the same old agenda? In the last year public sector expenditure has reduced, while welfare expenditure and national debt interest payments have increased. Yet we have this repeated nonsense about money being redirected to the public sector. If you have nothing new to add then go off and spend some money and get the economy moving rather than cluttering up the thread.

Idbatterim · 20-01-2010 02:36PM

Im not spending a cent I dont have to! this wont change until the Goverment, actually tackles the elephant in the room the PS! Private Companies are becoming so lean and efficient & even at that alot have or will close! Goverment costs are going up and up and up! It is up to them to get their act together! Worst case scenario is that we come out of the recession early! The longer it goes on, the more action they will have to take!

P. Breathnach · 20-01-2010 02:58PM

Idbatterim wrote: »

Im not spending a cent I dont have to! this wont change until the Goverment, actually tackles the elephant in the room the PS! Private Companies are becoming so lean and efficient & even at that alot have or will close! Goverment costs are going up and up and up! It is up to them to get their act together! Worst case scenario is that we come out of the recession early! The longer it goes on, the more action they will have to take!

I don't see much sense in this policy. The money I choose to spend goes to the private sector. Choosing not to spend it would impact on the private sector, and not particularly on the government or the public sector.

old boy · 20-01-2010 03:09PM

dan mclaughlin of BOI fame i wonder why he is not on the rte news as often as he used to be, yeah ted

Tipp Man · 20-01-2010 03:21PM

Ask Ze Germans about spending and saving, might make some Irish people sit up and think about what we actually do with our money (myself included)

Count Dooku · 20-01-2010 03:42PM

ardmacha wrote: »

If you have nothing new to add then go off and spend some money and get the economy moving rather than cluttering up the thread.

Why?
If I will spend my money now and government will decide to increase taxes in order to keep public sector happy, I will have nothing left.
When battle between public and public sector will over and public will win, then I can start to spend, spend, spend again

Count Dooku · 20-01-2010 03:44PM

P. Breathnach wrote: »

I don't see much sense in this policy. The money I choose to spend goes to the private sector. Choosing not to spend it would impact on the private sector, and not particularly on the government or the public sector.

Government will have less tax and will have to pay welfare benefits.
It means that reduced spending will hit mostly public sector and only then some parts of private sector, working on local market
BTW, it was PS unions, which first ordered to their member to spend as much as possible on North

kmick · 20-01-2010 04:04PM

Earning a wage, paying your bills, saving 20% of your income, servicing your debts in an orderly fashion and then blowing the remaining 2 or 3% on consumer goods - thats cool.

Spending money without doing the things above - not cool.

As long as they make that clear.

Anyway it does'nt matter what they say until the government states bluntly how much in taxes we will pay over a specified period say the next 5 years. If every time we turn around the government extract another 1 or 2% of our income through direct or indirect taxes no-one will spend money.

P. Breathnach · 20-01-2010 04:45PM

Count Dooku wrote: »

Government will have less tax and will have to pay welfare benefits.
It means that reduced spending will hit mostly public sector and only then some parts of private sector, working on local market
BTW, it was PS unions, which first ordered to their member to spend as much as possible on North

This is real cutting-off-your-nose-to-spite-your-face stuff (or further damaging the private sector in the belief that it is a way to get at the public sector).

I must be odd: I actually care about the welfare of my neighbours. The more I participate in this forum, the more that feeling of oddness is reinforced.

Count Dooku · 20-01-2010 06:01PM

P. Breathnach wrote: »

This is real cutting-off-your-nose-to-spite-your-face stuff (or further damaging the private sector in the belief that it is a way to get at the public sector).

Country is very sick by excessive spending and you cannot recover it without suffering pain. It is like surgery and reduced spending is some kind of personal anaesthetic.
I know that some parts of private sector will be hit as well, but rip off Ireland must go away and businesses should more look for opportunities in export, rather then for easy money from local market. I don’t think that many people will object against reforms in retail industry as well. Don’t forget that most of money spent will go to China through UK, because 87% of goods are imported. In best case only 50% of spending will go to support Irish economy.
Good thing is that government (current or next) will not have other choice except cuts in spending. And only then all saved money will jump into economy and country will have strong growth again, not survival and stagnation as it is proposed now.

Jarren · 20-01-2010 06:05PM

kbannon wrote: »

I've nothing left to spend!

+1

that's exactly the point:o

P. Breathnach · 20-01-2010 06:13PM

Count Dooku wrote: »

... Don’t forget that most of money spent will go to China through UK, because 87% of goods are imported. In best case only 50% of spending will go to support Irish economy.
Good thing is that government (current or next) will not have other choice except cuts in spending. And only then all saved money will jump into economy and country will have strong growth again, not survival and stagnation as it is proposed now.

I see it now. How could I have missed it?

Eliot Rosewater · 20-01-2010 06:17PM

P. Breathnach wrote: »

I must be odd: I actually care about the welfare of my neighbours. The more I participate in this forum, the more that feeling of oddness is reinforced.

Those who hold anti-status quo views will generally make their voices heard. A lot. You rarely hear someone in the middle of discussion calling for "rationalism, people, rationalism!"

As regards the topic on hand. I think one of the basic principles of economics is that you ease off on spending during the good times and spend more during a recession. This has the effect of dampening the economy when its roaring, and stimulating it when its groaning. Of course despite the unprecedented economic boom our government hadn't any kind of savings kept. Instead it was all blown on trying to buy the votes of you, me and everyone else posting here.

I think that kind of system should have been on a personal level too. People should always be ready for a rainy day. At the moment small business are running out of customers and tbh, if you not going to spend you savings now when will you? When the boom comes again and the prices jack up?

dan_d · 20-01-2010 09:42PM

Say what now????????

Where's the money I'm supposed to spend going to come from?? Every spare penny I have is being saved to pay for my inevitable redundancy!!!!

Flamed Diving · 20-01-2010 10:46PM

simplistic wrote: »

THREE OF OUR LEADING ECONOMISTS PROFESSOR JOHN FITZGERALD OF THE ESRI ,DR ALAN AHEARNE OF NAMA and DAN MC LAUGHLIN - CHIEF ECONOMIST OF THE BANK OF IRELAND -
ALL BELIEVE WE NEED TO GO OUT & SPLURGE.

Leading?

http://ideas.repec.org/top/top.ireland.html

ghost_ie · 20-01-2010 11:19PM

Idbatterim wrote: »

Im not spending a cent I dont have to! this wont change until the Goverment, actually tackles the elephant in the room the PS! Private Companies are becoming so lean and efficient & even at that alot have or will close! Goverment costs are going up and up and up! It is up to them to get their act together! Worst case scenario is that we come out of the recession early! The longer it goes on, the more action they will have to take!

I see that the staff of a private hospital are going on strike on February 1st in pursuit of a pay rise. I'm sure those with the money to pay for treatment in this private facility will be only too pleased to have public sector staff in public hospitals look after them when the greedy private sector let them down

Firetrap · 22-01-2010 10:59PM

I don't see your logic. I know some public servants (I used to be one once upon a time and am still in touch with some old colleagues) and they've cut right back on their spending. I'm not saying their pay didn't need to be cut but it will have a deflationary effect on the local economy. The pension levy and now the revised pay scales will have taken hundreds of euros out of the average public servant's pocket each month and the first to suffer will be small businesses.

mossfort · 23-01-2010 12:24AM

As regards the topic on hand. I think one of the basic principles of economics is that you ease off on spending during the good times and spend more during a recession. This has the effect of dampening the economy when its roaring, and stimulating it when its groaning. Of course despite the unprecedented economic boom our government hadn't any kind of savings kept. Instead it was all blown on trying to buy the votes of you, me and everyone else posting here.

I think that kind of system should have been on a personal level too. People should always be ready for a rainy day. At the moment small business are running out of customers and tbh, if you not going to spend you savings now when will you? When the boom comes again and the prices jack up?

try telling this to people who were earning an average weekly wage during the celtic tiger era only to have lost their jobs in the recession and having to make do with the weekly social welfare rate.
there isnt much room for spend spend spend when mortgage,car insurance,electricity,heat ,motor tax,food and all other day to day expenses are paid.

P. Breathnach · 23-01-2010 12:50AM

mossfort wrote: »

try telling this to people who were earning an average weekly wage during the celtic tiger era only to have lost their jobs in the recession and having to make do with the weekly social welfare rate.
there isnt much room for spend spend spend when mortgage,car insurance,electricity,heat ,motor tax,food and all other day to day expenses are paid.

I don't think anybody would suggest that those who don't have spare money should increase their spending. Eliot's post was in response to my position: I have some spare money because I am a habitual saver, and I think that now is a good time for me to go ahead with some spending I had been considering -- good for me, and good for those with whom I spend my money.

nesf · 23-01-2010 12:59AM

mossfort wrote: »

try telling this to people who were earning an average weekly wage during the celtic tiger era only to have lost their jobs in the recession and having to make do with the weekly social welfare rate.
there isnt much room for spend spend spend when mortgage,car insurance,electricity,heat ,motor tax,food and all other day to day expenses are paid.

The issue that the economists are getting at is that our savings rate has increased from 3-4% of income to over 11% of income. The people who do have the money to spend after bills etc aren't spending it, which is exactly the kind of behaviour that happens in a recession but also one of the things that will prolong a recession and keep those who are unemployed out of work.

SLUSK · 23-01-2010 01:29AM

nesf wrote: »

The issue that the economists are getting at is that our savings rate has increased from 3-4% of income to over 11% of income. The people who do have the money to spend after covering mortgages and bills etc aren't spending it, which is exactly the kind of behaviour that happens in a recession but also one of the things that will prolong a recession and keep those who are unemployed out of work.

So you are saying that a nation can consume its way to wealth and prosperity. Are you serious?

WalterMitty · 23-01-2010 01:30AM

nesf wrote: »

The issue that the economists are getting at is that our savings rate has increased from 3-4% of income to over 11% of income. The people who do have the money to spend after covering mortgages and bills etc aren't spending it, which is exactly the kind of behaviour that happens in a recession but also one of the things that will prolong a recession and keep those who are unemployed out of work.

could an increased savings rate be from people paying down debt?

nesf · 23-01-2010 01:45AM

WalterMitty wrote: »

could an increased savings rate be from people paying down debt?

Some of it yes, but all of it? Almost certainly not. The climate of nervousness in the economy will depress people's urge to spend. Which is very natural but also a think that has negative impacts on the economy.

P. Breathnach · 23-01-2010 02:29AM

nesf wrote: »

... a think that has negative impacts on the economy.

What a serendipitous typo!

silverharp · 23-01-2010 09:26AM

nesf wrote: »

.....The people who do have the money to spend after bills etc aren't spending it, which is exactly the kind of behaviour that happens in a recession but also one of the things that will prolong a recession and keep those who are unemployed out of work.

To be fair though alot of people in the economy are recovering from their miscalculations in previous years, they have lost house equity, pension/share equity, future pay/job expectations will have dropped and their net income will be dropping due to higher taxation. If its an issue for someone then paying down debt or building up savings is the rational response. Is is not a bit of a woulda coulda shoulda argument to suggest that they are prolonging the recession? it also seems to assume that there was not mal investment that needs to be liquidated? for instance, can you put your hand on a number that would say what the ideal shape/size of the consumer economy should be? what if its still 10% too big for the income of the economy? wouldnt you then be looking at the wrong end of the pig to suggest a cure?
Also given that the crises isnt over, one cant rule out a scenario where there is a currency/debt crises in the EU that forces up interest rates. If some such event unfolds then your short term gain would turn into longer term pain. "betting" on a recovery would have been the wrong choice.

nesf · 23-01-2010 09:40AM

Silverharp2 wrote: »

To be fair though alot of people in the economy are recovering from their miscalculations in previous years, they have lost house equity, pension/share equity, future pay/job expectations will have dropped and their net income will be dropping due to higher taxation. If its an issue for someone then paying down debt or building up savings is the rational response. Is is not a bit of a woulda coulda shoulda argument to suggest that they are prolonging the recession? it also seems to assume that there was not mal investment that needs to be liquidated? for instance, can you put your hand on a number that would say what the ideal shape/size of the consumer economy should be? what if its still 10% too big for the income of the economy? wouldnt you then be looking at the wrong end of the pig to suggest a cure?
Also given that the crises isnt over, one cant rule out a scenario where there is a currency/debt crises in the EU that forces up interest rates. If some such event unfolds then your short term gain would turn into longer term pain. "betting" on a recovery would have been the wrong choice.

The correcting of household balance sheets are what promise that this recovery will be weak and prolonged before any real growth returns. The Savings Rate will be forced to stay high because of this. The thing is that right now that the mood is suppressing all spending, not just that spending that needs to be redirected towards paying down debt.

silverharp · 23-01-2010 09:55AM

nesf wrote: »

The correcting of household balance sheets are what promise that this recovery will be weak and prolonged before any real growth returns. The Savings Rate will be forced to stay high because of this. The thing is that right now that the mood is suppressing all spending, not just that spending that needs to be redirected towards paying down debt.

where do you draw the line? even younger people with no real debt may now have to adjust from taking out 120% to buy a house to 80%. I dont have a picture of some large group in the country that are saving excessilvely? or at the other end of the scale people coming up to retirement may need to save because their assets have lost value and their retirement is at risk. If you look at the US , retirees are now competing with teenagers for jobs at Wallmart. I doubt if they just want to get out of the house, they are being forced back int the job market

nesf · 23-01-2010 10:08AM

Silverharp2 wrote: »

where do you draw the line? even younger people with no real debt may now have to adjust from taking out 120% to buy a house to 80%. I dont have a picture of some large group in the country that are saving excessilvely? or at the other end of the scale people coming up to retirement may need to save because their assets have lost value and their retirement is at risk. If you look at the US , retirees are now competing with teenagers for jobs at Wallmart. I doubt if they just want to get out of the house, they are being forced back int the job market

I disagree. It's pretty much par for the course in a recession even without a financial crisis for there to be a spending contraction and a rise in the savings rate that isn't driven by "fundamentals". The exact same phenomenon can be seen in the commercial sector where companies cut back on every discretionary bit of spending they can reasonably get away with which his the business services sector very hard.

silverharp · 23-01-2010 10:29AM

nesf wrote: »

I disagree. It's pretty much par for the course in a recession even without a financial crisis for there to be a spending contraction and a rise in the savings rate that isn't driven by "fundamentals". The exact same phenomenon can be seen in the commercial sector where companies cut back on every discretionary bit of spending they can reasonably get away with which his the business services sector very hard.

reminded me of a piece that the chief economist at Nomura put out about Balance sheet recessions, even Krugman picked up on it. Indeed businesses will behave the same way, how many companies out there are up to their gills in MBO debt, Eircom and The Independant group for example were suffereing from over leverage to some degree. will some companies overshoot, maybe but the important point seems to be that the broader economy needs to chew though the debt that is pulling down an otherwise profitable business.

http://krugman.blogs.nytimes.com/2009/04/06/balance-sheets-and-the-trade-cycle-somewhat-wonkish/

What Koo is arguing for is something similar, but with debt playing the role played by capacity in the old trade cycle. When the economy is growing, taking on more debt seems OK, and rising debt feeds rising spending, which feeds the boom. Eventually growth has to slow, however, and the debt starts to drag down spending, which reduces income, forcing more deleveraging, and so on to the floor. Then debt slowly gets paid down, until the cycle is ready to start again.
This suggests a prolonged slump. In particular, it tells us not to get too euphoric over “green shoots” and all that. Yes, we may — may — be approaching the “floor”, where the free fall ends. But it can take a long time, many years, before balance sheets are sufficiently repaired for the economy starts to climb off that floor.

nesf · 23-01-2010 10:37AM

Silverharp2 wrote: »

reminded me of a piece that the chief economist at Nomura put out about Balance sheet recessions, even Krugman picked up on it. Indeed businesses will behave the same way, how many companies out there are up to their gills in MBO debt, Eircom and The Independant group for example were suffereing from over leverage to some degree. will some companies overshoot, maybe but the important point seems to be that the broader economy needs to chew though the debt that is pulling down an otherwise profitable business.

http://krugman.blogs.nytimes.com/2009/04/06/balance-sheets-and-the-trade-cycle-somewhat-wonkish/

I'm thinking of SMEs (since that's the sector I know the most about). I know from talking to several people involved in business to business service/product sales that demand has fallen through the floor. Be it public sector, semi-state or private sector customers all of them have cut back on spending, including companies that aren't directly effected by the recession per se. Ye olde standard shock to aggregate demand and all that.

johnnyskeleton · 23-01-2010 01:46PM

John Fitz wrote:

Workers have been pouring money into savings accounts, building financial security nets in case they lose their jobs as the employment rate hit 12.5pc.

Where is the evidence for this? It seems that an Irish Times sentiment survey and an overall increase in deposits and reduction in credit leads these guys to say that workers have been pouring money into savings accounts and paying off debts like never before.

However, of the paid off debts, approximately half of this is due to valuation effects and we don't know how much is due to natural attrition of fixed term credit which is not being replaced by new credit.

Equally as regards savings, the total bank deposits are going down; and while I haven't seen any consolidated consumer deposit statistics or gone through all the balance sheets in great detail, p.27 of the AIB interim results 2009 suggests that consumer deposits in June were 1bn above the March figure, and 2bn above December, 2007. However, this is significantly below the december 08 peak on that graph.

Overall, I accept that a lot of people have been saving and paying down debt. Equally other people have been dipping into their savings and allowing arrears to build up. I suspect that most of the increase in deposits and decrease in private sector credit is due to an increase in interbank deposits and in re: private sector credit a desire not to write new loans as old ones are being repaid together with the drop in sterling and written off loans has lead to this.

So to suggest that the average consumer is earning solid wedge but instead of spending it on normal consumption he is saving it or using it to pay more off the mortgage/credit card is largely incorrect.

P. Breathnach wrote: »

I don't think anybody would suggest that those who don't have spare money should increase their spending. Eliot's post was in response to my position: I have some spare money because I am a habitual saver, and I think that now is a good time for me to go ahead with some spending I had been considering -- good for me, and good for those with whom I spend my money.

I suppose there are three types of people to consider:
1) those who are struggling
2) those who have it and want to spend it
3) those who are comfortable and in between.

For 1), I think most would agree that they should go out and spend on consumer goods. They need money for survival and often face the risk of redundancy or wage cuts so keeping to a tight budget makes sense for them.

For 2), the fact that you went out and bought new blinds or whatever was not due to any desire to increase the spending in the economy or anything like that, it probably came down to: a) you need/want them, b) you can afford them and c) you were happy with the product and price. This is all very well, but you and others in this situation would make that purchase anyway. Equally, the fact that you can afford a 41" plasma screen TV and they are going on sale at the moment won't make you buy one if you are perfectly happy with your old TV. So for this group they need no encouragement to buy, and won't buy that which they don't need/want/can't afford. There may be one or two of them who could be encouraged to spend more than they can afford, but I don't think this should be encouraged.

For 3), this is the real target of the get out and spend brigade. They see a lot of people putting a bit of savings together instead of going out spending it. This infuriates these high profile economists and policy makers because their projections for growth rely on such spending. But, from the point of view of someone who has a few extra quid and no particular desire to spend it, why should they go out and buy things?

Moreover, what should they buy? If I have €100 extra per week which after all the purchases that I need/really want I don't know what to do with, should I go out and spend that on champagne and DVDs? Should I take out a loan to buy a new car repaying €100 per week so that I don't have any loose money? What exactly should I be buying?

We're past the bling and tat era of conspicuous spending, and I'm comfortable in my spending habits that I don't feel the need (not that I ever did) to go out and spend like it was going out of style. On the other hand, if there is something I need, like a stepladder or a new frying pan, I've no difficulty spending on that.

So all things considered, the people who are denying themselves fairly basic things like a doctors appointment, healthy nutritous meals, bus fare etc do so because they either can't afford it or are being naturally prudent. Those who are buying things are buying what they need/want, not what they are told they need/want. And those in the middle, well what exactly should they buy? Should they all go out and buy new cars and 1 bed apartments irrespective of the price?

johnnyskeleton · 23-01-2010 01:54PM

nesf wrote: »

The issue that the economists are getting at is that our savings rate has increased from 3-4% of income to over 11% of income. The people who do have the money to spend after bills etc aren't spending it, which is exactly the kind of behaviour that happens in a recession but also one of the things that will prolong a recession and keep those who are unemployed out of work.

I'm not doubting this (yet) but do you have any links to the stats for this? The first thing that jumps out at me is that incomes have decreased. To get that increase in savings rate by loss of income alone would have to mean a drop in income of c. 60% across the board, so I don't think that would explain it. But certainly a drop in incomes (i.e. including loss of income due to unemployment) could be around 30% (exact figures on average earnings per capita seem to evade me).

Does that figure include institutional deposits? If so, the lower labour market participation rates could also impact this figure, as the proportion of consumer & institutional deposits would increase relative to the total income earned by those still in the labour market.

Finally, what should be considered a prudent level of spending? To my mind, if you save 10% of what you earn then that is not a bad thing. Whether this should be reflected in national statistics or not is a different matter, but I don't think that if people actually are saving 11% of their income (which I doubt, see the above post) that it is a bad thing.

nesf · 23-01-2010 02:17PM

johnnyskeleton wrote: »

I'm not doubting this (yet) but do you have any links to the stats for this? The first thing that jumps out at me is that incomes have decreased. To get that increase in savings rate by loss of income alone would have to mean a drop in income of c. 60% across the board, so I don't think that would explain it. But certainly a drop in incomes (i.e. including loss of income due to unemployment) could be around 30% (exact figures on average earnings per capita seem to evade me).

Does that figure include institutional deposits? If so, the lower labour market participation rates could also impact this figure, as the proportion of consumer & institutional deposits would increase relative to the total income earned by those still in the labour market.

Finally, what should be considered a prudent level of spending? To my mind, if you save 10% of what you earn then that is not a bad thing. Whether this should be reflected in national statistics or not is a different matter, but I don't think that if people actually are saving 11% of their income (which I doubt, see the above post) that it is a bad thing.

Quoting from the latest Economist: "The saving rate, some 2.3% in 2007, may have risen as high as 11.5%, says Alan Barrett at ESRI, a Dublin-based research institute" (Source)

What this means is that while incomes fell last year, spending fell much faster. How much a household should save is a difficult question. Personally I save a lot more than 10% of my monthly income but that's really neither here nor there. What this is really about is a fear of spending among consumers who still have jobs which makes the contraction worse and puts jobs in retail etc at risk.

To quote Keynes on the subject:

For although the amount of his own saving is unlikely to have any significant influence on his own income, the reactions of the amount of his consumption on the incomes of others makes it impossible for all individuals simultaneously to save any given sums. Every such attempt to save more by reducing consumption will so affect incomes that the attempt necessarily defeats itself. It is, of course, just as impossible for the community as a whole to save less than the amount of current investment, since the attempt to do so will necessarily raise incomes to a level at which the sums which individuals choose to save add up to a figure exactly equal to the amount of investment.

johnnyskeleton · 23-01-2010 02:56PM

nesf wrote: »

Quoting from the latest Economist: "The saving rate, some 2.3% in 2007, may have risen as high as 11.5%, says Alan Barrett at ESRI, a Dublin-based research institute" (Source)

I'm not disputing that this is what is said, but I am somewhat concerned that these statements are based on overall figures without looking at what is actually happening. I am reluctant to believe that the average household is saving 3-5 times what they were in 2007 in nominal terms. Certainly from looking at AIB's balance sheets for the last few years, customer deposits were 74bn in 2006, 81bn in 2007, 92bn in 2008 and in mid 2009 were 83bn. I accept AIB is just one example, and perhaps not the best example, but I think it certain suggests that there hasn't been a massive jump in the net nominal amounts being saved as the mid-2009 figure is slightly above the 2007 figure, and is down from the 2008 high.

nesf wrote: »

What this means is that while incomes fell last year, spending fell much faster.

Could this be due to people emigrating and therefore not spending at all, while slightly increasing the average incomes? I can accept that people are saving more and paying down debts, but I find it difficult to accept that this has increased by 3-500% in the last two years. It seems to suggest that someone saving €100 from €3000 per month in 2007 is now saving €400 from 2200 per month now. This seems unlikely to me, and I'd like to see how this 11% figure is calculated.

nesf wrote: »

How much a household should save is a difficult question. Personally I save a lot more than 10% of my monthly income but that's really neither here nor there. What this is really about is a fear of spending among consumers who still have jobs which makes the contraction worse and puts jobs in retail etc at risk.

Don't forget that calculating saving as the % of income not spent does not necessarily mean that people are depriving themselves of consumption. If I am a more careful shopper and buy the same items for less then I am not refusing to spend and any contraction suffered as a result of that is not a bad thing in the sense of a recessionary effect but more a rebalancing which is a positive effect for consumers.

Are you in fear of spending that money, or do you naturally save it? Put another way, I assume that you are not living in a garret with only a dribbly old candle and a tin of beans to keep you warm, so are there things that you are depriving yourself of soely because of the recession which you would otherwise buy without hesitation?

I'll buy things that I need/want, when the price is right and I can afford it. Name a product that is out there and I'll tell you if I'll buy it or not. If not, it will be because I don't need/want it, the price is too high or I can't afford it. I am not putting off any spending because of the recession. Are you? Who exactly is not spending and what are they not spending on? My personal theory is that people are not spending on things that they don't need/want anymore.

However, instead of paying €10 for a lunch and coffee I might buy one for €5 or pack my own. Is there implicit in that a saving of €5/8 instead of consumption? Equally, if I go into pub A because their pint is €4 instead of pub B next door where theirs is €4.50, am I avoiding consumption?

nesf wrote: »

To quote Keynes on the subject:

I accept Keynes' analysis, but I don't accept his view that boundless growth in economies is achieveable and the main goal of a successful economy. Perhaps I'm being somewhat unfair to him, but this is how he is interpreted by many influential people. I think that a deflationary period of saving and reduction of unnecessary consumption is good for an economy. A period of deflation is necessary indeed beneficial to an overheated economy as it strips out the unnecessary and underproductive industries in favour of those that are necessary and productive.

I also think that the idea of the consumer economy is a fallacy and it is not possible to sustain an economy on consumer goods alone, particularly (as has been pointed out already in this thread) when most of those goods are not made in the country.

nesf · 23-01-2010 03:16PM

johnnyskeleton wrote: »

I'm not disputing that this is what is said, but I am somewhat concerned that these statements are based on overall figures without looking at what is actually happening. I am reluctant to believe that the average household is saving 3-5 times what they were in 2007 in nominal terms. Certainly from looking at AIB's balance sheets for the last few years, customer deposits were 74bn in 2006, 81bn in 2007, 92bn in 2008 and in mid 2009 were 83bn. I accept AIB is just one example, and perhaps not the best example, but I think it certain suggests that there hasn't been a massive jump in the net nominal amounts being saved as the mid-2009 figure is slightly above the 2007 figure, and is down from the 2008 high.

I'm tired so I'll just reply to this bit. An increase in the savings % doesn't necessarily mean there's a big increase going on in the nominal amount put into banks. It just means a contraction in spending has gone on that is bigger than the contraction in incomes and just taking a quick glance at retail sales/turnover figures for the past 3 years would tell you this is true. Apart from December, we bought sweet feck all in 2009. Cork city centre was dead until December.

yoganmahew · 23-01-2010 08:27PM

nesf wrote: »

An increase in the savings % doesn't necessarily mean there's a big increase going on in the nominal amount put into banks. It just means a contraction in spending has gone on that is bigger than the contraction in incomes and just taking a quick glance at retail sales/turnover figures for the past 3 years would tell you this is true.

Indeed.

Is it as simple as income vs. retail sales?

If so, where does debt come into it? Another striking element of the past couple of years is that new debt, particularly new consumer debt expansion rates have fallen to the point where they are now negative, I believe (i.e. it is being paid back or written off faster than it is being loaned out).

Another striking element is the increase in 'government' destined spending, that is, sectors where the government regulates costs - health, education, taxes. These, presumably, are also not included?

I think Mr. Keynes would be shocked at the fast and loose ways his theories have been applied. The 'saving in an upturn' bit before the 'spending in a downturn' has been forgotten. 'Community', somehow, remains defined at a nation-state level despite the economy operating at a continental or global level. If you had said: "we are considering applying your pump-priming theories to Naas, Mr. Keynes", he would have laughed at you. If you had said to him "we think Tullow is over-saving", he might have been as amused.

So talking about Ireland in isolation to the other economies that we interact with in an integrated fashion is a little difficult from a keynsian perspective, in my view...

Hobo Sapiens · 26-01-2010 05:08PM

Some very dubious thinking on this thread.

This country produces very few real goods. Services are not a good substitute for actual products that could be exported.

And who can spend when they're already deeply in debt? (Except for rich bankers, TDs, their friends....)

The Irish economy is destined for many years of severe degradation.

gurramok · 26-01-2010 05:44PM

People need money to spend, where is it to come from in a time of higher taxes and higher unemployment?
People like me who saved during the 'tiger' years will continue to save and only spend when needed at my own leisure, i'm not going to spend willy nilly in an act to 'save the economy'.

Traditional savers are not going to change habits. These 'cheerleading economists' need to get it into their braincells that a huge portion of the consumption growth of previous years was debt fuelled, its a reason why Irish private sector debt on the individual(mortgage/credit card/bank&car loans) is one of the highest in the EU.

And those consumption habits will not return for a good few years, that is what they do not understand(along with the FF sop to the car dealers on the scrappage scheme).

PROFESSOR JOHN FITZGERALD OF THE ESRI - His brother runs Sherry Fitz, questionable in my view where his loyalties are. Also his employer, the ESRI failed to see the Irish recession coming until it was too late. Their growth forecasts have been wrong every year since at least the start of the millennium
DR ALAN AHEARNE OF NAMA - Govt appointed economist who defied 40plus other economists on the benefits of Nama.
DAN MC LAUGHLIN - BOI - public face of the bubble years who consistently got it wrong, a has been.

Spend, Spend , Spend say the experts!!

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