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    #32
    SupaNova
    Closed Accounts Posts: 788 ✭✭✭SupaNova


    Duck Soup wrote: »
    On the contrary, AIB and BoI have been expressly mandated to lend €3.5bn in the next 12 months, as part of their rescue package. Presumably the government has seen too much across Europe and globally of banks being bailed out only for the banks to use the money to repair their tattered balance sheets.

    It would be stupid for them to make loans just to meet a mandate if the loans they make wont be profitable.
    The argument from small businesses and small business associations is the banks aren't lending enough to SMEs. The argument from the banks is that there aren't enough SMEs looking for loans.

    I presume the argument is that there aren't enough SMEs looking for loans that will be profitable for the banks. There is plenty of other things that good be done so SMEs would be able to offer more attractive propositions for banks, reduce the minimum wage, reduce red tape, etc.
    And sooooo we come back to consumer demand. With no consumer demand growth, it's suicidal for a SME to borrow money. It would also be suicidal to lend it to them.

    Why do Keynesians completely ignore prices, as the price of a good increases consumer demand decreases. If businesses could offer services at lower prices demand would be there, to do this they need lower costs, they need lower regulation burdens and wage costs.

    This complete ignorance of price reminds of Krugman's babysitting co-op:
    http://www.youtube.com/watch?v=lCQ_N9wj41Q


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    #33
    Duck Soup
    Registered Users Posts: 3,996 ✭✭✭Duck Soup


    SupaNova, I wouldn't ignore prices at all, it's just that the evidence is that there simply isn't the money in the economy, irrespective of what happens with prices. From David McWilliams column of July 16th.
    Over 1.8 million people had less than €100 left at the end of the month after paying all their bills. And nearly a quarter of credit card owners rely on another credit card to pay their bills at the end of the month.

    So prices can change, but you still can't sell to people with empty pockets. What people have, they're already spending. And a good chunk of it I'd guess is paying down of debt.

    The other thing I'd say is that prices can only come down so far relative to costs. Wages remain stubbornly high, rents the same, materials are getting more expensive, not less.

    I can't think of any of the Keynesian or neo-Keynesian economists that say it's a simple matter of splurging cash. Do all those other things - support SMEs, cut red tape, give business tax breaks etc. But I can't see any way around some form of fiscal expansion (which will have to come from Brussels) Europe-wide to reflate demand.

    As for the banks, the complaint - made in a spat I think with the Credit Review Office - was not that there weren't enough profitable SMEs to back (to fulfill their obligation to lend a combined €3.5bn annually), but that there aren't enough SMEs applying for loans, full stop.

    If your sales are static or falling, short of necessity or emergency, why would you ask for a loan?


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    #34
    SupaNova
    Closed Accounts Posts: 788 ✭✭✭SupaNova


    Duck Soup wrote: »
    The other thing I'd say is that prices can only come down so far relative to costs. Wages remain stubbornly high, rents the same, materials are getting more expensive, not less.

    You can point to interventions that are keeping wages and rents high though, they don't have to be as stubborn as they are. On the point about people having only €100 left after bills, this is mostly due to having too big a mortgage that they took on during the bubble.
    I can't think of any of the Keynesian or neo-Keynesian economists that say it's a simple matter of splurging cash. Do all those other things - support SMEs, cut red tape, give business tax breaks etc. But I can't see any way around some form of fiscal expansion (which will have to come from Brussels) Europe-wide to reflate demand.

    We can agree on doing all the other things. I think what Keynsians forget is that this isn't just a monetary and debt problem, we have real world physical tangible problems remaining after the bubble. We have plenty of labor and capital geared towards construction, but no need for it and we have constant complaints from IT companies about the lack of people with skills in that area.

    It was constant interventions to promote housing combined with a flood of cheap credit that created this discoordination. The idea of stimulus, to take the capital that was produced during the boom and hire people to use it, does nothing to sort out the problem of discoordination between the capital and labor that is needed and what we have. And as soon as government stimulus is pulled you are still left with the same problem.
    As for the banks, the complaint - made in a spat I think with the Credit Review Office - was not that there weren't enough profitable SMEs to back (to fulfill their obligation to lend a combined €3.5bn annually), but that there aren't enough SMEs applying for loans, full stop.
    If your sales are static or falling, short of necessity or emergency, why would you ask for a loan?

    Yes why would someone waste money expanding if they can't get a return that would justify the expansion.


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    #35
    C14N
    Registered Users Posts: 2,638 ✭✭✭C14N


    I've tried reading through the thread but it's getting late and I must be off to bed.

    While I generally agree with taxes on very high earners, I think there is a problem with taxing all high earners. You can say "we can take the personal money, it's the corporate tax that matters" but if you're starting a business in Ireland with the hopes of making it a big, thriving company, it helps to have the potential riches to make you want to do it.

    Starting a business is hard work and it's risky. If you're thinking of doing it, it would be discouraging to think that even if you did manage to become rich and earn €500k a year (for example), you will only end up taking half of it home.

    Similarly, it's not very encouraging to educated workers to think that their moderately high salaries (say over €100,000) will be heavily taxed. College costs money as it is, and take several years of your life. If you realise when you get out that there's a country next door who also wants you and you're going to get a good deal extra in the pocket, it's going to be attractive for exactly the kind of people we want to keep. Why would I work for Google Ireland and get charged 50% when I could work for Google UK and get charged 25%? (not actual figures, I'm just giving them as examples)


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