Why do people think austerity measures will work?

Sandvich

http://www.spiegel.de/international/europe/0,1518,712511,00.html

It seems pretty clear it's not working for the Greeks.

I think people can't get past the "But we don't have any money!" part. The people don't have money either...

The fact is that if you take money out of the economy, it will suffer.

It's not an easy situation to be in, but I think most people are just being reactionary, especially with regards welfare.

rightwingdub

Sandvich wrote: »

http://www.spiegel.de/international/europe/0,1518,712511,00.html

It seems pretty clear it's not working for the Greeks.

I think people can't get past the "But we don't have any money!" part. The people don't have money either...

The fact is that if you take money out of the economy, it will suffer.

It's not an easy situation to be in, but I think most people are just being reactionary, especially with regards welfare.

Fact is that the country is borrowing €60 million per day this year to keep the country afloat, if the government isn't seen to be cutting public spenind then the markets stop loaning to Ireland meaning that an EU or an IMF takeover is liable to happen.

Sandvich

But our economy is in the toilet, so you can't take money out of that either. Or else Ireland may not be able to sustain itsself in the long run. I don't understand how people who are supposed to be competent don't get this, of course on this forum it's a lot to do with bias towards a particular ideology than giving two ****s about the best solution.

Again I think in most cases the call for austerity is intellectually void and based on a reactionary position. It'd make sense if our economy was doing well, yet our government was still managing poorly. But our overall economy is doing even worse than our government. Personal debt is at a very high level and the private sector has seen much better days.

gandalf

So whats your solution then?

MrDarcy

I don't know if you were just watching the documentary on TV3 which outlined what could only be called an absolutely horrendous and stomach turning waste of taxpayers money.

If austerity = that wasteful spending being eliminated to any degree, then I think that is a very good thing.

Sandvich

gandalf wrote: »

So whats your solution then?

I don't have one. I have a number of ideas that will help, but this is really something for some expert economist.

And of course that doesn't mean we should go for something that probably won't work...

I don't know if you were just watching the documentary on TV3 which outlined what could only be called an absolutely horrendous and stomach turning waste of taxpayers money.

If austerity = that wasteful spending being eliminated to any degree, then I think that is a very good thing.

No, Austerity would be cutting back on services, welfare etc. rather than just getting rid of wasteful spending. After all, reorganisation takes EFFORT, cutting stuff is easier and gets a cheer from the economic right.

It depends what you consider a waste of taxpayer's money, though. Some would consider disability allowance one, and I would consider them sociopaths.

gandalf

Ok so you have no solutions.

We are spending more money than we can afford as a state. Unfortunately that means cut backs and more tax.

If we had a Government with any vision and backbone they would be re-organising our whole public service and cutting out the waste, ensuring that the resources are there to tackle our serious welfare fraud problems. If they did this then those who are in real need like those on disability allowances would not be effected as they are going to be by wholesale cutbacks.

Unfortunately we are blessed with idiots who want to Carbon tax us back to the Stone ages and be allowed claim expenses from non existant companies.

ei.sdraob

sigh

as if there is a choice

silverharp

OP , you are basically saying that a recession is unacceptable because its unacceptable, or that after being brought up on the strap line "whats the government going to do about it ?" you believe that any problem can be solved by some clever trickery.
no country is entitled to a particular standard of living, if the collective blow it, they blow it. Even the dumbest hedge fund will only lend the country money if they think they are going to be repaid and even the ECB has limits on how much money they can lend.
The government have taken the wrong course but it has confused people into thinking that things have stabalised , in reality they havent.

GSF

Right now there are only 2 options to get back to some sort of sustainable path.

Option 2 - exit the euro and devalue the punt- is even less palatable than option number 1.

So choose the lesser of 2 evils then.

changes

I find it hard to take austerity measures from brian cowan now when he was throwing money about him like confetti during his reign as finance minister. A new government would be a different story.

Particularly when he is still one of the highest paid leaders in the western world.

Spudmonkey

If the Croke park agreement has been passed and the aim of this was the preservation of wages and pensions in exchange for changes in work practices and the more efficient provision of services, what exactly has been done in the meantime?

What is reckoned to happen at the next budget if these savings haven't been made?

Spudmonkey

Sandvich wrote: »

No, Austerity would be cutting back on services, welfare etc. rather than just getting rid of wasteful spending.

Surely austerity is just reducing spending, regardless of how its done? Why does it have to be cutting back on services rather than wasteful spending?

George Orwell 1982

We have to reduce the deficit because we can't keep borrowing indefinitely.

However cutting spending in a recession further cripples the domestic economy, leads to falling tax receipts etc. So we are damned if we do and damned if we don't

What has really crippled us is the cost of the bank bailout and nama.

rumour

Sandvich wrote: »

http://www.spiegel.de/international/europe/0,1518,712511,00.html

It seems pretty clear it's not working for the Greeks.

I think people can't get past the "But we don't have any money!" part. The people don't have money either...

The fact is that if you take money out of the economy, it will suffer.

It's not an easy situation to be in, but I think most people are just being reactionary, especially with regards welfare.

It's simple spin. We are in the process of becoming poorer, better get used to it. Saying we are poor doesn't get votes and is highly unpopular, so a little spin helps.
This also applies to the UK USA and most of Europe, no matter how much we print money and borrow and come up with clever financial products and spin.

Reason this (its very simplistic but relevant nonetheless), a labourer here is approx €8 and hour. The same labourer is approx 65c in China. How much do we have to devalue the dollar and the Euro to level the playing field?

Devaluing these of course means your purchasing power will drop effectively making you poorer.

Another example much of the worlds population (+80%) spends approx 45-50% of their individual income on food, in the western world it is in the order of 10-12%.

There is a correction on the way. The Chinese, Indians Russians, Brazils all want what we have is that possible? What do you think they talk about at all the G8 now G20 summits.

Permabear

This post has been deleted.

Fat_Fingers

rumour wrote: »

Reason this (its very simplistic but relevant nonetheless), a labourer here is approx €8 and hour. The same labourer is approx 65c in China.

Probably even less than 65c , person who is familiar and travels a lot to Chine told me about €106 per month is considered very decent salary. Farmers would earn 8 times less than.

RealityCheck

Sandvich wrote: »

http://www.spiegel.de/international/europe/0,1518,712511,00.html

It seems pretty clear it's not working for the Greeks.

I think people can't get past the "But we don't have any money!" part. The people don't have money either...

The fact is that if you take money out of the economy, it will suffer.

It's not an easy situation to be in, but I think most people are just being reactionary, especially with regards welfare.

All the money we are borrowing is not our money, it is other peoples money. We have no choice but to be reactionary because that is what the markets demand. We are slaves to the market until such point as we reduce borrowing or default and live within our means. As in spending as much as we take in.

Welease

The problem and solution is not so binary as cuts are good, or cuts hurt the economy..

We will need to continue to borrow in the short/medium term..

BUT, we have a choice where we choose to spend the money we borrow.. We can choose to use it to create new employment ( grow revenue and lessen the need to continue borrowing), or we can continue to borrow to preserve non productive employment (CP agreement), Welfare etc..

As always, the balance will be somewhere in the middle..

MrDarcy

Welease wrote: »

The problem and solution is not so binary as cuts are good, or cuts hurt the economy..

We will need to continue to borrow in the short/medium term..

BUT, we have a choice where we choose to spend the money we borrow.. We can choose to use it to create new employment ( grow revenue and lessen the need to continue borrowing), or we can continue to borrow to preserve non productive employment (CP agreement), Welfare etc..

As always, the balance will be somewhere in the middle..

I think the key thing here in terms of what drives our attitude should be the concept of value. None of us would have an issue spending tens of millions a year vaccinating schoolkids against a cancer virus that could otherwise appear as a serious health issue later on in life and cause premature death and then the much higher costs associated with treating the illness in later life reactively through radiotherapy, surgery, etc, instead of pre-emptively via a vaccine.

So it's fair to say that nobody has an issue with high amounts of money being spent in the right way, but we all rightly have a huge issue with Ivor Callely and others abusing the expenses system for personal gain.

Every Euro that gets spent now, particularly when it comes to public sector wages, the question needs to be, "are we seeing value for money here for the taxpayer???" If the answer is yet, we pay, if the answer is no, we don't pay...

Valmont

donegalfella wrote: »

This post has been deleted.

I'm sick of hearing that too. Here is Mercer's 2010 cost-of-living survey. With this info, there are literally no more rocks to hide under for those defending welfare payments through the guise of "fairness". Welfare is far too high- accept it!

Sandvich

Spudmonkey wrote: »

Surely austerity is just reducing spending, regardless of how its done? Why does it have to be cutting back on services rather than wasteful spending?

That's the definition of austerity, it has to be serious cutbacks.

Sandvich

George Orwell 1982 wrote: »

We have to reduce the deficit because we can't keep borrowing indefinitely.

However cutting spending in a recession further cripples the domestic economy, leads to falling tax receipts etc. So we are damned if we do and damned if we don't

What has really crippled us is the cost of the bank bailout and nama.

Good point.

As much as people moan about welfare, the Anglo-Irish bailout costs about as much as our welfare bill. I realise that the economic right on this forum aren't fond of that either, but they don't complain about it a fraction as much.

Sandvich

donegalfella wrote: »

This post has been deleted.

Haven't I had the same discussion with you at least once before?

Why should British welfare be held up as an example, exactly? Just because it is possible to give out that amount of money does not mean we should. There are factors to consider such as higher crime rate, cost of transport involved in job searching, and currently, taking money out of the economy.

I don't find essentials cost much less, and rent is still extremely high.

I don't agree that the majority of people can't survive on €196 a week. But that's not the discussion. The discussion is, are welfare payments too high? Whether people should be only offered the absolute bare bones is another discussion. And currently, if people don't have any money, areas of widespread unemployment(such as in Limerick now Dell has ****ed off) will see an even larger drop in local business.

You're also ignoring that the British system works differently to the Irish system - for example in the UK they practically give you a council house, whereas over here you have to pay €24 minimum contribution. You're also ignoring that jobseekers allowance is not the only welfare payment - there are many people on disability.

It might not be significant - but the fact that you ignore the facts like this shows how dishonest and divorced from reality your arguments are.

I believe, fundamentally, this line of argument is based on a reactionary attitude towards perceived entitlement rather than a shred of rational thought. Just before the Recession hit when we had similar welfare payments to now - our unemployment was not notably different to the UK.

Were this a different situation - where the economy was strong, but unemployment was rising - would I agree it needs to be cut? To an extent, I probably would yes.

I do find it interesting though that a Libertarian effectively wants to take money off private individuals to help the state. Whether or not they're "entitled" to it is an issue - however so is whether or not you're entitled to the legal protection that allows you to amass silly amounts of wealth property, is also an issue.

SkepticOne

Sandvich wrote: »

http://www.spiegel.de/international/europe/0,1518,712511,00.html

It seems pretty clear it's not working for the Greeks.

I think people can't get past the "But we don't have any money!" part. The people don't have money either...

The fact is that if you take money out of the economy, it will suffer.

It's not an easy situation to be in, but I think most people are just being reactionary, especially with regards welfare.

The reason people can't get beyond the "But we don't have any money!" part is because this is the overriding issue. There really isn't any money and therefore options to do other things simply aren't there. The only thing that can be done is cutting back on expenditure with the aim of putting off the need for an IMF/EU bailout or default for as long as possible.

Sandvich

Valmont wrote: »

I'm sick of hearing that too. Here is Mercer's 2010 cost-of-living survey. With this info, there are literally no more rocks to hide under for those defending welfare payments through the guise of "fairness". Welfare is far too high- accept it!

That's a pretty unfair comparison. The cost of living is down largely to the rent. London is a much larger city compared to Dublin - of course it's likely to be more expensive.

It would be fairer to compare an sized average city and ignore rent since again, you can get a council house provided for you when unemployed much more easily than you can find a decent place with rent allowance over here.

You're also working backwards from assuming that the UK has a sufficient welfare, which may not be the case.

The reason people can't get beyond the "But we don't have any money!" part is because this is the overriding issue. There really isn't any money and therefore options to do other things simply aren't there. The only thing that can be done is cutting back on expenditure with the aim of putting off the need for an IMF/EU bailout or default for as long as possible.

But people don't have any money either. There's no NAMA for personal debt. This seems to escape people.

Permabear

This post has been deleted.

regi

Sandvich wrote: »

for example in the UK they practically give you a council house, whereas over here you have to pay €24 minimum contribution.

Oh lord, I do try to do stay out of these slogfests, but I'm boggling at this one. Paying €24 for a house isn't 'practically giving you' one?

Sandvich

donegalfella wrote: »

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That's not the point.

Again, it's the same shoddy logic that says we don't need healthcare, people are responsible for their own health.

But people still die, and people still commit crime. The blame, the "He started it!!!" is not the problem here. If more crimes happen with less money, it's something to look at and consider.

The impracticality of the conservative model of "Personal Responsibility" is evident here.

If you want to reduce the cost of transport involved in job searching, then perhaps you should ask your beloved state to eliminate VRT, excise and VAT on petrol, carbon tax, road tax, and the many other factors that keep the cost of motoring in this country crippling high. Get rid of the state monopolies over transportation services while you're at it, and prices will fall.

Or we could, you know, not become a Libertarian state.

Not borrowing money at sky-high interest rates to pay sky-high social welfare rates is not "taking money out of the economy." It's allowing the economy to return to its natural post-boom level—and freeing our children and grandchildren from inheriting an absolutely enormous national debt.

Or, they could have used that money for welfare and not anglo-irish. I'm sure you're not happy with that either, but it doesn't seem to bother you as much since it doesn't give you an opportunity to be a dick to poor people.

Rent would be quite a bit lower if the state weren't funding half of all private tenancies.

Rent would also be lower if landlords and estate agents weren't largely cowboy businessmen.

Dell "****ed off" because Ireland has become uncompetitive due to state meddling with wages, energy costs, and many of the other costs of doing business. Pumping borrowing billions into a moribund economy is not the answer; we have to becoming competitive again, and attract inward investment.

Or; we could have put money into developing our own industry so it wouldn't be as much of an issue when they do. Sweden has no trouble being a welfare state largely because it has it's own successful multinationals.

No, sorry -- my analysis is based on rational economic argument. No matter how much of a song and dance you make about fairness and equality, you have no answer to the basic economic fact that we have no choice about whether to cut the deficit. Austerity is not one among many other options. It is the only option.

And can you prove this here and now? I doubt it.

Even if it is, the only reason we got in that situation is due to factors other than welfare - such as the bailing out of AI.

And how do you explain that claim? I want the state to stop borrowing now so that private individuals do not face a struggling economy and high taxes for generations to come.

If you cut welfare severely, private individuals who are still suffering debt will not be able to manage. If everyone starts selling their **** to pay for debt - who's going to buy it? Likely it will end up in the hands of those who can actually afford to pay - thus consolidating future wealth and resources in the hands of people who are already well off.

It's a pawn shop scenario.

Of course I'm entitled to legal protection for my wealth and property. That's a basic cornerstone of a liberal society. It's why I personally choose not to live in a socialist cesspit. If Ireland becomes a socialist cesspit, I'll be on the first plane out, believe me.

I'm sorry, but your immature phrasing and weak reasoning is only proving my point.

"Of course" you're entitled to protection for "your own" wealth.

But, by the same extent, many who share the same view as you would say that people aren't entitled to healthcare and various benefits.

There are no obvious facts here, no "common sense". Everything has to be defended from the ground up. Your refusal to realise this is exactly why I say your argument is, mostly, devoid of intellectual thought. Because it's not based on what's actually best for everyone, it's based on avoiding a "socialist cesspit", despite countries that are more true social democracies fairing better than Ireland at the moment.

It is only obvious to you that your property should be protected, but not the welfare of the poor.

Sandvich

regi wrote: »

Oh lord, I do try to do stay out of these slogfests, but I'm boggling at this one. Paying €24 for a house isn't 'practically giving you' one?

It's €24 more than what you'd pay, which is a large chunk of €196 a week. You think that's not significant? Also you're not getting a "house" for that.

Permabear

This post has been deleted.

rumour

Sandvich wrote: »

Or, they could have used that money for welfare and not anglo-irish. I'm sure you're not happy with that either, but it doesn't seem to bother you as much since it doesn't give you an opportunity to be a dick to poor people.

I suspect and you can correct me if i'm wrong but do you know where the money comes from?

Secondly what happens when the 20-30bn gone into Anglo runs out?

Do you understand that that is about one years welfare?

skearon

changes wrote: »

I find it hard to take austerity measures from brian cowan now when he was throwing money about him like confetti during his reign as finance minister. A new government would be a different story.

Particularly when he is still one of the highest paid leaders in the western world.

I suggest you review the comments from the opposition parities at the time as they were complaining the Govt wasn't spending enough

A different Government has to face the same realities. To be fair FG have advanced some real policies, unlike their potential bed fellows in Labour who are against everything and avoid any real policies on anything

Pete_Cavan

I cant see how there is an argument to be made against austerity measures. USA is showing the world that you cant spend your way out of recession. Their economic situation hasnt changed even after spending billions on stimulus packages. It seems they are headed for a 'double dip' recession. We have to cut back and try and balance the books as best as possible. We are currently borrowing €20bn a year, if we continue to do so we will not be able to pay it back. How do people think your economy will ever recover if our national income cant even cover the interest on our loans?

johnnyskeleton

What exactly do you mean by austerity measures working? Do you mean (1) will they work to reduce the deficit or do you mean they (2) will work to get us out of recession or do you mean (3) will they work to keep Ireland from becoming bankrupt and bailed out like Greece?

(1) - maybe, but not as much as they should. The problem is that we are running a deficit of over 20bn per year (up to 14% of our GDP). Each 20bn of a deficit has to be financed with borrowed money. Interest rates on Irish debt are currently averaging 3.6% but this is on short term bonds - a more permanent solution would cost approximately 5.68% for a 10 year bond. Let's say that the deficit is exactly 20bn for 2010. So to borrow this 20bn will cost between €700m and €1.1bn to finance this year. We will run the same deficit next year (2011) with cuts of c. 3bn which means that the cost of financing these two deficits increases to 1.5-2bn and the deficit is reduced to 18.5-19bn.

Now, let's look at 2012, or the year in which we were supposed to have our deficit back to 3% of GDP. We haven't been given any clear idea of what budget 2012 will look like, but several indicators suggest that it will have no further cuts or tax increases. Why? Well first and foremost 2012 is election year so the message to be put out will be that everything is fine, the country is now sorted, and no more cuts will be made. Also, the government's projection for cuts was 4bn in 2010, 3bn in 2011 and minor cuts from thereon. Their proposal to return to 3% debt/GDP was based predominantly on a rise in GDP, a rise in tax revenues and a dramatic fall in the numbers unemployed.

So what happens if we don't make any cuts or tax increases in 2012? Well, the deficit which we worked so hard to reduce to 18.5-19bn has been running for 3 years now and will add 58.5-60bn to our national debt. Let's allow for interest rates to drop to 3% short term and 5% long term. That's 1.7-3bn in extra interest that we will have to pay (nevermind principal repayments). So that reduced deficit of 18.5-19bn in 2012 will have increased back to 20.2-22bn by the year's end. At that point, we will be running to stand still. We would need to make 1.7-3bn in cuts just to keep the deficit at the same level - any less than that and we would be increasing our budget.

So, by the looks of it and the cost of financing, our measures to cut the deficit are too late and too small to have any significant impact. The cuts and increases in tax will not in themselves bring the deficit back into line, and the government in relying on some massive boost to GDP, taxes and employment that comes from some mysterious new green technology or some other thing. But those things will not just automatically happen.

(2) will they work to get us out of recession? Not directly, but to a certain extent they will have a big indirect impact. They will show that Ireland is serious about it's economy and that encourages investment. Likewise, any cuts which improve our competitiveness by, for example, getting more people into gainful employment will directly work to get us out of recession. Finally, the current spending is already putting a stimulous of c. 20-25bn per year into the economy. That is to say, c. 35bn of government spending is from taxes so it is just redistributed, but the other 20-25bn is borrowed and pumped into the economy by means of bank bailouts, social welfare spending (note that while rates were dropped in 2010, up to that point they were increased as pointed out by donegalfella, but also the numbers have increased thus it is a greater government stimulous) and other government spending. This is helping to artificially prop up GDP.

(3) will they work to prevent Ireland becoming bankrupt and bailed out? Well it's not entirely clear and while I have had my doubts, the international media has trumpted Ireland as a great success. However, I am not so sure that this directly translates into investor confidence in Ireland, nor do I think that investors are so naieve as to think "Ah sure, look at Brian Lenihan, isn't he a grand man" and just give us the money without looking further into it.

So the current austerity programme will NOT work to fix the budget or the economy and it is not certain whether it will stave off soverign default.

Your point in the body of the OP is a bit different - you make the point that cuts only decrease domestic consumption. This is true. But, as I'm sure you're aware, making cuts and decreasing income tax is not "taking money out of the economy" it is simply putting less money in. I think it is quite clear that the levels of domestic consumption in Ireland have been excessively high over the last few years, and the cost of living has risen disproportionately to how well our economy was actually doing.

Now, it has already been pointed out that our social welfare is 3 times what it is in England, despite the fact that London has a higher cost of living than Dublin. I'm not going to repeat those arguments. But I think you are confusing cause and effect. It is not that higher cost of living results in higher social welfare, it is that higher social welfare increases the cost of living.

Finally, just to make it absolutely clear to you, our projected tax take for 2010 is roughly 12bn income tax, 10.5bn VAT, 4.7bn customs and excise, 3bn corporation tax, under 1bn for stamp duties and 0.5bn for capital gains/aquisitions. The social welfare bill is estimated in the region of 21bn and our taxes are c. 1.4% belowe estimates. We are heading for a very real situation where SW is 22bn and income tax and VAT combined are 22bn. Think about that for a minute. It means that social welfare takes up all of our two biggest taxation sources in their entirity. All the taxes you pay on work, goods and services goes directly to social welfare. Not to schools, not to hospitals etc, but to subsidise people who do not work. It also leaves the rest of the entire government with a rather paltry 9bn and shrinking to pay for, well, for everything else.

So the current levels of budget deficit really are unusutainable. A 14% deficit is madness, made even madder when the bank recaps and nama money is put in, and madder still when you compare it to GNP, a better measure of the domestic economy.

Now, do I want to see people on the dole getting less? No, of course not. But is it necessary? Yes, I'm afraid we have no choice. There have to be spending cuts and social welfare is one of the better places to make those cuts.

On a final note, I dislike the phrases used such as "the poor can't pay" or why do those on social welfare have to foot the bill etc. But they are not being asked to pay anything. Social welfare is a mandatory form of alms which passes money, like a charitable donation, from the richer members of society to the poorer ones. We are not asking people on social welfare to pay, we are asking them to accept less from us.

donegalfella wrote: »

This post has been deleted.

Em, IKEA?

Count Dooku

johnnyskeleton wrote: »

Em, IKEA?

IKEA was founded in 1943
http://en.wikipedia.org/wiki/IKEA

johnnyskeleton

Count Dooku wrote: »

IKEA was founded in 1943
http://en.wikipedia.org/wiki/IKEA

Yep. Welfare state started in Sweden in 19th century.

zootroid

Good post JohnnySkeleton.

It's hard to add to the debate here, as it has all been said already. "Austerity measures" will work in the sense that we cannot keep borrowing to fund the state. I say that not as though we have a choice, but eventually we will not be able to as nobody will lend to us.

Someone mentioned previously about leaving the euro, and devaluing our currency. If people are worried about the debt we have built up now, how do you think it will look if we did this?

danbohan

donegalfella wrote: »

This post has been deleted.

Rent would also be lower if landlords and estate agents weren't largely cowboy businessmen.

rents (private) would be lower if we did not have an idiotic goverment paying up to e1200 + per month in rent subsidy

changes

skearon wrote: »

I suggest you review the comments from the opposition parities at the time as they were complaining the Govt wasn't spending enough

A different Government has to face the same realities. To be fair FG have advanced some real policies, unlike their potential bed fellows in Labour who are against everything and avoid any real policies on anything

I used to be a FF voter but lately i look at them and they disgust me.
They are still very very well paid by western standards. They had a token cut in their pay which didn't actually turn out to be as much as they tried to let on. They have no problem doling out the austerity but are not so keen of feeling its pinch themselves.

I can't accept them remaining in power and wielding the axe on ordinary people while they basicly continue as was.

astrofool

Rents would probably be higher if we had less "cowboy" businessmen.

How do you stop cowboys? Regulation.

What happens to regulated industries? Prices go up due to the increasing cost of meeting the regulations.

Witness child care, which used to be a "cowboy" industry, but now has inspections in place and rules on caring.

In child care this regulation was essential, mainly to keep children safe, and well looked after.

But it does increase costs, not lower them, a Landlord who does maintain his property and declares all their tax, will charge more than a Landlord who doesn't.

Count Dooku

astrofool wrote: »

How do you stop cowboys? Regulation.

Let them pay for own faults
Reduce rent supplement, withdraw moratorium for repossessions for investment properties and limit interest only mortgages by 5 years
It will wipe out at least half of cowboys

astrofool

The cowboys would likely remain, as those following the rules end up getting hit more in the pocket by remaining compliant in all areas.

Sandvich

We have more crime in Ireland now than we did ten years ago, even though welfare spending has more than tripled since 1997. How do you explain that?

Correlation does not equal causation.

Do you really think it wouldn't get even worse if there was far less money?

The welfare has recieved some small cuts, but the crime rate has not improved accordingly.

Do you really think more welfare = more crime?

'm opposed to bailing out the banks, just as I am opposed to creating welfare traps for the poor.

But you are not JUST as opposed, since you moan about poor people a lot more.

Believe it or not, I would like the poor to have the opportunity to work their way out of poverty—an opportunity they will never have if we keep up your policies of so-called "social justice."

I think you're just spinning things around to make a more barbaric worldview look pleasant. What if people can't work their way out of poverty? What if they need a leg up?

All your arguments are, are slogans and a general disregard for people in different situations to your own. Nothing more.

Ah, yes, blame the "cowboy businessmen" now. Let's forget about those tax breaks for buy-to-let investors sponsored by your beloved state.

I didn't say I loved the state. Obviously, the state has gotten us in a lot of trouble by making poor decisions, largely because they themselves are little different to cowboy businessmen. But that doesn't mean the state should do an even worse job by slashing welfare to please jobbos such as yourself.

Can you name a successful Swedish multinational that has arisen during the era of the welfare state?

"The Welfare State" in Sweden is actually older than you might think.

I'm not actually all that familiar with swedish companies, but since the 1950s or so,

Tetra-pack
Saab
Nobel Biocare(Swedish/Swiss)
H&M

Digital Illusions are a very large and successful video game developer based in Sweden.

Also, is conditions were so harsh in Sweden wouldn't that cripple existing multinationals? Or rather, cripple them before they come multinationals?

Of course Sweden is not a very large country in of itself, so it's number of multi-nationals will obviously be insignificant compared to the US.

My main point though, is that the Nordic countries don't cripple business. In fact Denmark was rated very highly in terms of ease of doing business.

Maybe you should do some more reading up on the Noridc model?

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

On the Index of Economic Freedom 2008, Denmark's rating is 11th highest of 162 countries (4th in Europe), Finland's 16th, and Sweden's 27th

Not bad for socialist cesspits.

Tough. Social welfare is not intended to help people pay off their car loans. If people bought loads of stuff on credit during the boom years that they now can't afford, it shouldn't be up to the taxpayer to foot the bill.

That's completely irrelevant if people have no money. Do you not understand this? You like to pull the same argument with regards the state finances, but when it comes to individuals who you supposedly prefer to the state, this doesn't fly?

If people have no money as a result of debt, and get kicked out of their homes or locked up(this is happening, which is ludicrous since it's a further drain on the system) then that is bad for the economy.

It doesn't matter what it's intended for. And again you show no consideration for being in situations that aren't yours. It is still possible to get into debt while being not completely retarded with your finances. **** happens, that's one of the reason why we have these safety nets.

Saying "Tough ****" just proves you're all about the tough guy and little about the reasoning.

We can't protect the welfare of the poor by running up a national debt that will cripple this country for generations. Moribund economies impact on the poor more than anyone else.

Bad economies impact the poor more than anyone else primarily because of measures such as this which are taken out on the poor people.

Sandvich

johnnyskeleton wrote: »

What exactly do you mean by austerity measures working? Do you mean (1) will they work to reduce the deficit or do you mean they (2) will work to get us out of recession or do you mean (3) will they work to keep Ireland from becoming bankrupt and bailed out like Greece?

(1) - maybe, but not as much as they should. The problem is that we are running a deficit of over 20bn per year (up to 14% of our GDP). Each 20bn of a deficit has to be financed with borrowed money. Interest rates on Irish debt are currently averaging 3.6% but this is on short term bonds - a more permanent solution would cost approximately 5.68% for a 10 year bond. Let's say that the deficit is exactly 20bn for 2010. So to borrow this 20bn will cost between €700m and €1.1bn to finance this year. We will run the same deficit next year (2011) with cuts of c. 3bn which means that the cost of financing these two deficits increases to 1.5-2bn and the deficit is reduced to 18.5-19bn.

Now, let's look at 2012, or the year in which we were supposed to have our deficit back to 3% of GDP. We haven't been given any clear idea of what budget 2012 will look like, but several indicators suggest that it will have no further cuts or tax increases. Why? Well first and foremost 2012 is election year so the message to be put out will be that everything is fine, the country is now sorted, and no more cuts will be made. Also, the government's projection for cuts was 4bn in 2010, 3bn in 2011 and minor cuts from thereon. Their proposal to return to 3% debt/GDP was based predominantly on a rise in GDP, a rise in tax revenues and a dramatic fall in the numbers unemployed.

So what happens if we don't make any cuts or tax increases in 2012? Well, the deficit which we worked so hard to reduce to 18.5-19bn has been running for 3 years now and will add 58.5-60bn to our national debt. Let's allow for interest rates to drop to 3% short term and 5% long term. That's 1.7-3bn in extra interest that we will have to pay (nevermind principal repayments). So that reduced deficit of 18.5-19bn in 2012 will have increased back to 20.2-22bn by the year's end. At that point, we will be running to stand still. We would need to make 1.7-3bn in cuts just to keep the deficit at the same level - any less than that and we would be increasing our budget.

So, by the looks of it and the cost of financing, our measures to cut the deficit are too late and too small to have any significant impact. The cuts and increases in tax will not in themselves bring the deficit back into line, and the government in relying on some massive boost to GDP, taxes and employment that comes from some mysterious new green technology or some other thing. But those things will not just automatically happen.

(2) will they work to get us out of recession? Not directly, but to a certain extent they will have a big indirect impact. They will show that Ireland is serious about it's economy and that encourages investment. Likewise, any cuts which improve our competitiveness by, for example, getting more people into gainful employment will directly work to get us out of recession. Finally, the current spending is already putting a stimulous of c. 20-25bn per year into the economy. That is to say, c. 35bn of government spending is from taxes so it is just redistributed, but the other 20-25bn is borrowed and pumped into the economy by means of bank bailouts, social welfare spending (note that while rates were dropped in 2010, up to that point they were increased as pointed out by donegalfella, but also the numbers have increased thus it is a greater government stimulous) and other government spending. This is helping to artificially prop up GDP.

(3) will they work to prevent Ireland becoming bankrupt and bailed out? Well it's not entirely clear and while I have had my doubts, the international media has trumpted Ireland as a great success. However, I am not so sure that this directly translates into investor confidence in Ireland, nor do I think that investors are so naieve as to think "Ah sure, look at Brian Lenihan, isn't he a grand man" and just give us the money without looking further into it.

So the current austerity programme will NOT work to fix the budget or the economy and it is not certain whether it will stave off soverign default.

Your point in the body of the OP is a bit different - you make the point that cuts only decrease domestic consumption. This is true. But, as I'm sure you're aware, making cuts and decreasing income tax is not "taking money out of the economy" it is simply putting less money in. I think it is quite clear that the levels of domestic consumption in Ireland have been excessively high over the last few years, and the cost of living has risen disproportionately to how well our economy was actually doing.

Now, it has already been pointed out that our social welfare is 3 times what it is in England, despite the fact that London has a higher cost of living than Dublin. I'm not going to repeat those arguments. But I think you are confusing cause and effect. It is not that higher cost of living results in higher social welfare, it is that higher social welfare increases the cost of living.

Finally, just to make it absolutely clear to you, our projected tax take for 2010 is roughly 12bn income tax, 10.5bn VAT, 4.7bn customs and excise, 3bn corporation tax, under 1bn for stamp duties and 0.5bn for capital gains/aquisitions. The social welfare bill is estimated in the region of 21bn and our taxes are c. 1.4% belowe estimates. We are heading for a very real situation where SW is 22bn and income tax and VAT combined are 22bn. Think about that for a minute. It means that social welfare takes up all of our two biggest taxation sources in their entirity. All the taxes you pay on work, goods and services goes directly to social welfare. Not to schools, not to hospitals etc, but to subsidise people who do not work. It also leaves the rest of the entire government with a rather paltry 9bn and shrinking to pay for, well, for everything else.

So the current levels of budget deficit really are unusutainable. A 14% deficit is madness, made even madder when the bank recaps and nama money is put in, and madder still when you compare it to GNP, a better measure of the domestic economy.

Now, do I want to see people on the dole getting less? No, of course not. But is it necessary? Yes, I'm afraid we have no choice. There have to be spending cuts and social welfare is one of the better places to make those cuts.

On a final note, I dislike the phrases used such as "the poor can't pay" or why do those on social welfare have to foot the bill etc. But they are not being asked to pay anything. Social welfare is a mandatory form of alms which passes money, like a charitable donation, from the richer members of society to the poorer ones. We are not asking people on social welfare to pay, we are asking them to accept less from us.



Em, IKEA?

That's putting it much better than the donegalfellas of the world would put it, but I still think the way you phrase it is unfair.

The "poor" are literally paying in some cases with the loss of their jobs. While welfare may be a "generous donation", it's also one that's only rational and fair and in many cases they have themselves paid their PRSI and you are now asking them to take a hit when they were expecting a return on investment.

When you look at those figures, it really is ludicrous that we bailed out and continue to bail out the banks. I think that could be what's destroyed us as a country; let's put things in perspective, we've currently spent more on bailing out one bank than is projected for social welfare at crazy levels of unemployment for a whole year.

What needs to be done is that employment needs to be created so the government are dishing out less dole and taking more in.

How to do that, I don't know. But I doubt nobody knows, we just need to get the gombeens we have currently out and find someone who does. Or more than likely, have the europeans come in and show us how to keep our **** in order.

Sandvich

Pete_Cavan wrote: »

I cant see how there is an argument to be made against austerity measures. USA is showing the world that you cant spend your way out of recession. Their economic situation hasnt changed even after spending billions on stimulus packages. It seems they are headed for a 'double dip' recession. We have to cut back and try and balance the books as best as possible. We are currently borrowing €20bn a year, if we continue to do so we will not be able to pay it back. How do people think your economy will ever recover if our national income cant even cover the interest on our loans?

Actually, you can spend your way out of a recession. You just need to have the money to do it. Keynesian economics only works when you don't piss away all your money first and are prepared to suck up a large national debt for a while.

SkepticOne

Sandvich wrote: »

What needs to be done is that employment needs to be created so the government are dishing out less dole and taking more in.

How to do that, I don't know. But I doubt nobody knows, we just need to get the gombeens we have currently out and find someone who does. Or more than likely, have the europeans come in and show us how to keep our **** in order.

I think the key point is that austerity measures are not about stimulating the economy, creating jobs, fairness or any of that stuff. They are about paying back money or keeping down the cost of borrowing, things like that. If austerity measures "work" they work in terms of paying back money or putting off the day of default for as long as possible. Ideally they should be done as fairly as possible but fairness is not the goal of austerity measures.

You ask in the opening post, why do people think austerity measures will work? Who are these people? What do you think they mean by "work"?

I think the key question with regards to the bailout is whether they will cause the economy to contract to such an extent that the deficit increases and further austerity measures then become necessary. The country enters a downward spiral. Some commentators notably David McWilliams have suggested that this is a possibility given our situation of not being able to devalue the currency.

If this downward spiral is going to happen then we would be better off defaulting now as there is nothing to be achieved by putting it off.

Sandvich

I mean for the long term survival as Ireland, straight up austerity measures would do more harm than good.

People forget that it's not just our government that's in debt - we have crazy levels of unemployment and our economy is in the ****ter.

If you take more money out of a dying economy, what's going to happen?

I think Ireland as a country right now is ****ed and we should stop kidding ourselves. However, we should also perhaps stop kidding ourselves that that's such a bad thing. I think sooner or later the Germans or someone are going to come in.

Sand

@Sandvich

If you take more money out of a dying economy, what's going to happen?

Probably nothing much more worse than piling up debt on a dying economy.

The amount of cuts so far barely amount to austerity measures given the scale of the problem. Weve got a small bit of time to play with given the NTMA dont have to go back to the market for a while, we could attempt to get the house in order by taking some proper steps to get control of the budget but it seems Fianna Fail are paralysed by the thought of the cliff the country is racing towards. For the next budget, touching the public sector wage bill is out, university fees are out, property taxes are out, water charges are out. So all that leaves is cuts to investment and actual services. Theres nobody to respresent taxpayers in this carve up.

The Croke Park deal is looking stupider by the day - whilst it contains the get out clause for declining economic circumstances (look around) thats hardly going to do anything for relations with the unions. Theyll feel they were deceived. In reality they deceived themselves.

danbohan

Sand wrote: »

@Sandvich


Probably nothing much more worse than piling up debt on a dying economy.

The amount of cuts so far barely amount to austerity measures given the scale of the problem. Weve got a small bit of time to play with given the NTMA dont have to go back to the market for a while, we could attempt to get the house in order by taking some proper steps to get control of the budget but it seems Fianna Fail are paralysed by the thought of the cliff the country is racing towards. For the next budget, touching the public sector wage bill is out, university fees are out, property taxes are out, water charges are out. So all that leaves is cuts to investment and actual services. Theres nobody to respresent taxpayers in this carve up.

The Croke Park deal is looking stupider by the day - whilst it contains the get out clause for declining economic circumstances (look around) thats hardly going to do anything for relations with the unions. Theyll feel they were deceived. In reality they deceived themselves.

Fianna Fail are paralysed by the thought of the cliff the country is racing towards


somehow i doubt that , paralyesd with fear yes ,but for their own hides not the future of the country

irishh_bob

Sand wrote: »

@Sandvich


Probably nothing much more worse than piling up debt on a dying economy.

The amount of cuts so far barely amount to austerity measures given the scale of the problem. Weve got a small bit of time to play with given the NTMA dont have to go back to the market for a while, we could attempt to get the house in order by taking some proper steps to get control of the budget but it seems Fianna Fail are paralysed by the thought of the cliff the country is racing towards. For the next budget, touching the public sector wage bill is out, university fees are out, property taxes are out, water charges are out. So all that leaves is cuts to investment and actual services. Theres nobody to respresent taxpayers in this carve up.

The Croke Park deal is looking stupider by the day - whilst it contains the get out clause for declining economic circumstances (look around) thats hardly going to do anything for relations with the unions. Theyll feel they were deceived. In reality they deceived themselves.

bad as the unions are , they were offered this croke park deal by the goverment , the goverment could have told the unions to get lost on any deals or promises of no pay cuts and they would have had the support of the majority of voters , were the goverment to renague on its terms now , i would almost support the unions in whatever stance they took as it might be what is needed to get rid of brian cowen as leader , any man who believed this jones road contract could last untill 2014 deserves to be sent back to offaly pronto