Austerity and the Referendum

Hawkeye123

Ironically it was Michael Noonan who has persuaded me to vote No. According to Mr Noonan, if we vote No - there will have to be far more austerity. Well, I`m very much in favour of austerity.

In order to turn the economy around we must stop this insane borrowing pay back our debts. To do that we must cut spending by a massive 25 billion. Cuts of that nature would take account of the contraction in the economy after we make the cuts and leave a few billion left over for infrastructure spending and growth. This would send a message to the world that Ireland Inc is solvent and trading profitably. By cutting spending by 25 billion, the government could also afford to cut VAT, thereby reducing the cost of living and further increasing our competitiveness. In fact, by doing this - the government would be free of the bond markets so it could re-privatize the banks which in turn would save us tens of billions in bank debt. The banks were never in a position to blackmail the government in the first place because if the Banks withhold deposits - the government could withhold the courts service as a means for the Banks to pursue mortgage defaulters.

So where should the 25 billion in cuts be made - I hear you ask. Well, I would approach that question from another angle - where should they not be made. Firstly, they should not be made in the collector generals office or in employees in the dole offices or the Army, Gardai, ESB or Bord Gais. Pretty much everything else is fair game. For example, 100% pay cuts in the health and education sectors would force out the excess staff without having to pay redundancy (which is based on earnings). Then when the excess is gone, offer to pay what we can comfortably afford and no more. Needless to say, in order for this to work the dole would have to be seriously reduced but not eliminated and the minimum wage legislation put in the Dail compost heap.

K-9

Hawkeye123 wrote: »

So where should the 25 billion in cuts be made - I hear you ask. Well, I would approach that question from another angle - where should they not be made. Firstly, they should not be made in the collector generals office or in employees in the dole offices

The staff in the Collector Generals office would be under worked with the huge drop in tax receipts, better to move them to the dole offices for the extra demand.

Hawkeye123

K-9 wrote: »

The staff in the Collector Generals office would be under worked with the huge drop in tax receipts, better to move them to the dole offices for the extra demand.

There are certain cogs in the machine that should not be tampered with until the time is right.

matthew8

The problem with our austerity right now is we get all the negatives of austerity but none of the positives from an economic standpoint. The economy is contracting because of the austerity, but we aren't getting deflation. That's why I'd vote no on the austerity referendum.

meglome

Seems to me this will help.

Scofflaw wrote: »

Then, personally, I would suggest a rethink of your analysis. The SF/ULA/Union claim that "austerity isn't working" may be both silly and startlingly irrelevant to the Treaty (or, if relevant, having exactly the opposite effect to their claim), but it's not based on fiction.

Austerity - that is, cutting the budget deficit - does have a negative effect on the economy. If the government is borrowing €15bn - thereby racking up public debt - it is also channeling that money first and foremost into the Irish domestic economy through spending, public sector wages, and social transfers. The €15bn it borrows, then, is a direct €15bn stimulus to the Irish domestic economy.

Removing that stimulus all at once results in a sharp contraction of GNP - that is, in more business closures, as businesses lose government contracts or the spending of PS wages or welfare cheques. That, in turn, means more job losses and a fall in tax take. Even assuming a straight 1:1 correspondence between the fiscal deficit and the resulting stimulus, you're looking at a roughly 10% fall in GNP. That's a bigger fall than we experienced as a result of the collapse of the construction sector.

What that means should be obvious - a new deficit. The new deficit should be smaller than the old deficit, but without further deficit cutting, it will not be stable - the effects of the original sharp contraction will knock on for a while, as businesses reliant on contracts or wages from the first round of failures go out of business in turn, and the domestic economy continues to contract. So the deficit will need to be balanced again, and then again.

The deficit is, in fact, a moving target. It's not something you can just balance as if it were a household budget and then that's that - instead, when you cut government borrowing and spending, you're cutting into the economy that supports state spending, and which state spending supports.

The "balance the budget" mantra makes exactly the mistake the anti-austerity mob like to accuse the government of making, and which the government is not in fact making - state budgets are not the same as household budgets. Come to that, even household budgets aren't without their effects on the wider economy - part of our problem at the moment is exactly that households are doing the same as the government, cutting their deficits and trying to reduce their debt.

I agree with the intention of balancing the State's budget, but it can't be done all at one go - not because there isn't the will to do it, or any of the other reasons usually trotted out, but because it simply cannot be done.

Both the anti-austerity position and the balance-the-budget-immediately positions are unrealistic. Both want things that cannot be done - the former cannot happen because we are already borrowing as much stimulus as we can, and there just isn't any further money for extra stimulus, the latter because sharper deficit cuts lead to sharper economic contractions lead to renewed deficits, not balance. The current gradual reduction path is the way between Scylla and Charybdis.

cordially,
Scofflaw

Hawkeye123

meglome wrote: »

.... the balance-the-budget-immediately positions are unrealistic..... because sharper deficit cuts lead to sharper economic contractions lead to renewed deficits, not balance.

This is why I suggest we undercut the problem by over-cutting spending. If we were to reduce spending by 25 billion, the contraction deficit would be more than allowed for - leaving a budget surplus for non borrowed stimulus measures on things like infrastructure spending and a small reduction in VAT

Scofflaw

Hawkeye123 wrote: »

This is why I suggest we undercut the problem by over-cutting spending. If we were to reduce spending by 25 billion, the contraction deficit would be more than allowed for - leaving a budget surplus for non borrowed stimulus measures on things like infrastructure spending and a small reduction in VAT

So...we take a massive amount, even more than needed, out of the economy...an amount that would require either drastic pay cuts or drastic job losses across the public sector, probably both, plus a huge cut in the amount of social transfers, along with a massive contraction in other government spending...and then we put some of that back in as infrastructure projects and a small reduction in VAT?

And that's something you believe will produce net growth?

cordially,
Scofflaw

later12

People seem to think that cutting the deficit in one go is some sort of painful but necessary panacea. It's one of the most malignant misconceptions of the entire debate about austerity. The other being that austerity is un-necessary.

Nobody ought seriously deny that austerity is required. I doubt many people are challenging the belief that there is scope for greater austerity, either. But that doesn't mean cutting the deficit overnight is a workable or remotely intellgient solution, especially when you consider the deficit reduction programme currently in place and the favourable method the troika have agreed with the Government in terms of how it can be calculated.

As a little bit of economic trivia: consider that Ireland only posted its first deficit in 1972. Prior to that, it would just cut as and when required. Just be careful when you lay so much importance on the lack of a deficit.

While obviously important, investors always want to see more than just austerity. They want evidence of scope for growth.
And if you think some dramatic, unpredictable un-necessarily immediate destruction of the deficit (as is sporadically proposed) is conducive to growth, I think you're kidding yourself.

Hawkeye123

Scofflaw wrote: »

So...we take a massive amount, even more than needed, out of the economy...an amount that would require either drastic pay cuts or drastic job losses across the public sector, probably both, plus a huge cut in the amount of social transfers, along with a massive contraction in other government spending...and then we put some of that back in as infrastructure projects and a small reduction in VAT?

And that's something you believe will produce net growth?

cordially,
Scofflaw

Absolutely! But "believe" is too weak a word. Its more of an innate knowledge. I know for a fact this will work. (obviously, the economy would contract very sharply in the short term but then it would find traction and begin long term sustained growth. You may recall the hospital closures and massive cutbacks in the late eighties - well that austerity spawned the celtic tiger. The same should be done again only this time the cutbacks will have to be much more severe. To make it happen, Fine Gael would have to seek the support from Fianna Fail because Labour would probably walk out of government in protest.

Hawkeye123

later12 wrote: »

I doubt many people are challenging the belief that there is scope for greater austerity, either.

We haven`t had any austerity yet. There is nothing austere about living beyond one`s means which is what we are doing when we borrow billions to run the country. Nor is there anything austere about the salaries we are paying to the top brass in the civil service (or to the bottom brass for that matter). I consider myself to be a low skilled public sector worker yet I earn almost as much as a Polish Judge and probably more than a judge in Greece, Hungary or Bulgaria.

At best, I get 4% interest on the wages I save but the government is paying more than that to borrow money to pay me. That is insane. If I buy foreign products, - most of the money borrowed to pay me then goes abroad and not back into the Irish economy.

The government contends it must pay high salaries for quality staff, yet the demise of the celtic tiger was brought about by people on stupendous salaries. Performance is inversely proportional to pay. Riches could certainly be used as an inducement but should only be paid after the country has cleared its debts and revived its economy.

Borrowing isn`t working. I think we should try something new. We should try austerity.

Black Swan

MOD COMMENT:
Moved from Politics Café. Please keep in mind the more serious standands in Elections and Referendums when positing here.

antoobrien

Hawkeye123 wrote: »

I know for a fact this will work. (obviously, the economy would contract very sharply in the short term but then it would find traction and begin long term sustained growth. You may recall the hospital closures and massive cutbacks in the late eighties - well that austerity spawned the celtic tiger.

It wasn't the cuts that did it.

It was the plans for growth that impressed the international investors. Off the top of my head there was the development of the IFSC, the new tax regimen (both personal & corporate), the start of the investment in infrastructure in the 80s, the entry into the single market that brought investors & companies to Ireland.

The cuts made way for the capital spending required. Now we're cutting capital spending to minimize cuts to services.

later12

Hawkeye123 wrote: »

Absolutely! But "believe" is too weak a word. Its more of an innate knowledge. I know for a fact this will work.

That's not really good enough. Suggesting you know something "innately" only tends to switch on the waffle siren in most reasonable people's heads. We can say there is evidence or this or for that, but not that we should merely go with "innate knowledge", whatever that is.

obviously, the economy would contract very sharply in the short term but then it would find traction and begin long term sustained growth. You may recall the hospital closures and massive cutbacks in the late eighties - well that austerity spawned the celtic tiger.

Yes it did, but also we also devalued in 1986.

Anyway. Nobody would doubt that the tough fiscal policies of Fianna Fail Government of the day were what renewed Ireland's economy, so why on earth you are using this policy to promote something totally different is beyond me.

Hawkeye123

later12 wrote: »

Anyway. Nobody would doubt that the tough fiscal policies of Fianna Fail Government of the day were what renewed Ireland's economy, so why on earth you are using this policy to promote something totally different is beyond me.

I am not trying to promote something different. I am suggesting a repetition of the tough fiscal policies you are referring to.

Godge

Hawkeye123 wrote: »

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For example, 100% pay cuts in the health and education sectors would force out the excess staff without having to pay redundancy (which is based on earnings). .

Let me just take one of your suggestions.

100% pay cuts, what would that mean? Well I assume, that as you don't intend to pay redundancy, they would still have a job, just not any salary. So how would that work in a school? Maybe in a school of 40 teachers, 1 or 2 conscientious teachers might show up. Even if all of them showed up, would they bother to teach or even control the kids? Hardly think so. One week later, you might still have the 40 teachers sitting in the staff-room but probably 60-70 pupils in hospital (who would treat them, forgot about that?) and the rest of the school destroyed. Some bill to clean up that mess. Or do you really expect people to turn up and do a job for no pay? You see, unless you make them redundant (which means paying a ****load of money to them like in the banks) they still have a job but no incentive to do that job.

BTW, where are the excess staff in the education sector? How many pupils should be in a primary class?

Of course, you assume that this 100% pay cut would be legal. I noticed that you didn't exclude judges from the pay cut. I would say that they wouldn't bother to hear any case except a constitutional challenge to the 100% pay cut. Which would succeed by the way even if you excluded the judges from the cut. Apart from the fact that such a move would actually be unconstitutional, there is no way a judge would back it because they could be next.

So you then decide to have a referendum to change the constitution? Well, you might say there are only so many thousand public servants so a 100% cut in their pay will be passed by everyone else. But who wants to see their father take a 100% pay cut, or their mother, daughter, son, aunt, uncle, cousin, grandfather, niece, nephew, best friend, drinking buddy, close neighbour, soul sister? A referendum like that might get 10% support from the lunatic fringe.

Back to the blackboard with this one, I think.

later12

Hawkeye123 wrote: »

I am not trying to promote something different. I am suggesting a repetition of the tough fiscal policies you are referring to.

Repetition? Repetition is what we are doing now - without the monetary devaluation.

Doing something completely different would be closing the deficit immediately.

Hawkeye123

Godge wrote: »

Maybe in a school of 40 teachers, 1 or 2 conscientious teachers might show up.

It is true that 39 teachers out of 40 are unlikely to be conscientious. This would be an opportunity to replace them with worthy roll modals for the children.

Godge wrote: »

Even if all of them showed up, would they bother to teach or even control the kids? Hardly think so. One week later, you might still have .... 60-70 pupils in hospital (who would treat them, forgot about that?)

Nope. If teachers work to rule (don`t work) then the school gates should be chained and a small number of unemployed young graduate teachers hired to teach every subject to the entire school going population online or on RTE - the kids would learn from home. This by the way would have spin off benefits by reducing traffic congestion, fuel consumption etc.

Godge wrote: »

.... the school destroyed. Some bill to clean up that mess.

The parents of delinquents are liable. Their homes can be seized and sold to pay for criminal damage by their children. As vagrants, they could be accommodated by re-opening the workhouses of yesteryear.

Godge wrote: »

... do you really expect people to turn up and do a job for no pay? You see, unless you make them redundant (which means paying a ****load of money to them like in the banks) they still have a job but no incentive to do that job.

Some would examine their conscience and reflect on how good they have had it up until now at the expense of others. They would work for free and in the fullness of time they could be rewarded for doing so. Also, new graduates could work for free in order to get on the ladder and when the country is able to pay - they would be first on the payroll. Those who opt to strike or work to rule would soon be staved into submission and forced to quit. Of course, they get no redundancy for quitting. They could subsequently be blackballed from being re-hired for their selfishness and lack of gratitude.

Godge wrote: »

BTW, where are the excess staff in the education sector? How many pupils should be in a primary class?

Both of these questions have the same answer - it depends on what we can afford. If we can only afford one teacher per million kids - then a million kids would be the appropriate class size. If we had 10,000 teachers but could only afford 2000 - then 8000 would be the excess.

Godge wrote: »

Of course, you assume that this 100% pay cut would be legal. I noticed that you didn't exclude judges from the pay cut. I would say that they wouldn't bother to hear any case except a constitutional challenge to the 100% pay cut. Which would succeed by the way even if you excluded the judges from the cut.

True. So that is precisely what I would do.

Godge wrote: »

Apart from the fact that such a move would actually be unconstitutional, there is no way a judge would back it because they could be next.

Constitutionality or lack thereof would be for the judges to decide - its a matter for interpretation. I think they would interpret the constitution the right way. Failure on their part to do so would not only necessitate a cut to judges pay but also an appeal to the European courts. The state can also use the statute of limitations to protect the taxpayer and it can introduce new laws to prioritize the right of the taxpayer to value for money over the vested interests of any individual or group.

Godge wrote: »

So you then decide to have a referendum to change the constitution? Well, you might say there are only so many thousand public servants so a 100% cut in their pay will be passed by everyone else. But who wants to see their father take a 100% pay cut, or their mother, daughter, son, aunt, uncle, cousin, grandfather, niece, nephew, best friend, drinking buddy, close neighbour, soul sister? A referendum like that might get 10% support from the lunatic fringe.

Most workers do not work for the state but they are forced to pay for those who do. A two thirds majority among this group would suffice to bring about the necessary reform.

Godge wrote: »

Back to the blackboard with this one, I think.

Indeed, here`s the chalk.

Hawkeye123

later12 wrote: »

Repetition? Repetition is what we are doing now - without the monetary devaluation.

Doing something completely different would be closing the deficit immediately.

Monetary devaluation is not an option for us as you know. This is why the austerity should be all the more severe. Lest we forget - austerity and frugality are time honored qualities. Leftists speak as though austerity was somehow a bad thing!

later12

Hawkeye123 wrote: »

This is why the austerity should be all the more severe. Lest we forget - austerity and frugality are time honored qualities. Leftists speak as though austerity was somehow a bad thing!

I happen to agree that in some ways, fiscal tightening must be more rigorous. I would say this applies very much to Ireland, Portugal and Greece; but not to Spain and Italy just yet.

I can't help but get a sense from your posts that you delight in expounding the benefits of austerity because it's seen to be so antagonistic. You say it should be "more severe" and claim to be amazed that people would "somehow" claim it's a bad thing, when we all understand full well why it is natural for human beings to feel uncomfortable about fiscal tightening during a time of economic contraction.

Given these reasons, I'm afraid I'm going to leave it there because I'm not quite sure that you're being altogether serious or realistic.

Hawkeye123

later12 wrote: »

I can't help but get a sense from your posts that you delight in expounding the benefits of austerity because it's seen to be so antagonistic. You say it should be "more severe" and claim to be amazed that people would "somehow" claim it's a bad thing, when we all understand full well why it is natural for human beings to feel uncomfortable about fiscal tightening during a time of economic contraction.

Very observant - and I do take your point. I must admit that I do derive some satisfaction in antagonizing those who cause me so much frustration and annoyance. Obviously it is good to be austere and frugal just like it is good to be fit and healthy. Imaging you had a duel personality, one of your personalities being a fitness fanatic and the other being a lazy good for nothing, cake scoffing glutton. You surely must understand how the fitness fanatic who runs ten miles a day, eats his greens and practices yoga would resent the glutton for undoing all his hard work. This is how I feel about the socialists in our midst. I also believe that regrettably, the extreme far right can sometimes emerge as a counterbalance to the self destructive, irresponsible and stupid behavior of the leftists.