What's the point in saving anymore?

GreeBo

GreeBo wrote: »

It seems to be one of those things that makes sense at a macro level, but taken on individual by individual basis it doesnt,
why would I start spending money when the future is so uncertain.

I explain in an earlier post:

Someone mentioned earlier that the rise in DIRT wasn't going to make people feel settled enough to spend their money because it was a problem with societal consciousness and outlook on the future rather than a problem with DIRT as a tax. And they are totally correct. The government can't legislate for the collective financial zeitgeist - that is near on impossible.

All the government can do is react to the effects on the economy of the collective economic consciousness, and in this case that means making saving just that little bit extra unattractive.

UphillStruggle

Savers are savers.

They spend the income from their savings not the capital.

If interest rates are reduced that reduces their interest income. If taxes are increased that reduces their income.

Do you know what they will do in response?

They will save more!

The way to make savers spend more is to increase interest rates and reduce taxes on interest income. Then they will spend their income again. Currently billions of interest income is not being paid to savers, that is a huge loss for the economy.

liammur

who_ru wrote: »

http://www.independent.ie/business/personal-finance/pensions/pensioners-will-escape-new-tax-hit-on-savings-3332384.html


the above article is an eye opener for those with any savings or thinking of becoming a saver.

apart from paying a s**t load in tax, from 2014 onwards you will have the privilege of paying a whooping 37% tax on the interest from your savings.

i mean didn't the fact that nobody saved anything encourage the whole SSIA thing in the first place, and no when people are trying to economise, save for the future.....house deposit maybe.....holiday next year.....new car...etc etc the shower in Govt decides to hammer any saving culture.

The simple fact is you get virtually no interest anyway. But, it certainly is an interesting subject, and with all the central banks printing like no tomorrow the situation will get worse in years to come with high inflation.

johnnyskeleton

Duggys Housemate wrote: »

Standard economics.

It really isnt, other than as Bluewolf points out as a part of neo Keynesian thinking.

But Keynes himself recognized the importance of savings for an economy. Without savings we would have very little investment. The money you put into the bank is then lent out to the new start up company which creates jobs which leads to increased consumption.

A country can have an excess of savings and too little consumption, but IMO that is not the case in Ireland now. We need people to invest or failing that to save to build up our economy. We have come off a glut of consumption and now need to rebuild our economy. Much like a hangover, we need to bear the pain and stop drinking, rather than try to drink through it and make matters worse.

So the glib assertion that savings are bad in a recession is just wrong, and specifically saying Irish savings are currently too high is, in my view, also incorrect.

Red Crow

I'm saving 46% of my wages per month and will continue to do so as I don't trust my money in this country. I don't want to buy a house or a new car. Saving is certainly the best option out of a lot of bad ones and the goal is to get out of Ireland atm

GreeBo

Eli Manning wrote: »

I'm saving 46% of my wages per month and will continue to do so as I don't trust my money in this country. I don't want to buy a house or a new car. Saving is certainly the best option out of a lot of bad ones and the goal is to get out of Ireland atm

well, depending on the rate you are getting and inflation.
You might end up just pissing it away in the bank.

thebman

Got more interest on 250 Euro in credit union today than I did on any amount I've had in the bank in past 5 years.

I know where my savings are now going.

Duggys Housemate

johnnyskeleton wrote: »

It really isnt, other than as Bluewolf points out as a part of neo Keynesian thinking.

But Keynes himself recognized the importance of savings for an economy. Without savings we would have very little investment. The money you put into the bank is then lent out to the new start up company which creates jobs which leads to increased consumption.

A country can have an excess of savings and too little consumption, but IMO that is not the case in Ireland now. We need people to invest or failing that to save to build up our economy. We have come off a glut of consumption and now need to rebuild our economy. Much like a hangover, we need to bear the pain and stop drinking, rather than try to drink through it and make matters worse.

So the glib assertion that savings are bad in a recession is just wrong, and specifically saying Irish savings are currently too high is, in my view, also incorrect.

It really is. As I said Ireland is a different case because we can export to where there is no, or less, austerity.

What I said was:

In a closed economic system an increase in private saving will reduce economic activity,unless matched by government spending, because consumption will decline.

As for the anti-Keynsian stuff, he was advocating that public spending increase when private spending decreases. Hardly radical; however only belief in state intervention is Keynesian, what is normal economics is my statement in bold. There are people who would say that the situation be left to it's own devices, rather than government spending be increased, if private consumption decrase. Everybody agrees that if savings increase consumption decreases. One mans spending is another mans income.

That is standard economics.

SeanW

yesman2000 wrote: »

People are saving approx. 12-14% of their income (on average, of course) at the moment compared to 1-2% in the boom. This is reducing consumption in the economy. Therefore, it makes perfect sense for the government to increase DIRT. It brings in revenue for them and it's also indirectly incentives to spend more. All going well this will be corrected when (if) things recover.

This is wrong on so many levels, I don't know where to start.

1. We got into this mess by spend, spend, spend and borrow like there's no tomorrow. Does anyone seriously think that doing more of the same thing will get a different result? Someone once defined such expectations as the definition of madness.
2. Savings are the bedrock of a sound economy. It is through these that people can save for retirement, a new business, a down payment on a house, college etc. Good things that we supposidly want people to do.
   Savings also form a capital pool for lending to business, such that the money does not have to come from a printing press.
3. Savers are already hit by below-what-the-market-would-demand, low interest rates: that being decided by our central bank (the ECB in our case). Rates these days are normally held lower to make things easier for the large numbers of governments and other debtors that are in trouble.
   Savers are also hit by the flip side of central bank low interest rates: inflation. As the supply of currency goes up, i.e. money is simply magicked up out of thin air, the value of that currency will eventually fall.
4. Perhaps Mr. Noonan has missed a newscast or two but Irish banks are in serious trouble and need all those savings to paper over a massive hole in their books, similar is characteristic to the hole that we "had to" fill with the wealth of the next two generations in bank bailouts.
5. These penalties disproportionately affect the poor and middle class, because the rich can easily get out of cash savings and "hoarding" them as gold, silver, land, shares, futures or something. Linked with Point 4, they can diversify out of banking deposits much easier than the "normal" people, depriving the banks of needed deposits.

gurramok

thebman wrote: »

Got more interest on 250 Euro in credit union today than I did on any amount I've had in the bank in past 5 years.

I know where my savings are now going.

That means you trust your savings\investment in an Irish credit union, many do not. Same for banks, i don't keep my savings in an Irish bank no matter how attractive their interest rates are, i don't trust them or the credit unions.

Head The Wall

GreeBo wrote: »

well, depending on the rate you are getting and inflation.
You might end up just pissing it away in the bank.

In fairness that is a ridiculous assertion, if somebody is saving that much they are obviously cutting back and only buying necessities. Saving even at 0% interest is still way better than spending that same money.

KyussBishop

KyussBishop wrote: »

The trouble with those articles (and all this is a comment on the articles, not attacking you), is that savings do not save real productive assets for the future, they defer production of real assets into the future; so this means production must slow down in the present, for savings to increase.

Production of smaller things that people might want in the short term, yes. Production of larger things that people might want in the long term, no.
Which is fair enough. What's the point, as someone said, in making things people don't want? Should they be made to buy them anyway?

Maybe we should take a leaf out of their book :
http://www.telegraph.co.uk/news/newstopics/howaboutthat/5271376/Chinese-ordered-to-smoke-more-to-boost-economy.html

Savings can not signal industry to prepare for future production, because how would industry know what consumers will want to buy? (i.e. how would industry know what capital goods to acquire, to meet future consumer demand?)

Judging by the post-ssia advertising hype, I'd say they would make a fairly good go of it. Maybe they look at the demographics and think, these people are saving for mortgages or weddings.
That's the mark of a successful business entrepreneur anyway, or advertiser - knowing what they want before they do

1: You want the efficiency of production to be at a maximum anyway, so a decrease in demand and increase in savings aren't going to trigger big investments in efficiency

Well, what we want and what we have are two different things, so I'm not sure we can say nothing is going to happen because all goods should be at their lowest average cost already

2: Nobody knows what goods future savings might be preparing for, so there is no way for any particular industry to know it needs to increase productive capability for the future

I think this has been addressed above, and is pretty pessimistic given experience:

If people stopped buying mobile phones those companies will go out of business, software devs will go out of business , and the world economy would contract or slow down with the effects of the negative multiplier effects

Or, they will look at the increased purchases of more expensive tablets and ipads (or something more expensive again) and say, maybe people want these instead. Then they can divert production to more research of smarter smartphones, pair up with producers of tablets, and so on and so forth.
One cannot sit around saying "people have liked these in the past so we're going to make them stubbornly despite lack of consumption until we go out of business". Discouraging people from saving so they can be forced to go out and buy things they don't really want anymore on a short term level without thinking of long term assets they would prefer if they could just save for them, well, that seems a bit silly.

3: The reduction in demand in the present means there is already excess capacity for production to meet future demands;

For certain goods

This bit is asserted, and following arguments trying to back it are fallacious.

This states that nothing is exchanged for money, and then money exchanged for something, but the below quote goes beyond this and states 'printed money = nothing'; very big fallacious step.

No, it summarises the process of nothing->printed money->something

Money is never 'nothing', money is societies debt to the person/group holding it;

Society's debt?! It is a means of exchange and saving.

It's worth repeating: If the source of that information, the mises.org website, puts out such false information without correcting it, then can that be a credible source of information?
That affects the credibility of that website as a whole, and warrants extremely high skepticism of their writing; if false and deliberately deceptive information like that is read regularly from a website (even if it's just in bits and pieces), and goes unchallenged, it will sink in over time for the reader, through repetition, which poisons knowledge with falsehoods.

One particular article by one particular person that you disagree with and possibly have misunderstood is not a sound basis for rubbishing a whole website, no. I read another article with "should of" in it lately, that doesn't exactly mean Mises and Hayek were wrong in their economic theories. We're here to discuss the content of the article as interesting reading which may make good points, not an institute.

Whenever an article is throwing large amounts of obfuscated terms/words at you, and is trying to confuse the reader like that, that's a huge warning sign that the author is trying to deceive.

There are no large amounts of obfuscated terms here. You've identified one possibility at most.
Before the mention of wealth generating activities he refers to the quote
When money is saved and then invested it is used to buy or build capital goods. Any of these projects puts as much money into circulation and gives as much employment as the same amount of money spent directly on consumption. - which may be assumed here to be the aforementioned activities. And so now we are looking at the idea that if savings will lead to investments which put money into circulation & help employment etc, choking off this avenue will of necessity weaken this.

Also, terms like redefining money as "society debt"?

In the private sector, saying capital comes into existence by saving, is only true in that money usually goes through banks before being reinvested (it doesn't even have to do that), but then banks are able to lend out money in excess of deposits/savings, so what they can lend out is not restricted one-on-one with savings.

Banks are able to lend out money in excess based on certain multipliers, not out of thin air. Without any savings or deposits, this is not possible. So we both know it is true.

People complain banks aren't lending; govt reacts by cutting incentives for saving. Bit mixed up.

Duggys Housemate wrote:

What are you trying to "refute" here ( not that buzz words about inter-temporal blah is going to refute anything)

I am not entirely sure why either of you think straightforward articles about economics are full of "buzz words" and "obfuscated terms" and therefore render the entire articles invalid.
If there is any confusion about them, certainly we can look into them and analyse them.

I am linking to other ideas on the subject which indicate that "the only way out of a recession is spending" is not necessarily the fact set in stone that other posters may think it is, and rather than being "simple economics", it is one school of thought in economics.

GreeBo

Head The Wall wrote: »

In fairness that is a ridiculous assertion, if somebody is saving that much they are obviously cutting back and only buying necessities. Saving even at 0% interest is still way better than spending that same money.

Saving "that much"? Sorry you have lost me here.

Spending it drives the economy.
Losing the value of your savings because of inflation does nothing for anyone. (other than maybe allowing the bank to lend)

RichardAnd

I try to save about 50% of my wages each month and I have done this for the past number of years, leaving me with a healthy nest egg. The reason I do this is not fear, it's not not because I'm planning on a major purchase and it's certainly not because I'm some sort of miser. Nay, the reason I save is because my parents taught me very early on that I should only part with my money for a very good reason and that savings are very important for the rainy days in life.

There seems to be an attitude displayed by a number of posters here that what I do is wrong or even selfish and that I should be spending my money in the economy by buying gizmos, gadgets and any number of assorted distractions used to keep the plebs occupied. An individual's hard earned is their own property and what they do with it is of no concern to anyone else.

NIMAN

I guess the Gov have the find that fine line between money not leaving the country, but getting us to spend more of our savings to put money into the economy.

johnnyskeleton

Duggys Housemate wrote: »

It really is. As I said Ireland is a different case because we can export to where there is no, or less, austerity.

What I said was:

In a closed economic system an increase in private saving will reduce economic activity,unless matched by government spending, because consumption will decline.

What you actually said was just two words:

"Standard economics".

This was, ostensibly at least, in response to my comment that:

"You said that during a downturn, savings are bad for the economy. You cited this as economics 101 when in reality it's pork barrel politics 101."

First, what you are saying here about a closed economy in theory has little application to the thread which is about the specifics of a measure in the actual economy and its likely effects.

Second, no one is disputing that consumption will, ceteris paribus, go down as savings increase, but what is hotly contested is the subjective view that this is a bad thing. That is what you were replying to when you said standard economics. No one ever argued that increased savings lead to a reduction of consumption in the short term.

My analysis is that our economy is, despite recession levels of decreases in economic growth, still consuming too much relative to investment. More consumption will not get us out of this mess, because we have to rebalance our economy to focus on things which can secure a safer long term income rather than that which gives a short term boost.

A good example is the thread on eating and drinking being a good stimulus. In the narrow context of that debate, eating and drinking is a very good stimulus to the local economy. By doing it, we increase consumption and jobs in hospitality are kept or created. However, it is absurd to suggest that we can sustain an entire economy by constantly eating and drinking all the time. At some point, people have to go out and actually make stuff and do things which have economic value to trade for that eating and drinking.

So savings are in my view far more important for the long term survival of the economy. I accept that in the short term they prevent us from artificially buoying up our GDP/Growth rate, but that is a necessary part of the correction that is now required to take place.

Keynesian economics is a good theory, and I agree with much of it. However, I do not agree with the neo-Keynesian belief that we can have perpetual growth by constant consumption, fueled by unlimited cheap credit if needs be. Keynesian economics only works if, during boom times, the government runs a surplus so that they can spend during the downturn.

In any event, this is all to miss the point - our economy needs to contract. This is not a pleasant thing but it is necessary. Attempts to keep the economy floating at currently high levels of growth is IMO a policy mistake. Doing this by disincentivising savings instead of, for example, cutting current spending, is to our long term detriment.

i57dwun4yb1pt8

who_ru wrote: »

http://www.independent.ie/business/personal-finance/pensions/pensioners-will-escape-new-tax-hit-on-savings-3332384.html


the above article is an eye opener for those with any savings or thinking of becoming a saver.

apart from paying a s**t load in tax, from 2014 onwards you will have the privilege of paying a whooping 37% tax on the interest from your savings.
.

the higher goal of the EU is to remove ALL your spare cash ,at source if possible . so you pay mortgage / taxes and essentials - and nothing left over.

eventually you wont even be paid directly - this is a while away yet - but on the horizon.

GreeBo

DaDumTish wrote: »

the higher goal of the EU is to remove ALL your spare cash ,at source if possible . so you pay mortgage / taxes and essentials - and nothing left over.

eventually you wont even be paid directly - this is a while away yet - but on the horizon.

Also "The Reds are coming!"

KyussBishop

bluewolf wrote:

Production of smaller things that people might want in the short term, yes. Production of larger things that people might want in the long term, no.
Which is fair enough. What's the point, as someone said, in making things people don't want? Should they be made to buy them anyway?

Maybe we should take a leaf out of their book :
http://www.telegraph.co.uk/news/newstopics/howaboutthat/5271376/Chinese-ordered-to-smoke-more-to-boost-economy.html

Heh; well, I don't discourage savings (they're certainly beneficial/useful), more say that the articles get a number of things wrong about what savings achieve.

bluewolf wrote:

Judging by the post-ssia advertising hype, I'd say they would make a fairly good go of it. Maybe they look at the demographics and think, these people are saving for mortgages or weddings.
That's the mark of a successful business entrepreneur anyway, or advertiser - knowing what they want before they do

Well, they can estimate some of the more obvious things like houses, ya (which is a fair estimate now seeing as prices are still high), but then what are they going to invest in? (building more houses isn't a necessary thing right now)

There's a very limited amount of stuff that you can determine is desired based on a single metric like savings, and there's not really a mechanism to determine what the saved up money is going to be invested in; that's the kind of thing that is usually determined by consumers actually buying stuff, and affecting price levels.

bluewolf wrote:

KyussBishop wrote:

1: You want the efficiency of production to be at a maximum anyway, so a decrease in demand and increase in savings aren't going to trigger big investments in efficiency

Well, what we want and what we have are two different things, so I'm not sure we can say nothing is going to happen because all goods should be at their lowest average cost already

I'd generally assume business would be at (or close) to its most efficient though, purely on grounds of maximizing profit/competitiveness.

bluewolf wrote:

If people stopped buying mobile phones those companies will go out of business, software devs will go out of business , and the world economy would contract or slow down with the effects of the negative multiplier effects

Or, they will look at the increased purchases of more expensive tablets and ipads (or something more expensive again) and say, maybe people want these instead. Then they can divert production to more research of smarter smartphones, pair up with producers of tablets, and so on and so forth.
One cannot sit around saying "people have liked these in the past so we're going to make them stubbornly despite lack of consumption until we go out of business". Discouraging people from saving so they can be forced to go out and buy things they don't really want anymore on a short term level without thinking of long term assets they would prefer if they could just save for them, well, that seems a bit silly.

Again though, interest in these products would not be so easily determined by savings, but more by consumer spending patterns on luxury items; I'm not sure saving can be a reliable indicator of potential future spending, outside of very expensive stuff like houses and the such.

bluewolf wrote:

No, it summarises the process of nothing->printed money->something

Ya but the whole argument, which I picked apart in detail, is fallacious.

bluewolf wrote:

Society's debt?! It is a means of exchange and saving.

It's both; when you hold money, society is in debt to you by the amount of money you hold, and when you buy something with that money, part of societies debt is repaid to you, through the goods you purchase/earn.

bluewolf wrote:

One particular article by one particular person that you disagree with and possibly have misunderstood is not a sound basis for rubbishing a whole website, no. I read another article with "should of" in it lately, that doesn't exactly mean Mises and Hayek were wrong in their economic theories. We're here to discuss the content of the article as interesting reading which may make good points, not an institute.

If a website puts out knowingly false information without correcting or challenging the false information, that tends to discredit the overall website, which is worth mentioning when it's brought up in discussion; if a website puts out knowingly false information, everything on it should be treated with maximum skepticism.

bluewolf wrote:

There are no large amounts of obfuscated terms here. You've identified one possibility at most.
Before the mention of wealth generating activities he refers to the quote
When money is saved and then invested it is used to buy or build capital goods. Any of these projects puts as much money into circulation and gives as much employment as the same amount of money spent directly on consumption. - which may be assumed here to be the aforementioned activities. And so now we are looking at the idea that if savings will lead to investments which put money into circulation & help employment etc, choking off this avenue will of necessity weaken this.

The whole "printing money = recession" chain of reasoning in the article was wholly false, and used copious amounts of obfuscation to try and cover that up, and fool the reader into believing it; if you try to parse the bit I picked apart in my previous post, you can see it is deliberately written to deceive (try to interpret it, in a consistent way, which doesn't contain a whole chain of logical fallacies).

Also, savings does not lead to investments, investments lead to savings: Government spending introduces money to the wider economy (such as investing it in labour), and it ends up in savings (workers bank account).

If you disagree, you just need to look at the public sector, and the fact that governments are capable of paying using printed money (even if they may be politically constrained right now, they can do that); when you look at that, you see investments must occur before savings can, and the rest is just money re-circulating in the economy.

bluewolf wrote:

Banks are able to lend out money in excess based on certain multipliers, not out of thin air. Without any savings or deposits, this is not possible. So we both know it is true.

People complain banks aren't lending; govt reacts by cutting incentives for saving. Bit mixed up.

This is not how it works in practice though, because banks actually loan out money first (which simultaneously creates a deposit), and the bank reserves are shored up later; this means credit created by banks, leads the base money supply, and leads reserves.

bluewolf wrote:

I am not entirely sure why either of you think straightforward articles about economics are full of "buzz words" and "obfuscated terms" and therefore render the entire articles invalid.
If there is any confusion about them, certainly we can look into them and analyse them.

I outlined, in detail, a part I had issue with though, including how it's conclusion that printing money = recessions is false; I picked out a number of steps of fallacious reasoning in individual quotes along the way.

bluewolf wrote:

I am linking to other ideas on the subject which indicate that "the only way out of a recession is spending" is not necessarily the fact set in stone that other posters may think it is, and rather than being "simple economics", it is one school of thought in economics.

Spending probably isn't the only way out of a recession, sure, but it is one way out, which if it is beneficial, is a course of action any school of economics should be able to agree upon taking.

The validity of one school or anothers views on a particular topic, need to be judged based on how well they accord with empirical evidence, not on whether one school or another disagree with each other; there's plenty of precedent of government spending being the way out of economic crisis,

KyussBishop

RichardAnd wrote:

There seems to be an attitude displayed by a number of posters here that what I do is wrong or even selfish and that I should be spending my money in the economy by buying gizmos, gadgets and any number of assorted distractions used to keep the plebs occupied. An individual's hard earned is their own property and what they do with it is of no concern to anyone else.

As far as I can see, nobody has argued that people should not save, only have debated over the effects of saving on the economy.

johnnyskeleton wrote:

Keynesian economics only works if, during boom times, the government runs a surplus so that they can spend during the downturn.

Actually, that was only true during the gold standard, it is not true for fiat currency; post-Keynesian economics does not hold this outdated view.

johnnyskeleton wrote:

In any event, this is all to miss the point - our economy needs to contract. This is not a pleasant thing but it is necessary. Attempts to keep the economy floating at currently high levels of growth is IMO a policy mistake. Doing this by disincentivising savings instead of, for example, cutting current spending, is to our long term detriment.

While I agree that targeting savings is a pointless exercise, any further contractions of the economy just worsen the crisis; government spending, funded by money creation at an EU level (with a job guarantee for inflation control), would set us right on the path out of recession.

Economic contraction = economic destruction, with greater job losses, poverty, death, other societal costs like negative health effects, and generally more unnecessary suffering.

johnnyskeleton

KyussBishop wrote: »

Actually, that was only true during the gold standard, it is not true for fiat currency; post-Keynesian economics does not hold this outdated view.

Against my better judgment, I'm going to ask you to explain this please

Economic contraction = economic destruction, with greater job losses, poverty, death, other societal costs like negative health effects, and generally more unnecessary suffering.

Economic contraction is nothing more nor less than GDP shrinking. It is what happens when our measure of total economic activity for one year is less than a previous year. If a company reported profits of €150k in 2010 but because there was a surge of business then and in 2011 it only records profits of €140k, you wouldn't say that the company's profits were being destroyed.

So why say that about an economy. The big problem with a lot of current politicial economic policy is the belief that growth and/or comparative GDP is the be all and end all of economic performance. We shouldn't be so afraid that this one metric has reduced below previous levels.

What is happening is that the previous frothy and unviable industries - from construction of apartments in Leitrim to €4 cappuchinos - are being hit significantly and this is resulting in economic contraction and a loss of jobs in those industries. If there was a cure all solution then we would deploy it. But most such cure all solutions are not worth thinking about e.g. have a war and kick start industry while reducing the numbers of able bodied citizens. In reality, we can only address one of the two things - counteract negative growth or seek to restart industry. Because industry will only respond when the economy reverts to a level at which it is profitable, and by artificially keeping prices high, we are slowing that process.

In effect, you are advocating that we apply a short term salve rather than focus on the long term solution. Economic contraction now might lead to job losses, poverty etc in the short term, and we will limp on for years.

Instead, we should have spent the last six years accepting that the economy was going to contract, reduced our current spending accordingly and we might, just must, be in a position now whereby we could legitimately embark on large scale government investment which could, in turn, boost the economy and encourage private industry again. But what we have is just limping along, hoping for the EU to give us free money.

And even if the EU gave us free money, think about this - would it be better to get the free money when we are just back to competitiveness and have sorted out our budget and are ready to spend on worthwhile investments, or would it be better to get the money now when it will be quickly gobbled up by demands for the government to stop closing garda stations and cutting welfare payments etc?

KyussBishop

johnnyskeleton wrote:

Against my better judgment, I'm going to ask you to explain this please

In the gold standard, the money supply was limited, so you needed to have a surplus to build up a reserve of money/gold for spending.

In a fiat currency, there is no such restriction due to the ability to create money, with avoiding too much inflation being the primary restriction.

johnnyskeleton wrote:

Economic contraction is nothing more nor less than GDP shrinking. It is what happens when our measure of total economic activity for one year is less than a previous year.

An economic contraction means job losses in our current economic environment, and through that, all the negative effects I listed.

Changes in GDP are not comparable to changes in company profits/losses.

johnnyskeleton wrote:

But most such cure all solutions are not worth thinking about e.g. have a war and kick start industry while reducing the numbers of able bodied citizens.

You can achieve all the benefits of this with a job guarantee program building infrastructure; while war has a precedent in economic recovery (the US in WWII), a job guarantee does much the same thing economically, without the enormous costs involved with war.

johnnyskeleton wrote:

In effect, you are advocating that we apply a short term salve rather than focus on the long term solution.

How is what I propose short-term? A job guarantee (temporary public jobs, with fiscal policy used to manage inflation) would directly help the private economic recover, while providing employment for the unemployed in the meantime.

johnnyskeleton wrote:

Instead, we should have spent the last six years accepting that the economy was going to contract, reduced our current spending accordingly and we might, just must, be in a position now whereby we could legitimately embark on large scale government investment which could, in turn, boost the economy and encourage private industry again. But what we have is just limping along, hoping for the EU to give us free money.

Every single government cut reduces tax intake and causes more cuts to happen, and that goes on perpetually until maximum economic destruction is reached; you're advocating destroying the economy, and spurning enormous amounts of workers into unemployment, poverty, ill-health and many to death. There are alternatives, like the job guarantee, which achieve recovery without any of this social cost.

johnnyskeleton wrote:

And even if the EU gave us free money, think about this - would it be better to get the free money when we are just back to competitiveness and have sorted out our budget and are ready to spend on worthwhile investments, or would it be better to get the money now when it will be quickly gobbled up by demands for the government to stop closing garda stations and cutting welfare payments etc?

The human cost of austerity is a factor now; the economy is for serving the optimal needs of humans, not for humans to satisfy some arbitrary economic variables by suffering poverty, ill-health and death. We can even achieve both, in much shorter time, with much less suffering, through alternative policies.

flintash

I think they got you ! just to draw attention! Correct me if I'm wrong- on balance of 10k interest earned is say 2.5% which is 250EUR. balance 100k, earning 2500 on which you pay 37% DIRT. In other words you pay 92.5 and 925 respectively. In different language you get 1.5 percent (instead of 2.5%) return on you investment, sorry, savings.
Well, sharks with 100k cash if you not happy with a 1.5% return you can easily opt for some other type of investment, say mortgage back securities, or less riskie investment suck as minus interest German or US bonds. Sound right to me. If I had 100k cash stacked I'd be worried.
Now, Merry Christmas to everyone, thank God government didn't use word TAXES in sentence along with CHRISTMAS or it was ruined aswell.

johnnyskeleton

KyussBishop wrote: »

In the gold standard, the money supply was limited, so you needed to have a surplus to build up a reserve of money/gold for spending.

In a fiat currency, there is no such restriction due to the ability to create money, with avoiding too much inflation being the primary restriction.

???

Do you have a source for this?

An economic contraction means job losses in our current economic environment, and through that, all the negative effects I listed.

Jobs which are unsustainable because they were based on a credit fuelled asset bubble and culture of extravagance. Unless you propse going back to those times (somehow) then those jobs must be shed.

The question is where do new jobs come from to replace them and this must be met by government or private investment. I think we are at cross purposes because you seem to think that there is suddenly going to be a big pool of free unlimited money from the eu which most people, including myself, do not believe in. Hence we need private investment and why savings are important and a good thing for an economy in recession.

Changes in GDP are not comparable to changes in company profits/losses.

They are not identical but that doesn't mean the example is invalid. By only looking at GDP growth to the exclusion of all else, you assume that anything less than an increase upon last year is a failure. It is not.

You can achieve all the benefits of this with a job guarantee program building infrastructure; while war has a precedent in economic recovery (the US in WWII), a job guarantee does much the same thing economically, without the enormous costs involved with war.


How is what I propose short-term? A job guarantee (temporary public jobs, with fiscal policy used to manage inflation) would directly help the private economic recover, while providing employment for the unemployed in the meantime.

A job guarantee? As in, everyone is guaranteed a state job? If that could be achieved for the cost of jobseekers benefit & allowance and get rid of jobseekers for longer than a few weeks then its a great idea. The government should implement it tomorrow. But, other than that they haven't hit upon this idea yet, can you explain why it is not already in place?

Every single government cut reduces tax intake and causes more cuts to happen, and that goes on perpetually until maximum economic destruction is reached; you're advocating destroying the economy, and spurning enormous amounts of workers into unemployment, poverty, ill-health and many to death. There are alternatives, like the job guarantee, which achieve recovery without any of this social cost.

No, the ever increasing cost of welfare and other services mean that despite cuts an tax increases to people personally, the amount of overall spending has not been cut fast enough. If the government had a plan of where they were going instead of taking it year by year we wouldn't have such doubtful prospects.

The human cost of austerity is a factor now; the economy is for serving the optimal needs of humans, not for humans to satisfy some arbitrary economic variables by suffering poverty, ill-health and death. We can even achieve both, in much shorter time, with much less suffering, through alternative policies.

There is a human cost later for our children if we keep being so self centred and looking after our respective individual interests and not looking after what is best for the country.

Oh and merry Xmas (or other holiday) one and all!

KyussBishop

johnnyskeleton wrote: »

KyussBishop wrote:

In the gold standard, the money supply was limited, so you needed to have a surplus to build up a reserve of money/gold for spending.

In a fiat currency, there is no such restriction due to the ability to create money, with avoiding too much inflation being the primary restriction.

???

Do you have a source for this?

Which part are you looking for me to source?

johnnyskeleton wrote: »

Jobs which are unsustainable because they were based on a credit fuelled asset bubble and culture of extravagance. Unless you propse going back to those times (somehow) then those jobs must be shed.

The question is where do new jobs come from to replace them and this must be met by government or private investment. I think we are at cross purposes because you seem to think that there is suddenly going to be a big pool of free unlimited money from the eu which most people, including myself, do not believe in. Hence we need private investment and why savings are important and a good thing for an economy in recession.

You're talking about even more economic contraction now, when all of the unsustainable jobs are already gone; again, that would only compound the crisis, and cause further unnecessary economic destruction.

It's pretty clear now that the private sector is failing to provide adequate jobs, so government simply must step in, to ameliorate the destructive economic/social effects of unemployment.

If the EU does not provide some kind of stimulus, through either an investment fund or money creation, then maximum economic destruction will be achieved here.

It is rather pointless to debate within the constraints of EU austerity, because we are fúcked no matter what happens if people accept that; accepting that means countless deaths, ill health, poverty, and general economic/social destruction, which is repugnantly immoral given there are perfectly achievable alternatives which avoid all of that damage.

johnnyskeleton wrote: »

They are not identical but that doesn't mean the example is invalid. By only looking at GDP growth to the exclusion of all else, you assume that anything less than an increase upon last year is a failure. It is not.

The example is invalid though, as government doesn't run like a company or household; also, my primary concern is unemployment and general human suffering, not so much GDP.

johnnyskeleton wrote: »

A job guarantee? As in, everyone is guaranteed a state job? If that could be achieved for the cost of jobseekers benefit & allowance and get rid of jobseekers for longer than a few weeks then its a great idea. The government should implement it tomorrow. But, other than that they haven't hit upon this idea yet, can you explain why it is not already in place?

A temporary state job, most prominently on infrastructure, yes; it would cost more than jobseekers because it would be at minimum wage, and the primary reason it is not done, is because it requires control over monetary policy i.e. it's only possible to undertake at an EU level.

johnnyskeleton wrote: »

KyussBishop wrote:

Every single government cut reduces tax intake and causes more cuts to happen, and that goes on perpetually until maximum economic destruction is reached; you're advocating destroying the economy, and spurning enormous amounts of workers into unemployment, poverty, ill-health and many to death. There are alternatives, like the job guarantee, which achieve recovery without any of this social cost.

No, the ever increasing cost of welfare and other services mean that despite cuts an tax increases to people personally, the amount of overall spending has not been cut fast enough. If the government had a plan of where they were going instead of taking it year by year we wouldn't have such doubtful prospects.

That's not in disagreement with what I said though, you just want one enormous cut i.e. one truly giant bout of economic destruction that leads to a lot of people dying, suffering worse health and going into poverty; that cut would then reduce economic activity, requiring more cuts, until there has been so much destruction that things can't get much worse.

That's not a solution to the crisis, that just maximizes the damage of the economic crisis, and (through all the deaths and general harm it causes huge numbers of people) is completely immoral.

What I don't understand about these discussions, is why people tend to wholly ignore the EU: We don't need to be paying such high interest on our public debt, we don't even need to fund the budget through public debt, and we don't even need to make any cuts; it is solely a problem with the EU, and the EU are the only way out of the crisis.

Austerity is not a way out of the crisis, the depth of the crisis is measured in human suffering (which is something people also seem to ignore entirely), not based on random economic variables like GDP; when you argue for cuts you are arguing for worsening the crisis, for harming an ever greater number of people, when it is totally unnecessary and unbelievably immoral.

johnnyskeleton wrote: »

There is a human cost later for our children if we keep being so self centred and looking after our respective individual interests and not looking after what is best for the country.

Oh and merry Xmas (or other holiday) one and all!

There is a human cost for children now, and a lot of families just scraping by this Christmas; if you destroy the economy with cuts, you are destroying these childrens future, and harming their opportunities now and in the future as well.

We can be on our way out of this crisis tomorrow, with no negative consequences at all, if some member states in the EU were not deliberately stalling the process (a process we have no democratic control over, but which affects us all); if you ignore the problem at the EU level and let that fester, you are accepting something that is destroying many peoples future, and the future of todays kids, and probably the next generation of kids too.

johnnyskeleton

KB, since it appears your views are based on the Eu becoming a more family friendly version of the Soviet Union, I don't think we are going to see eye to eye.

Suffice it to say that for anyone who believes in the current social democratic model being repaired, attacking savings is not the solution. If you are waiting on unlimited free money, guaranteed jobs and potential confiscation of savings, then by all means you should spend like its going out of style.

AlekSmart

johnnyskeleton wrote: »

What is happening is that the previous frothy and unviable industries - from construction of apartments in Leitrim to €4 cappuchinos - are being hit significantly and this is resulting in economic contraction and a loss of jobs in those industries. If there was a cure all solution then we would deploy it. But most such cure all solutions are not worth thinking about e.g. have a war and kick start industry while reducing the numbers of able bodied citizens. In reality, we can only address one of the two things - counteract negative growth or seek to restart industry. Because industry will only respond when the economy reverts to a level at which it is profitable, and by artificially keeping prices high, we are slowing that process.

Interesting point regarding the positive aspects of conflict....which never went un-noticed by Lady Thatcher for example..

One could pose a question as to where we would be today (in fiscal terms) if both World Wars had not occured ?

johnnyskeleton

AlekSmart wrote: »

Interesting point regarding the positive aspects of conflict....which never went un-noticed by Lady Thatcher for example..

One could pose a question as to where we would be today (in fiscal terms) if both World Wars had not occured ?

Richer, more populated and not so obsessed with economic growth one would hope!

KyussBishop

johnnyskeleton wrote:

KB, since it appears your views are based on the Eu becoming a more family friendly version of the Soviet Union, I don't think we are going to see eye to eye.

Suffice it to say that for anyone who believes in the current social democratic model being repaired, attacking savings is not the solution. If you are waiting on unlimited free money, guaranteed jobs and potential confiscation of savings, then by all means you should spend like its going out of style.

Yes, monetary policy = Communism, right; I guess with the US and UK having independent control over their money supply, the dirty commies really won out after all.

You're making a special effort not to respond to any part of my post with this reply, and to selectively ignore my previous posts as well; in particular, you know you are being dishonest, by saying I advocate confiscation of savings, when I explicitly said I was not in the first post you replied to.

johnnyskeleton

KyussBishop wrote: »

Yes, monetary policy = Communism, right; I guess with the US and UK having independent control over their money supply, the dirty commies really won out after all.

A government that supplies everyone with a job even if there is no work for them to do was a significant feature of the Soviet Union. That's what im referring to. If you want to use the us and uk as real world examples of what you propose, they are not. They carried out a lot of qe but it hasnt solved their employment problems and has devalued their currency, causing a higher level of inflation than the eurozone.

You're making a special effort not to respond to any part of my post with this reply, and to selectively ignore my previous posts as well; in particular, you know you are being dishonest, by saying I advocate confiscation of savings, when I explicitly said I was not in the first post you replied to.

I'm not ignoring them but there's simply too much speculative stuff in them to go through point by point. But all of these points are based on a crazy scheme to employ everyone from free eu money without causing inflation or any other negative effects. You'd think that if this could be done it would be done somewhere in the world, right? I mean, my solution where they buy some magic beans and it solves all their problems would also work and i can't understand why they are not doing that.