Austerity isn't really working is it?

Augmerson

Is there some kind of belief going about these days that the imposed austerity we are experiencing in Ireland and across Europe is not only required but also good for us?

I just think, from having listened to a few conversations with acquaintances or friends of friends and having read through a few Irish internet forums and beyond, that some people (at home at least) think higher taxes and more budget cuts are the only way to go.

I can see some kind of rational in the idea. Government expenditure is higher than Government income. Something has to change. What I don't agree with, is how this is approached. We are in are sixth year of austerity and recession. There is still serious unemployment and emigration. I don't believe austerity is working, in fact I feel it's just prolonging the recession. It's keeping us back.

I don't have any foolproof response to what should be done to tackle our current situation, other than say we should have done exactly what Iceland has done (but the chance to do that has passed) but cutting more and more money out of the economy like we are now doesn't work. If we could inject billions into our financial institutions, why can't we do the same for the economy with jobs programs or public works? I just think this is all madness, and I am sick of some people, political institutions and elements of the media promoting the idea that this is all getting us somewhere.

Perfectly willing to listen to the other side of the fence about this.

Also, in before anybody calls me crusty, hippy or lefty for feeling this way.

Gambas

Austerity would be living within your means.

We are borrowing billions p.a. to run the state. What ever it is, it isn't austerity.

As for not working, have you seen an Irish bond yield chart in the past while? Plenty people who are prepared to fund the state believe it is working.

Iceland did what it had to do, Ireland did what it had to do. The different responses were down to differing circumstances. There was a certain range of options for both, but there was no overlap between the two sets of options.

whiskeyman

Ievenhadtosellmyspacebar!damnausterity!

super_furry

What's the alternative?

Augmerson

Gambas wrote: »

Austerity would be living within your means.

We are borrowing billions p.a. to run the state. What ever it is, it isn't austerity.

As for not working, have you seen an Irish bond yield chart in the past while? Plenty people who are prepared to fund the state believe it is working.

Now, I will be the first to admit my understanding of economics and finance is not great, but these bond's, are in essence, people buying our debt. Is that right? Or am I completely wrong?

ilovesleep

Austerity is the route that we are being led on and IMO a stimulus package has to accompany austerity or it's just going to lead us around in circles.

keith16

super_furry wrote: »

What's the alternative?

death by snu snu

Turtwig

I hate to say it but we haven't really had "austerity", all we've had is a lowering of expenditure closer to pre-boom levels. Things may be bad, but I think it's a bit of stretch to claim it's austerity.

Praetorian Saighdiuir

It's all own hill when you hit 85

true

Gambas wrote: »

Austerity would be living within your means.

We are borrowing billions p.a. to run the state. What ever it is, it isn't austerity.

+1. Our public servants, politicians, social welfare recipients and pensioners are still paid far too much. Double in Navan compared to Newry. Its not them that are suffering from real austerity.

Gambas

Augmerson wrote: »

Now, I will be the first to admit my understanding of economics and finance is not great, but these bond's, are in essence, people buying our debt. Is that right? Or am I completely wrong?

That is correct. The bonds can subsequently be sold on on the secondary market, from one party to another. The price that is paid on the secondary market reflects the risk that the bond will not be repaid in full. This is tied to the economic outlook for the state. If it looks like we are on the right track and are as sure to be able to pay back our debt because we are likely to have decent revenues the the risk and the line on the chart drops.

The problem with unemployment is a different one. You have 250k people - mostly men with limited or no qualifications who worked in an unsustainably bloated construction industry. Construction will come back, but not bring 250k jobs back. Maybe 50k. So what are the other 200k going to do?

Thrill

super_furry wrote: »

What's the alternative?

Miniature Irish flags for everyone?

Gbear

It's always more difficult to cut spending than it is to never have set the spending level so high.

Whatever about the current goverment, they inherited a nonviable spending structure when they took over.

Unfortunately, it's never a case of making the most logical cuts but the cuts that you can get away with - hit front line staff because they can rather than tackling the hole hierarchy and general public service wastefulness that exists on a systematic level.

I'm sure if the government could act unilaterally they might fancy doing things a bit differently.

Gambas

ilovesleep wrote: »

Austerity is the route that we are being led on and IMO a stimulus package has to accompany austerity or it's just going to lead us around in circles.

Stimulus package = Magic money from the magic money tree.

Leaving aside what you'd do with the stimulus package, and the fact that what we make we export and what we spend money one is invariably imported, the obvious question is....where does this stimulus package come from? You mean borrowing how many tens of billions, and why would you think anyone would want to lend even more money to a country that is in the red zone regarding the size of its debt?

Anynama141

Irish austerity isn't a choice - saying that austerity isn't working is like saying that gravity isn't working because you're falling to the ground after stepping off a cliff. The fact that you don't like some of the consequences does not mean it isn't working.

So let's be clear: Ireland is doing austerity one way or another because Fianna Failure bankrupted the country and we are in massive debt. We have no choice.

European austerity is another matter - in theory, the ECB could start printing money and dole it out via European governments via soft loans or whatever, but this would not be painless either - you would effectively be robbing savers (usually the old) by inflating away their savings, and inflation is a terrifying phenomenon once you let the genie out of the bottle - to the extent that in most developed countries, the central bank's key role is to prevent inflation.

Unfortunately, it's a complicated question, while the public just wants easy answers and demands then from the politicians. Good help any politician who tries to do the right thing (Labour, for example). The Irish public demanded more and more spending from FF, and they got it, and it ruined us. Now they want to spit out the only medicine available and vote in whoever is promising easy answers.

We never learn.

Augmerson

Gambas wrote: »

The problem with unemployment is a different one. You have 250k people - mostly men with limited or no qualifications who worked in an unsustainably bloated construction industry. Construction will come back, but not bring 250k jobs back. Maybe 50k. So what are the other 200k going to do?

Well, here are my ideas, far-fetched though they may be. We could either pay everybody to emigrate to Canada, Australia or New Zealand - yes, not the nicest tactic ever employed, but desperate times call for desperate measures.

Or...

We could initiate a Public Works program, a sort of New Deal type product, much smaller, which could maybe get 50 to 80k working for awhile - finishing estates, upgrading roads etc. Hopefully that many people in work would have a knock on effect on the economy. People spending. Tax intake increases and so on.

padd b1975

Jernal wrote: »

I hate to say it but we haven't really had "austerity", all we've had is a lowering of expenditure closer to pre-boom levels. Things may be bad, but I think it's a bit of stretch to claim it's austerity.

Heres a fairly good comparison between a country with a similar standard of living to ours and a country suffering real austerity.

https://www.youtube.com/watch?v=sZdZewBXVUo

What austerity

Gambas

Augmerson wrote: »

Well, here are my ideas, far-fetched though they may be. We could either pay everybody to emigrate to Canada, Australia or New Zealand - yes, not the nicest tactic ever employed, but desperate times call for desperate measures.

Have you told the Canadians/Aussies about this? I have a feeling they may have an opinion on the matter

Or...

We could initiate a Public Works program, a sort of New Deal type product, much smaller, which could maybe get 50 to 80k working for awhile - finishing estates, upgrading roads etc. Hopefully that many people in work would have a knock on effect on the economy. People spending. Tax intake increases and so on.

Sounds great. But that is tantamount to working for your dole (because again, we don't have the means to pay them substantially more) and that tends to make folks who get angry about unemployment even angrier for some reason. Unfortunately, it isn't the case that the government and civil service are stupid and there is an easy answer.

Saying "No to austerity" is like saying "No to nighttime".
Saying "Austerity isn't working" is like saying that clouds don't work. Austerity is about balancing the books, that's what's happening, so it's working in and of itself.

Anynama141

Augmerson wrote: »

Is there some kind of belief going about these days that the imposed austerity we are experiencing in Ireland and across Europe is not only required but also good for us?

I just think, from having listened to a few conversations with acquaintances or friends of friends and having read through a few Irish internet forums and beyond, that some people (at home at least) think higher taxes and more budget cuts are the only way to go.

I can see some kind of rational in the idea. Government expenditure is higher than Government income. Something has to change. What I don't agree with, is how this is approached. We are in are sixth year of austerity and recession. There is still serious unemployment and emigration. I don't believe austerity is working, in fact I feel it's just prolonging the recession. It's keeping us back.

I don't have any foolproof response to what should be done to tackle our current situation, other than say we should have done exactly what Iceland has done (but the chance to do that has passed) but cutting more and more money out of the economy like we are now doesn't work. If we could inject billions into our financial institutions, why can't we do the same for the economy with jobs programs or public works? I just think this is all madness, and I am sick of some people, political institutions and elements of the media promoting the idea that this is all getting us somewhere.

Perfectly willing to listen to the other side of the fence about this.

Also, in before anybody calls me crusty, hippy or lefty for feeling this way.

Two points on Iceland:

1. They are still in serious trouble, their spending power has collapsed with the collapse of their currency and they've reinflated their property bubble.
2. They could only do what they did because they have their own currency. We did not.

Amirani

Augmerson wrote: »

We could initiate a Public Works program, a sort of New Deal type product, much smaller, which could maybe get 50 to 80k working for awhile - finishing estates, upgrading roads etc. Hopefully that many people in work would have a knock on effect on the economy. People spending. Tax intake increases and so on.

1. How do you pay for such a public works program?

2. When you build/finish more houses, the supply of houses will increase causing prices to drop, sending people further into negative equity. How does this solve anything?

Augmerson

Gambas wrote: »

Have you told the Canadians/Aussies about this? I have a feeling they may have an opinion on the matter

I got the idea from the Canadians! All the provinces west of Ontario seem to send all of their "unwanted" west to British Columbia on the trains because the climate in BC is a lot more tolerable in winter and beautiful in summer than say the prairie states.

Augmerson

Augmerson wrote: »

We could initiate a Public Works program, a sort of New Deal type product, much smaller, which could maybe get 50 to 80k working for awhile - finishing estates, upgrading roads etc. Hopefully that many people in work would have a knock on effect on the economy. People spending. Tax intake increases and so on.

Putting the govt/country further into debt isn't the answer to balancing the books

StewartGriffin

Jernal wrote: »

I hate to say it but we haven't really had "austerity", all we've had is a lowering of expenditure closer to pre-boom levels. Things may be bad, but I think it's a bit of stretch to claim it's austerity.

Agreed. Coming close to the end of March and look at the amount of 131 cars on the road - over 15000 in Dublin alone.

padd b1975

Gambas wrote: »

The problem with unemployment is a different one. You have 250k people - mostly men with limited or no qualifications who worked in an unsustainably bloated construction industry. Construction will come back, but not bring 250k jobs back. Maybe 50k. So what are the other 200k going to do?

Ireland has been for the most part of its existance an exporter of labour.

The harsh reality for the 200k you speak of (conservative estimate IMHO) is that in order for them to return to the Irish labour market, they are going to have to aquire new skill sets.

Its either that or emigrate.

68Murph68

Augmerson wrote: »

We could initiate a Public Works program, a sort of New Deal type product, much smaller, which could maybe get 50 to 80k working for awhile - finishing estates, upgrading roads etc. Hopefully that many people in work would have a knock on effect on the economy. People spending. Tax intake increases and so on.

This has been tried a lot and the historical evidence is that it just doesn't work. There are really no reasons to think why it would work in Ireland.

Any stimulus program of the type you are proposing would have to be funded by borrowing.

Even if this worked it would not fix the serious underlying problems in the economy merely delay them some bit.

It would be the kick the can down the road solution.

As an aside its truely amazing how quickly the electorate forget with regard to Fianna Fail's mismanagement of the economy.

ilovesleep

StewartGriffin wrote: »

Agreed. Coming close to the end of March and look at the amount of 131 cars on the road - over 15000 in Dublin alone.

Well, that's the this recession and austerity - there's some doing well, others and others are in the middle, probably, more than likely, sliding. Just because there are 15,000 2013 cars on the road in dublin alone, doesn't mean that we're all doing well and in a position to buy a new car or any car.

Augmerson

68Murph68 wrote: »

This has been tried a lot and the historical evidence is that it doesn't work.

Any stimulus program of the type you are proposing would have to be funded by borrowing.

Even if this worked it would not fix the serious underlying problems in the economy merely delay them some bit. It would be the kick the can down the road solution.

I'm not going to say I'm an expert here, but, didn't the New Deal get the US back on it's feet? Or....was it the onset of WWII?

Peregrine

Augmerson wrote: »

We could initiate a Public Works program, a sort of New Deal type product, much smaller, which could maybe get 50 to 80k working for awhile - finishing estates, upgrading roads etc. Hopefully that many people in work would have a knock on effect on the economy. People spending. Tax intake increases and so on.

You're right it would have a knock on effect on the economy. It'll send house prices down again, leave us with hundreds of fully finished but empty houses and in debt for building roads we couldn't afford at the moment.

The 200,000 limited skilled or unskilled workers have to find a a skill or they're not working..
I've said this before, you can't have a country where everybody works in SPAR, or a building site for that matter.

StewartGriffin

ilovesleep wrote: »

Well, that's the this recession and austerity - there's some doing well, others and others are in the middle, probably, more than likely, sliding. Just because there are 15,000 2013 cars on the road in dublin alone, doesn't mean that we're all doing well and in a position to buy a new car or any car.

Understood. But the annoying part is these are the guys who ring up Joe Duffy crying that they can't put food on the table if they lose their next pay increment.

tolosenc

A rational thread on AH? My god...

How you know that the economic policies of our government are working: Would you prefer to be a job seeker in Athens or Dublin right now?

68Murph68

Augmerson wrote: »

I'm not going to say I'm an expert here, but, didn't the New Deal get the US back on it's feet? Or....was it the onset of WWII?

WWII was what got the US back on its feet.

The consensus is that the New Deal extended the effects of the Depression.

That's even before you go near the whole issue of the US economy in the 30s and 40s big totally different to the current Irish economy. (scale, nature, control over monetary policy, natural resources, importance of technology) All of the differences would make intervention even less likely to work in Ireland.

The fact is that in 2011 the government spent €5 for every €3 it took in.

Think about that for a while.

There's no possibility that the government could avoid cutting spending.

AlmightyCushion

Augmerson wrote: »

Well, here are my ideas, far-fetched though they may be. We could either pay everybody to emigrate to Canada, Australia or New Zealand - yes, not the nicest tactic ever employed, but desperate times call for desperate measures.

Easier said than done. How much would you pay them to go? Also, how long would they be gone for? Going for a year or two is fine if you are under 30 (35 for Canada I believe) but then they are back here after that. It's not much good spending a lot of money to ship our unemployed abroad for a year or two. The dole money they get here also acts as a sort of stimulus for the local economy. If we sent all our young unemployed abroad that's a lot less people who are renting, buying food, going to the pub/cinema etc. The money we would give them to go abroad for a year or two would have to be significantly less than what they would get on the dole for it to be worth it.


For people over 30 or people staying longer than a year will have to meet certain criteria and have certain skills to get in and stay in. So this idea doesn't really solve our unemployment issue.

Augmerson wrote: »

We could initiate a Public Works program, a sort of New Deal type product, much smaller, which could maybe get 50 to 80k working for awhile - finishing estates, upgrading roads etc. Hopefully that many people in work would have a knock on effect on the economy. People spending. Tax intake increases and so on.

The cost of this would be pretty huge. This would increase our deficit and mean we have to borrow more. Our debt to GDP ratio is already at worrying levels so this isn't an option. We need to reduce unemployment by not adding to our deficit. The best way to do this is to encourage investment by existing companies and make it easier for them to grow and expand or start up new companies. Leave job creation to businesses and employers, the government should be making it easier and facilitating them in doing this.

ilovesleep

StewartGriffin wrote: »

Understood. But the annoying part is these are the guys who ring up Joe Duffy crying that they can't put food on the table if they lose their next pay increment.

I wouldn't doubt you on that. I'd say some people who are crying the loudest on austerity and other recessionary issues are the ones who severely mismanage their money or don't want to do without a luxery of some sort.

Gambas

Gambas wrote: »

Austerity would be living within your means.

Real Austerity is when there is an actual shortage of materials and you have to make do with what's available rather the current version which is just a balance sheet austerity caused by lack of "credit" in the system. For example, in the late 1940s, many products were very basic with limited "bells & whistles" because there simply wasn't enough "stuff" available to make the fully featured model (unless you were wealthy!)

Suryavarman

Augmerson wrote: »

I'm not going to say I'm an expert here, but, didn't the New Deal get the US back on it's feet? Or....was it the onset of WWII?

Neither. It was the end of WWII and reduction in spending accompanying it that ended the Great Depression.

Suryavarman

Suryavarman wrote: »

Neither. It was the end of WWII and reduction in spending accompanying it that ended the Great Depression.

The great depression was caused by mechanisation which replaced many manual jobs, particularly in agriculture with machines. The end of the depression can mainly be attributed to the development of consumerism*.

*http://en.wikipedia.org/wiki/Consumerism

The Dagda

Augmerson wrote: »

Now, I will be the first to admit my understanding of economics and finance is not great, but these bond's, are in essence, people buying our debt. Is that right? Or am I completely wrong?

I'm afraid you are completely wrong. People buying bonds are creating more, brand new, debt for us. They give us money which we use to pay off the interest on our current debt, and we sell more, newer, debt next year to pay for this new debt.

This is the house of cards, built on a foundation of sand, that is how all countries are funded. There is more debt in the world then there is money. At some point the house will collapse...

southsiderosie

Augmerson wrote: »

Well, here are my ideas, far-fetched though they may be. We could either pay everybody to emigrate to Canada, Australia or New Zealand - yes, not the nicest tactic ever employed, but desperate times call for desperate measures.

Or...

We could initiate a Public Works program, a sort of New Deal type product, much smaller, which could maybe get 50 to 80k working for awhile - finishing estates, upgrading roads etc. Hopefully that many people in work would have a knock on effect on the economy. People spending. Tax intake increases and so on.

Augmerson wrote: »

I'm not going to say I'm an expert here, but, didn't the New Deal get the US back on it's feet? Or....was it the onset of WWII?

I don't think you can compare Ireland to the US - or Iceland for that matter - the primary reason being that Ireland doesn't control its own currency. So the government can't print more money to fund stimulus packages.

That said, aversion to inflation is more of an issue in Europe (due to the German experience in the inter-war period) than in the United States, where the Fed has always been more mindful of employment levels than inflation (due to the experience of the Depression).

With that in mind, I think every country's response to economic crisis is going to be shaped by its own history. In Ireland, emigration has always been the safety valve. But that valve is partially clogged because many of the potential labor emigrants are migrant workers in the now-defunct construction industry who make more on the dole in Ireland than they would in their home countries. And Ireland can't devalue its way out of the crisis. So it is stuck with a 'sticky' unemployed workforce and no control over monetary (and increasingly, fiscal) policy - not a nice place to be.

Suryavarman

Deleted User wrote: »

The great depression was caused by mechanisation which replaced many manual jobs, particularly in agriculture with machines. The end of the depression can mainly be attributed to the development of consumerism*.

*http://en.wikipedia.org/wiki/Consumerism

Utter rubbish.

The Great Depression was caused by the bursting of the unsustainable bubble economy of the 1920s. This was brought about by a change in monetary policy.

The Dagda

Suryavarman wrote: »

Neither. It was the end of WWII and reduction in spending accompanying it that ended the Great Depression.

Eh no he's right, the massive spending of WW2 ended the depression. Reduced spending is what caused it in the first place.

Suryavarman

The Dagda wrote: »

Eh no he's right, the massive spending of WW2 ended the depression. Reduced spending is what caused it in the first place.

The reduction in spending from 1920-1922 caused the Great Depression (began in 1929)?

If you were to ask people living in America during WWII if their living standards were rising, the answer would be a resounding no.

The Dagda

Suryavarman wrote: »

The reduction in spending from 1920-1922 caused the Great Depression (began in 1929)?

If you were to ask people living in America during WWII if their living standards were rising, the answer would be a resounding no.

Why are you bringing 1920-22 into the discussion? Everyone was talking about the great depression...?

Forgive me if i don't take your word for what someone living in America during that time would say in answer to your imaginary questions!

A simple look at the figures from this time, which show the huge growth the US economy experienced, and how much unemployment was reduced by, will contradict your assertions...

I agree that reduced spending caused the great depression but it most certainly was not further reduction of spending, which you're suggesting above, that caused it to end. That makes no sense.

Firefox11

Austerity my ass. half of the polulation of this planet live on live on less than $2.50 a day.

southsiderosie

Firefox11 wrote: »

Austerity my ass. half of the polulation of this planet live on live on less than $2.50 a day.

But they don't live in countries where a liter of petrol costs twice that amount, or where people pay 200 quid/week in rent. You can't compare a country like, say, Bangladesh to Ireland.

Amirani

The Dagda wrote: »

I'm afraid you are completely wrong. People buying bonds are creating more, brand new, debt for us.

Not necessarily the case, so it's a bit harsh to be claiming that the poster is "completely wrong". The majority of buying and selling on bond markets is of second-hand bonds. Hence private investors selling bonds to other private investors at some point past the issuance date.

The Dagda wrote: »

This is the house of cards, built on a foundation of sand, that is how all countries are funded. There is more debt in the world then there is money. At some point the house will collapse...

You obviously have little comprehension of economics if you believe this to be the case.

Technically because we are borrowing and spending more than we make we ARE doing Keynesian stimulus right now.
Real austerity would be if we cut back to breakeven or reduce the debt.

Augmerson

Augmerson wrote: »

Well, here are my ideas, far-fetched though they may be. We could either pay everybody to emigrate to Canada, Australia or New Zealand - yes, not the nicest tactic ever employed, but desperate times call for desperate measures.

Or...

We could initiate a Public Works program, a sort of New Deal type product, much smaller, which could maybe get 50 to 80k working for awhile - finishing estates, upgrading roads etc. Hopefully that many people in work would have a knock on effect on the economy. People spending. Tax intake increases and so on.

Before you ship everyone off or start a gulag we could instead deal with the root problems that are KNOWN to be hindering job creation in Ireland. Companies that relocated to Eastern Europe cited the following reasons for leaving:

High Rents
High Insurance Costs
High Electricity Costs
High Wage Costs

Some Solutions then are:
Eliminate upward only rents & have NAMA flood the market with commercial property.
Murder the insurance oligopolies like Quinn etc total disgrace
Eliminate minimum wages for professions - this is seperate to the minimum wage. The labour court sets the minimum pay per hour you can pay someone to say do a plumbing/electrical/other trades job in your house. So you can`t negotiate. This drives a black market of people working for less and often claiming the dole.
Also have NAMA totally release its stock onto the market - if rents are ultra cheap and purchasing prices are ultra cheap then workers can have the same or better standard of living on less pay.

Three Seasons

[Deleted User] wrote: »

Or we deal with the root problems that are KNOWN to be hindering job creation in Ireland. Companies that relocated to Eastern Europe cited the following reasons for leaving:

High Rents
High Insurance Costs
High Electricity Costs
High Wage Costs

Some Solutions then are:
Eliminate upward only rents & have NAMA flood the market with commercial property.
Murder the insurance oligopolies like Quinn etc total disgrace
Eliminate minimum wages for professions - this is seperate to the minimum wage. The labour court sets the minimum pay per hour you can pay someone to say do a plumbing/electrical/other trades job in your house. So you can`t negotiate. This drives a black market of people working for less and often claiming the dole.
Also have NAMA totally release its stock onto the market - if rents are ultra cheap and purchasing prices are ultra cheap then workers can have the same or better standard of living on less pay.

I'd argue we should eliminate the minimum wage altogether.

That would create more jobs IMO.

Three Seasons

Three Seasons wrote: »

I'd argue we should eliminate the minimum wage altogether.

That would create more jobs IMO.

and a lot of unfilled jobs as the pay will be below what people need to earn to live, unless you want people to live like migrant workers!