Why austerity is a good idea

realitykeeper

Ireland is a high cost economy. In a high cost economy, people do not get good value for their money. This leads to other problems.

Without good value for money the dole must be high so the unemployed can make ends meet. When the dole is high the minimum wage has to be a fair bit higher as an incentive for the lowest paid to work. A high minimum wage pushes up costs for retailers and service providers making everything we buy more expensive. A high minimum wage also makes it impossible for exporters to compete with low wage economies so they close up and move their businesses to those low wage economies.

When businesses close, unemployment rises and so do taxes to pay for the new unemployed. Higher unemployment also increases the governments deficit as it has fewer workers and employers to tax. As the government`s deficit rises, it has to borrow to maintain living standards. When the government borrows the national debt rises. When the national debt rises so do the interest payments required to service the debt. When interest payments rise so does the overall cost of running the country. In a a high cost economy, people do not get value for money and like I said earlier, this leads to other problems. The simple fact is this: In a high cost economy, everyone from the government to the guy begging on the street - everyone, has to pay much more for everyday goods and services.

So what it the solution? For a start, I think it is important for everyone in the country to understand that the causes and the consequences of a high cost economy are mutually supportive so we end up in a vicious cycle of events which ultimately lead to higher debt, higher prices for everyday goods, unemployment, emigration etc.

Secondly, having recognized the problem we ought to tackle it in one of two ways. One is to reverse the sequence of events as outlined above. Another way would be a coordinated and very sudden reduction of costs across the economy. For example, if the minimum wage was cut, the dole could be simultaneously cut, as could public sector pay, VAT rates and - within days, the cost of goods and services would also plummet. This would help employers to start recruiting again. By remaining on its present path of borrowing to live beyond its means, Ireland will remain at the mercy of creditors and the interest rates they impose. Austerity can free the country all all that and ultimately enable us to save enough to care for the sick and elderly independently - without relying on others to lend us the cost of caring at interest rates we can neither afford nor control. This is why austerity is a good idea. Am I wrong?

mikemcdeedy100

realitykeeper wrote: »

For example, if the minimum wage was cut, This would help employers to start recruiting again.

already has

JOBBRIDGE

Good loser

Good post OP. Wouldn't you think by now it would have occured to people here that the model to follow is the German one? Copy the winners for a change.

In time then we could be the begged-at rather than the beggars. We would have the pleasure of interviewing the Greeks, Italians etc re loans, bonds, structural funds and grants.

Noreen1

realitykeeper wrote: »

So what it the solution? For a start, I think it is important for everyone in the country to understand that the causes and the consequences of a high cost economy are mutually supportive so we end up in a vicious cycle of events which ultimately lead to higher debt, higher prices for everyday goods, unemployment, emigration etc.

Secondly, having recognized the problem we ought to tackle it in one of two ways. One is to reverse the sequence of events as outlined above. Another way would be a coordinated and very sudden reduction of costs across the economy. For example, if the minimum wage was cut, the dole could be simultaneously cut, as could public sector pay, VAT rates and - within days, the cost of goods and services would also plummet. This would help employers to start recruiting again.

So how do you propose to make privately owned business cut the costs of their goods and services?

I think you've possibly overlooked the fact that any business exists to maximise profit - not just cover their costs.

thebman

Noreen1 wrote: »

So how do you propose to make privately owned business cut the costs of their goods and services?

I think you've possibly overlooked the fact that any business exists to maximise profit - not just cover their costs.

That ignores competition... All it takes is one to reduce the cost to get an advantage over competitors as lone as it there isn't a cartel in which the consumer rights association should take care of it...

Banner12

Sort of agree with you OP in that we are a high cost economy. Was in town today and bought the small one a small portion of popcorn from a street vendor - €2!. But if we are to reduce costs we need to gut the old boys / protected sectors of the economy who screw the rest of us recession or boom - accountants still charging €400 - €500 an hour for an examinership ! Solicitors €200 an hour travelling costs, doctors / dentists, insurance costs, bank charges, price fixing cartels - I can't provide links but do I need to?? There is no point in having a go at the minimum wage etc. unless we are prepared to take on the real vested interests. Am I right in thinking that the Troika's first report recommended pay cuts for Sunday workers and the opening up of the 'professional' sectors. Which one was passed immediately, which one are we still waiting for?

Noreen1

If competition were all it took to have prices reduced, then I'd expect to see the prices of non-luxury goods reduced since the downturn.

Incomes have dropped, but the price of energy, rents, etc. have increased, or stayed the same.

I am certainly paying more for the same groceries than I paid in 2008.
Hence, the idea that austerity alone will reduce the price of goods is overly simplistic - particularly in a modern, global economy.

Companies will certainly compete - but they will also charge what they believe the market will bear.
Hence, with or without a cartel, it is inaccurate to state that austerity will drive down prices. It will (and has!) drive down the price of luxury goods.
Staples, such as a basic food shop? Not so much!
There are too many external factors that drive the costs of such goods, whether that be ever increasing energy costs, global weather patterns, global politics, companies maximising profit, etc. etc.
Austerity in a little Country like Ireland wont affect external factors one jot - and, because of external factors, will have a limited affect on prices in Ireland, also.

M three

thebman wrote: »

That ignores competition... All it takes is one to reduce the cost to get an advantage over competitors as lone as it there isn't a cartel in which the consumer rights association should take care of it...

You do realise that when it comes to food / groceries and fuel and medicines for example that cartels that fix prices at a higher level is exactly what exists?

beeno67

Noreen1 wrote: »

I am certainly paying more for the same groceries than I paid in 2008.
Hence, the idea that austerity alone will reduce the price of goods is overly simplistic - particularly in a modern, global economy.

I am certainly paying less for groceries than 2008. It seems I'm not alone.
http://www.businessandleadership.com/small-business/item/39572-food-price-inflation-low-in

In addition our inflation rate for the last 5 years is very low. We have become substantially more competitive than we used to as a country compared to the rest of Europe.
http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&language=en&pcode=tec00118&tableSelection=1&footnotes=yes&labeling=labels&plugin=1

Jawgap

Dole / SW payments are money that actually gets spent, in its entirety so there is actually a strong argument for increasing it because it's cash that will go straight into spending.

Cutting VAT and taxes won't have nearly the effect you think it will - for a start businesses will likely only pass on part of decrease and retain a portion to support their own cashflow / profits. Also, historically, there's plenty of evidence to show that income tax cuts don't drive spending - they drive real saving and they drive another form of saving - debt pay down, none of which really benefits the real economy.

Austerity drives the economy into a death spiral - those who can either leave or save do - businesses that survive postpone spending and investment decisions in the hope of cheaper wages, prices for equipment etc - demand increases for public services such as health, social welfare, policing etc.

Hindsight is brilliant, but a bit of austerity combined with a bit of stimulus and a lot of reform could have gone a long way.

Increase income taxes a bit and broaden the definition of 'income', decrease SW rates a bit, reduce the public sector payroll through redundancies rather than salary cuts and make it stupidly easy to set up and run a business in Ireland.

OMD

Jawgap wrote: »

Increase income taxes a bit and broaden the definition of 'income', decrease SW rates a bit, reduce the public sector payroll through redundancies rather than salary cuts and make it stupidly easy to set up and run a business in Ireland.

Isn't this exactly what happened. Increase income tax a bit: USC essentially did this
Decrease social welfare rates a bit: Small across the board cut occurred.
Reduce public sector through redundancies rather than pay cuts: average public sector pay is essentially unchanged but savings have occurred through redundancies.

Making it stupidly easy to set up and run a business in Ireland: ok. Fair enough on that point.

Jawgap

OMD wrote: »

Isn't this exactly what happened. Increase income tax a bit: USC essentially did this
Decrease social welfare rates a bit: Small across the board cut occurred.
Reduce public sector through redundancies rather than pay cuts: average public sector pay is essentially unchanged but savings have occurred through redundancies.

Making it stupidly easy to set up and run a business in Ireland: ok. Fair enough on that point.

The problem is a lot of what should be considered income isn't - child benefit being a classic example.

All the pay cuts have done is left the same number of people in place doing the same jobs - only they are more pissed off. Better to have the right people delivering the right services to meet current demands- in other words a smaller well paid and motivated public service is infinitely preferable to a large, poorly paid and poorly motivated one. In that way you get the savings and proper reforms.

As a 'by the way' this is a quote from the recent ESRI Nationwide (UK) Ireland Savings Index commentary......

When asked about how they would use any spare funds available, 52%, of people would pay off debts including their mortgage; 33% would save the money; 10% said they would spend it; and 5% said they would invest it. These preferences have remained consistent since the start of the year.

Also even though household incomes are rising, spending isn't - but savings rates are at historical highs. I'd say the 'hangover' from austerity will drag on for years with people reluctant to spend even modestly.

Perhaps that's a good thing, but a healthy economy needs spending to animate it - no one, except a bank, is going to open a business in an economy where everyone saves and no one spends.

johnnyskeleton

Banner12 wrote: »

Sort of agree with you OP in that we are a high cost economy. Was in town today and bought the small one a small portion of popcorn from a street vendor - €2!. But if we are to reduce costs we need to gut the old boys / protected sectors of the economy who screw the rest of us recession or boom - accountants still charging €400 - €500 an hour for an examinership ! Solicitors €200 an hour travelling costs, doctors / dentists, insurance costs, bank charges, price fixing cartels - I can't provide links but do I need to?? There is no point in having a go at the minimum wage etc. unless we are prepared to take on the real vested interests. Am I right in thinking that the Troika's first report recommended pay cuts for Sunday workers and the opening up of the 'professional' sectors. Which one was passed immediately, which one are we still waiting for?

Sadly, however, the world doesn't work like that. If Wayne Rooney can command tens of thousands of pounds per match, that is his right and it is up to the club to decide to pay that or not. By contrast, there are many young people playing football for clubs full time at no fee or notional fees. If we bring in a minimum wage for footballers, it doesn't affect Wayne rooneys pay but it could cost jobs at the lower end.

So the fact that professional fees can charge several hundred per hour (which is not equal to that professionals pay, as they have overheads etc) and some people/companies are prepared to pay this, does not mean that if the minimum wage is causing jobs to be lost we shouldn't change the minimum wage.

Reekwind

Good loser wrote: »

Good post OP. Wouldn't you think by now it would have occured to people here that the model to follow is the German one? Copy the winners for a change

Germany is a low cost economy?

johnnyskeleton

Jawgap wrote: »

Dole / SW payments are money that actually gets spent, in its entirety so there is actually a strong argument for increasing it because it's cash that will go straight into spending.

In tr short term yes but in the long term it is a payment for no return so is in effect supporting the unproductive part of the economy and discourages production. And after all, we can't build an economy based just on spending with no work beig done.

Cutting VAT and taxes won't have nearly the effect you think it will - for a start businesses will likely only pass on part of decrease and retain a portion to support their own cashflow / profits. Also, historically, there's plenty of evidence to show that income tax cuts don't drive spending - they drive real saving and they drive another form of saving - debt pay down, none of which really benefits the real economy.

What's wrong with a company increasing profits? It means that more companies will start to compete = ultimately lower prices. Again, what's wrong with saving/paying down debt in a country that has too much debt?

Austerity drives the economy into a death spiral - those who can either leave or save do - businesses that survive postpone spending and investment decisions in the hope of cheaper wages, prices for equipment etc - demand increases for public services such as health, social welfare, policing etc.

It is an absolutely necessary process for an economy to endure before it starts to recover. You can't have the party and then refuse the hangover.

Increase income taxes a bit and broaden the definition of 'income', decrease SW rates a bit, reduce the public sector payroll through redundancies rather than salary cuts and make it stupidly easy to set up and run a business in Ireland.

Why should people who work hard and already pay marginal rates of over 50% pay even more for people who do nothing all day to be allowed to spend more? Plus, this policy will only increase the demand for basic goods and so increase the price. That's how we got a high cost economy in the first place.

SpaceTime

The German economy is driven by very high value added exports built upon a couple of centuries of technological knowhow and engineering leadership.

We are trying to do that too but its not something we can achieve overnight.


The Germans do however have a terror of bubbles and inflation did to their experience with the hyper inflation after WWI which they feel triggered the rise of fascism and the Nazi party.

because of that, they have put a lot of effort into avoiding cyclical boom/bust economics and especially inflation.

A lot of German companies are also not floated on the stock markets which had generally allowed for much longer term planning. The American / British stock driven model only really cares about quarterly results.

Jawgap

johnnyskeleton wrote: »

In tr short term yes but in the long term it is a payment for no return so is in effect supporting the unproductive part of the economy and discourages production. And after all, we can't build an economy based just on spending with no work beig done.

When it gets spent, it gets spent in local shops on food (sometimes fags and booze too), clothes etc so its not wholly discouraging production.

johnnyskeleton wrote: »

What's wrong with a company increasing profits? It means that more companies will start to compete = ultimately lower prices. Again, what's wrong with saving/paying down debt in a country that has too much debt?

Nothing really, but I'd prefer if businesses were cash generative - profit is a concept, so while it might be sanity - cash is reality.

My point was that cutting consumption taxes will not lead to businesses automatically cutting their prices. I agree VAT should be cut, but it won't lead to reduced prices or increased spending.

It is an absolutely necessary process for an economy to endure before it starts to recover. You can't have the party and then refuse the hangover.

That's true, the point I made was that austerity measures on their own were a bad idea - a more dynamic, multi-faceted approach would be better.

You're right you can't refuse the hangover, but you don't have to make it worse by drinking bleach to clean out your system!

Why should people who work hard and already pay marginal rates of over 50% pay even more for people who do nothing all day to be allowed to spend more? Plus, this policy will only increase the demand for basic goods and so increase the price. That's how we got a high cost economy in the first place.

Prices only rise if supply is fixed - if demand rises then can't supply rise and won't that lead to more people being employed? Plus given that food is a basic good and that's something we could be a lot better at wouldn't that be an area we could exploit readily?

The point I was making was that if you want to put more money through the economy, SW is one way to do it - that money gets spent. Tax breaks etc increase saving and debt pay down - it's an economic point, I suppose one I shouldn't have made in this forum;)

Personally, politically and socially, I think work should be rewarded to the maximum extent possible. I think income tax is too high - or at least the level at which the marginal rate kicks in is too low- and job seekers allowance and benefit is too generous; children's allowance should be treated as an income and business rates are extortionate.

realitykeeper

Jawgap wrote: »

Dole / SW payments are money that actually gets spent, in its entirety so there is actually a strong argument for increasing it because it's cash that will go straight into spending.

It is true that those on the dole and minimum wage probably spend all their money in the economy but that does not mean all the money stays in the economy. For example, suppose they buy a foreign product - at least half of the money spent on that product is lost from the Irish economy because it had to be imported. So paying high dole means high leakage from the Irish economy. The government has to borrow the money to pay the dole so there is a net loss to the economy.

Jawgap

realitykeeper wrote: »

It is true that those on the dole and minimum wage probably spend all their money in the economy but that does not mean all the money stays in the economy. For example, suppose they buy a foreign product - at least half of the money spent on that product is lost from the Irish economy because it had to be imported. So paying high dole means high leakage from the Irish economy. The government has to borrow to pay the dole so there is a net loss to the economy.

I didn't say it was a closed system, but I reckon your estimate of 50% lost to the economy is on the high side when you consider the VAT (and where appropriate, the excise take), the shopkeeper's margin and the wholesaler's margin.

johnnyskeleton

Jawgap wrote: »

When it gets spent, it gets spent in local shops on food (sometimes fags and booze too), clothes etc so its not wholly discouraging production.

If you have two people working and producing, they can exchange their work for that of the other. If one becomes unemployed and gets a welfare payment from the other, now only one is working and the only way in which the same level of production can be maintained is if the other works twice as hard.

In Ireland, one in eight of the working population is unemployed. Of the total populartion, only 1 in two people are of working age and employed.

So it's cold comfort to the people who are working to work harder so that the unemployed can buy their goods and services.

Prices only rise if supply is fixed - if demand rises then can't supply rise and won't that lead to more people being employed? Plus given that food is a basic good and that's something we could be a lot better at wouldn't that be an area we could exploit readily?

From the point of view that unemployment means that those people aren't making anything of value means that on one level supply is fixed. Increasing welfare is just borrowing more money with no return in terms of good produced or services supplied for that. Aggregate demand increases, total supply stays static. Net result is inflation.

The point I was making was that if you want to put more money through the economy, SW is one way to do it - that money gets spent. Tax breaks etc increase saving and debt pay down - it's an economic point, I suppose one I shouldn't have made in this forum;)

Well you perhaps shouldn't make it in the absence of context. If the only goal is to achieve increased spending with no regard for the consequences, then obviously paying more in welfare will achieve that. No one is disputing this, but I am certainly disputing the wisdom of this course of action.

SpaceTime

The fundamental problem with the Irish economy is very simple really:

We borrowed loads of money to pay a wealthy elite of landowners and developers way too much money for property.

The net result is high housing costs - rent or mortgages which drives up wages and drives down disposable income.
Then add to that the fact that business pay rents that are ridiculously high and you drive up consumer prices.

Our economy acted as a giant funnel that simply took all of our combined cash and borrowing power (including the state's) and handed all that cash over to speculators abd elite labd owners.

We have to break the notion that rising property prices is an economically beneficial thing. We walked into a disaster and allowed ourselves to be asset stripped through total naivety and group think.

Austerity won't unwrite all those cheques!

I still think a structured default is going to be necessary.

Jawgap

It might also be worth remembering that the austerity model / policy is based on flawed research

I think our predicament is neatly summed up in the conclusion to that article.....

"Policy makers abandoned the unemployed and turned to austerity because they wanted to, not because they had to.

So will toppling Reinhart-Rogoff from its pedestal change anything? I’d like to think so. But I predict that the usual suspects will just find another dubious piece of economic analysis to canonize, and the depression will go on and on."

KyussBishop

It's a problem of fixed exchange rates (the Euro), lack of exercise of any monetary policy (due to the Euro and political discord), and a global decline in demand, meaning our exports are in less demand and our currency automatically devalues, unless we kill our level of production (thus leaving lots of unemployed) to match the rest of the world.

We have to fix our own economy (by 'ours' I mean Europe as a whole) as first priority, we can't wait on the rest of the worlds economies to improve so that their demand for our products (exports) increases.

This is inevitably going to involve our trade balance being off-kilter for a time, until the rest of the world recovers; that's not a bad thing either, that's desirable for us (everyone in Europe can ride out the crisis comfortably with these policies), and for the rest of the world, because our unbalanced trade-balance (imports greater than exports) actually helps stimulate and pump-up demand in other world economies.

This problem with the trade balance is only an issue because of other countries screwed up monetary policy as well; if they did the same thing as Europe would be doing, there would be no trade imbalance created, and the crisis would be a non-event; unfortunately though, there is not this much sense among most politicians and economists around the world, because politics/economics is heavily infected with the cancer of ideology.


The solutions aren't hard, but managing to enact the solutions is incredibly difficult politically, because economists/politicians care far more about ideology, and far too little about empiricism/science (a huge amount of economic teaching today is just flat-out wrong).

The entire economic crisis around the world, is a problem held in place almost entirely by bad economic theory; it's almost solely a crisis of bad economics, at the root of everything.

SpaceTime

The biggest currency problem is that the Germans were sold the idea of the Euro being a straight replacement for the DM.

They seem to be completely incapable of even beginning to recognise that the value of the Euro needs to reflect the state of all of the Eurozone economies, not just Germany's.

It now looks like their constitutional court is likely to put more dampeners on the ECB's ability to stabilise the economic situation through bond-buying as it's not able to devalue.

Also, I'm not entirely convinced about the strength of the German economy. It's very heavily reliant on global demand for German high-tech engineering and infrastructural products in particular but also luxury cars and other high end items.

The concerns that I would have are :

1) That global demand will contract, especially if China goes into slowdown mode. Those developing economies are the ones that are buying up German technological / infrastructural equipment / machinery etc etc in big numbers.

2) Are they staying ahead of competitors ?
Japan and the USA are both devaluing their currencies which would lead to their like-for-like products in that sector being a lot more competitive than their German counterparts.
The UK's also somewhat in that league as is Sweden.

Then there are rapidly emerging suppliers of high tech products in China, Taiwan, Singapore, South Korea etc.
Take a look at Chinese companies like Huawei winning major infrastructural contracts, even here in Ireland with eircom's FTTC rollout.
Then take a look at South Korean companies like Samsung and Hyundai.

Germany has a huge overhang from reunification and there are many areas of the country, including Merkel's own constituency that have eye-watering levels of unemployment.

I've also observed a lot of German major companies like Siemens, Bosch, VW, etc etc are increasingly off-shoring manufacturing to avoid costs in Germany. That's not something that can be dealt with by internal devaluation. They need to look at the currency too.

I'm just not convinced that German economics is necessarily appropriate or even all that intelligent. They're doing well largely down to a concentration of industrial / technical expertise. If anything, their currency policies may have been hampering their own industrial growth, never mind the rest of the EU's situation.

---

I honestly think we should be looking at what the Dutch, Swedish and other small, dynamic successful nations are doing not really taking what Germany's saying all that seriously. It's not that great an economic model to follow unless you've a huge manufacturing / technological / industrial base which isn't really where we're at. We're more a trading economy.

...

To solve this, I really think we need Eurobonds + devaluation in line with what's going on in the US and Japan.

AlekSmart

SpaceTime wrote: »

The fundamental problem with the Irish economy is very simple really:......

.....We have to break the notion that rising property prices is an economically beneficial thing. We walked into a disaster and allowed ourselves to be asset stripped through total naivety and group think.

Austerity won't unwrite all those cheques!

I still think a structured default is going to be necessary.

Quite the most incredible aspect for me,is how significant elements of our National Administration see a kick-starting of the "Property Market" as being just what's needed to get the ball rolling again.

The exact same movers n shakers who got us into the present mess are being facilitated to create another mess to ensnare the next generation of savvy-investors.

Are we mad or wha..?

SpaceTime

It's partially because that's all they know and partially because they are or they are too close to the land-owning / speculating elite who benefited from the asset stripping in many cases.

From what I can see, we've just been through the national equivalent of a leveraged buy out and have been left with all the debts.

daithicarr

Just wondering how exactly would reducing the income of the poorest section of society drop prices significantly.

about 300,000 people have already had a huge decrease income, not to mind everyone else still employed who have seen their income decrease.

But has it had a equally measurable drop in the cost of utilitys, transport, food, cost of living , etc. etc. ?

The consumer price index has only dropped a few percent during the height of the boom when so many people were made much worse off than they were before.

Is there any strong evidence to suggest by making this group even more worse off again there would be a substantial drop, more than a few percent and would the drop equal or beat their drop in income, if not it just leaves a huge portion of our people in even worse poverty..

johnnyskeleton

daithicarr wrote: »

Just wondering how exactly would reducing the income of the poorest section of society drop prices significantly.

How are they the poorest section of society? Are a family on welfare worse off than a family with one spouse earning minimum wage? You'd need to earn c. 40k gross to match benefits when mortgage supplement, full family welfare, additional payments, bus and medical cards and no tax are factored in.

You can also have people who are on the dole with 10k savings a house and a car so I question whether it is correct to simply assume that they are the poorest.

But to answer your question, prices remain higher than normal because the government is introducing too much free money into the economy.

But has it had a equally measurable drop in the cost of utilitys, transport, food, cost of living , etc. etc. ?

No because of a) increased fuel costs (imported inflation) and too much money chasing too few goods (domestic inflation)

Is there any strong evidence to suggest by making this group even more worse off again there would be a substantial drop, more than a few percent and would the drop equal or beat their drop in income, if not it just leaves a huge portion of our people in even worse poverty..

http://en.m.wikipedia.org/wiki/Demand-pull_inflation

You're asking the wrong question though. It's not a question of having the cost of inflation and the drop to welfare and deciding which is better for the country, the question is really how do we sustain such high levels of government spending? When the answer to that is "oh, Ireland is a high cost country so we need higher welfare and minimum wage" maybe people are putting the cart before the horse

If borrowing €15-20b per annum is austerity, then what do you guys have in mind for a stimulus??

professore

Young working families with big mortgages are in very many cases far worse off than unemployed families in social housing.

daithicarr

johnnyskeleton wrote: »

How are they the poorest section of society? Are a family on welfare worse off than a family with one spouse earning minimum wage? You'd need to earn c. 40k gross to match benefits when mortgage supplement, full family welfare, additional payments, bus and medical cards and no tax are factored in.

I didn't specify people on social welfare were the worst off, I was referring to both social welfare and minimum wage. Both have such a low level of income as to be termed the worst off. Both will leave family's on a very minimal level of living .

johnnyskeleton wrote: »

No because of a) increased fuel costs (imported inflation) and too much money chasing too few goods (domestic inflation)

Most of these costs are beyond out ability to influence, whether our minimum wage it 3 euro a hour or 8, it wont have any impact on international commodity prices . Fuel, electronic goods,cars, clothing are not much cheaper ( or sometimes more expensive) after tax differences in many other EU country's i have been too.

Less many means people will just be able to purchase less of these items. So im not convinced dropping income alone will fix it.
How are you maintaining there are too few goods ? There just seems to be a shortage of consumers with excess capital.