Burton - "Welfare keeps the economy ticking"

GCU Flexible Demeanour

Jawgap wrote: »

Keynesian theories only work if you follow them all the time.

But I think, more crucially in our case, they're only relevant for a closed (or semi-closed) economy.

Also, joining the Eurozone in particular means that it make little sense to talk about the Irish economy in isolation, as if it was an independent national economy. We're really just a region of the Eurozone economy, and the only economic tool at our disposal is competitiveness. If we're low-cost, we'll do well. Otherwise, not really.

Jawgap

GCU Flexible Demeanour wrote: »

But I think, more crucially in our case, they're only relevant for a closed (or semi-closed) economy.

Also, joining the Eurozone in particular means that it make little sense to talk about the Irish economy in isolation, as if it was an independent national economy. We're really just a region of the Eurozone economy, and the only economic tool at our disposal is competitiveness. If we're low-cost, we'll do well. Otherwise, not really.

It's maybe arguable that his theories generally apply, but they only seem to come to the fore during slowdowns or recessions - politically, counter-cyclical policies are unacceptable during booms or periods of expansion.

I agree Keynesian policies would be very difficult for us to implement given the lack of control we have over monetary policy, but I think there's merit in adapting and applying some of his theories.

GCU Flexible Demeanour

Jawgap wrote: »

I agree Keynesian policies would be very difficult for us to implement given the lack of control we have over monetary policy, but I think there's merit in adapting and applying some of his theories.

Conceivably, but consider that the usual tool used by Irish Governments to avoid a huge import leakage was to incentivise demand for newly-built housing, on grounds that building and construction has a low import content. They're doing some of that now, with their 'stimulous package' of public investment. The only problem is those public investments are unlikely to generate any income to repay the borrowing we're doing to finance them.

So the effect of that will, probably, just be that we'll be poorer in future years.

I think our analysis of 'stimulous' arguments needs to be quite pragmatic. We need to ask what the money will be spent on, and ask how that will generate any meaningful economic activity. I think the answers out of that would suggest, quite strongly, that the policy has little to give us.

andrew

[QUOTE=gaius c;85482000
I see where you're coming from but Keynesian spending is not about spending for the sake of it. It's about spending on something that will provide a tangible net benefit. Paying 100 people to build a new school in an area where it's needed is good. Paying 100 people so that they can then spend that money in a local shop but do little else productive is not what Keynesianism is all about.[/QUOTE]

Actually, that's exactly what Keynesian spending is about. As i understand it, the point is to maintain a certain level of consumption in the economy via government spending, for a limited period of time, so as to prevent a 'bad' equilibrium from taking hold.

GCU Flexible Demeanour wrote: »

Yeah, but that assumes a closed economy. What might help the Irish economy is if one of our main trading partners, like the UK, decided to spend loads more on the kind of products we produce. But Irish people spending more on the imported goods you typically find in Irish shops does damn all for us.
But, in fairness, the ESRI are talking self-evident nonsense, if that's what they mean. As some have said, with that logic we should increase transfers by €1 billion, confident in the knowledge that consumption and employment will generate more than €1 billion in extra taxes.

We know that's hokum, because we know our consumption expenditure has a high import content.

I understand that the fact that Ireland being an open economy limits the fiscal multiplier and the extent to which the paradox is true. But that's not to say that there's no fiscal multiplier, or that the paradox of thrift isn't to an extent applicable to Ireland. It might be more applicable to larger economies which are more closed, but it's still operative here.

My general aim, though, was just to link what people were saying here to the relevant economic concepts, since I figured people might find it useful or interesting.

GCU Flexible Demeanour

andrew wrote: »

I understand that the fact that Ireland being an open economy limits the fiscal multiplier and the extent to which the paradox is true. But that's not to say that there's no fiscal multiplier, or that the paradox of thrift isn't to an extent applicable to Ireland. It might be more applicable to larger economies which are more closed, but it's still operative here.

That's true in principle, but we can find the fiscal multiplier in an open economy is just so weak that it's actually counterproductive - particularly if it's just horsed into consumer expenditure.

andrew wrote: »

My general aim, though, was just to link what people were saying here to the relevant economic concepts, since I figured people might find it useful or interesting.

And it is valuable to introduce those concepts, and consider how they apply to real-world problems. The link you supplied is a good account of the concept - and it includes the very point we're discussing, about the impact of openness.

And we always have to keep the fact that Ireland is a small open economy to the fore. You'll appreciate, it's not just that we're an SOE, it's that we're one of the most open economies in the world. That has profound implications for many economic propositions - even if it wasn't compounded by our membership of the Eurozone.

andrew

GCU Flexible Demeanour wrote: »

That's true in principle, but we can find the fiscal multiplier in an open economy is just so weak that it's actually counterproductive - particularly if it's just horsed into consumer expenditure.And it is valuable to introduce those concepts, and consider how they apply to real-world problems. The link you supplied is a good account of the concept - and it includes the very point we're discussing, about the impact of openness.

And we always have to keep the fact that Ireland is a small open economy to the fore. You'll appreciate, it's not just that we're an SOE, it's that we're one of the most open economies in the world. That has profound implications for many economic propositions - even if it wasn't compounded by our membership of the Eurozone.

Something I've sorta been wondering about, though, is the extent to which expectations are operative in terms of the transmission and effectiveness of fiscal policy. Even if the direct multiplier is so low as to make fiscal stimulus pointless, maybe there's an indirect multiplier such that fiscal policy would have enough of an effect upon expectations as to make some kind of 'stimulus' worthwhile.

In ordinary circumstances I don't think this expectations effect would be particularly strong. But people have been exposed to a huge amount of negative publicity with regard to austerity, in tandem with a huge amount of publicity which says that stimulus is the way out. People are utterly anchored to the idea that a stimulus is the way to go. Maybe, then, people would perceive some kind of stimulus package as a strong sign that the economy will finally move out of recession, and set their expectations in such a way as to make that expected growth a reality.

It wouldn't even have to be a big stimulus policy, so long as it changed people's expectations about the future path of government expenditure and the economy more generally.

nice_guy80

not too many people on social welfare that I know who are struggling.

ok, maybe if they smoke, drink a lot and flitter away money on crap food every week then they are in need, but generally families on social welfare do ok.

GCU Flexible Demeanour

andrew wrote: »

It wouldn't even have to be a big stimulus policy, so long as it changed people's expectations about the future path of government expenditure and the economy more generally.

Is it fair to say, what you're building on that idea that weather forecasts don't change the weather, but economic forecasts can change the economy.

I'd make a few observations. The first is to bear in mind the extent to which the open economy features still have to be considered. As the bulk of what we make is exported, its really expectations about the European/global economy that you need to manage.

Also, consider that its possible for Government to raise expectations about the wrong thing. You could argue that tax reliefs for construction was an example of the State trying to change people's expectations. What a legacy that left. The Upper Shannon Rural Renewal Scheme alone seems to be responsible for 20% of all ghost estates. Do we need to similarly delude people that there's scope for more retailers in Ireland, rather than less?

I think the bottom line is, tbh, what economic theory broadly suggests. A small, open economy can't usefully engage in demand management. Now, there might be a political need to be seen to be doing something - such as The Gathering. And that's not to be sniffed at, if it can be done for the price of a few posters, because political stability is important. But, if you're an SOE, you really need to drill into the detail of where exactly your money is going.

Jawgap

I think 'classical' economists would suggest that open economies can't engage in demand management using the conventional instruments of fiscal and monetary policy.

However, neuro-economists would argue strongly that sentiment and confidence can be manipulated to stimulate or suppress demand.

In that vein, it's not the abolition or introduction of measures that's important it's the language or the dialogue that people are exposed to that influences them to a degree.

Take the example of the last few budgets - the relentless doom and gloom from September onwards with ministers almost vying with each other to come out with the most pessimistic statement can't have helped confidence.

I think the government's strategy was based on driving people's expectations down - to make things sound so dreadful that when budget day came and it was bad, it wasn't as bad as people expected and that allowed them to claim 'victory' as they sought to grab credit for deflecting the worst of the cuts.

I'm not advocating Enda and Michael go skipping through the daisies to tell us everything will be honey and sunshine, but I think the budget process needs to be either completely confidential or [my preferred option] completely transparent. Cut out the spin and the strategic leaking because at the moment the process is more damaging than the output.

GCU Flexible Demeanour

Jawgap wrote: »

<...>
However, neuro-economists would argue strongly that sentiment and confidence can be manipulated to stimulate or suppress demand.<..>

For my own part, I haven't at all suggested that sentiment and confidence can't be manipulated to stimulate or suppress demand. I've pointed to property-related tax reliefs as an example of where that was done in Ireland.

What I'm suggesting, in that respect, is that it is not good for Government in a country with a small open economy to encourage people to spend money they don't have. It only potentially makes sense for Government to encourage people to spend money they don't have where that money can be corralled within the domestic economy.

Although, if I can add to that, I'd suggest it never makes sense for Government to encourage people to waste money.

Dannyboy83

Jawgap wrote: »

I'm not advocating Enda and Michael go skipping through the daisies to tell us everything will be honey and sunshine, but I think the budget process needs to be either completely confidential or [my preferred option] completely transparent. Cut out the spin and the strategic leaking because at the moment the process is more damaging than the output.

The reason for the confidentiality, as I've been told at least, is to prevent tax evasion.
I would also prefer to see it completely transparent, but I think the political class would not agree to that, as it would be too democratic.

Regardless, you are right.
Confidence is smashed every time another round of kite-flying begins.

I'm sure this phrase will make some people shiver - but it actually is time to stop talking down the economy!

SupaNova2

Jawgap wrote: »

However, neuro-economists would argue strongly that sentiment and confidence can be manipulated to stimulate or suppress demand.

In that vein, it's not the abolition or introduction of measures that's important it's the language or the dialogue that people are exposed to that influences them to a degree.

Take the example of the last few budgets - the relentless doom and gloom from September onwards with ministers almost vying with each other to come out with the most pessimistic statement can't have helped confidence.

So the neuro-economists say that "we are talking ourselves into a recession, and we should try talk ourselves out." Oh dear.

SupaNova2

And to the thread title, "Welfare keeps the economy ticking". No, no, no!!! Whats left of the economy keeps welfare ticking.

SupaNova2

Jawgap wrote: »

If you increase welfare you'll get some more spending (and perhaps a bump in certain tax revenues) - if you give tax breaks people will save and / or pay down debt, which is a form of saving.

If you increase welfare less people will opt to work, you will have a lesser supply of goods and services chased by more money. This is what is absurd about the claim welfare keeps the economy ticking. It is people producing goods and services in the economy that allows welfare cheques to actually buy something. It is the economy that keeps welfare ticking.

SupaNova2

It all makes me wonder why there is any poverty, everyone should just talk themselves into prosperity while raising taxes and welfare.

SupaNova2

And all this psuedo intellectual bull**** talk surrounding multipliers and gdp is bloody tiring, if its simply spend and increase gdp = economy growing, a counterfeiter with lavish spending habits rather than being a criminal would actually be a blessing. You don't need “the stimulus wouldn’t work here we’re an open economy” jargon or the fussing over useless aggregate statistics, spending for the sake of spending/unproductive spending does not benefit the economy.

KyussBishop

andrew wrote: »

Something I've sorta been wondering about, though, is the extent to which expectations are operative in terms of the transmission and effectiveness of fiscal policy. Even if the direct multiplier is so low as to make fiscal stimulus pointless, maybe there's an indirect multiplier such that fiscal policy would have enough of an effect upon expectations as to make some kind of 'stimulus' worthwhile.

In ordinary circumstances I don't think this expectations effect would be particularly strong. But people have been exposed to a huge amount of negative publicity with regard to austerity, in tandem with a huge amount of publicity which says that stimulus is the way out. People are utterly anchored to the idea that a stimulus is the way to go. Maybe, then, people would perceive some kind of stimulus package as a strong sign that the economy will finally move out of recession, and set their expectations in such a way as to make that expected growth a reality.

It wouldn't even have to be a big stimulus policy, so long as it changed people's expectations about the future path of government expenditure and the economy more generally.

Thing you've got to remember about multipliers and all that, is that the economy is burdened by a lot of private debt, and that stimulus today will help deleveraging that debt, even though the debt will keep 'multipliers' low.

The private economy is not going to recover until a lot of that debt is paid down, so you don't need big multipliers right away, you just need to get everyone working/earning, so they can actually pay down the debts and sort that out, at which point the private economy gradually starts recovering and workers start moving back away from temporary public employment, into private employment.

The 'stimulus' should soak up unemployed workers into a temporary public employment program (all of them - so it would have to be a big stimulus), because the private economy doesn't want all those workers right now - then when the private debt problem starts tapering down, aggregate demand increases (because people have more to spend, due to both public employment and less debt), and private industry begins soaking up the workers out of temporary public employment (eventually ending the temporary employment program - at which point we have 100% recovery).


It's not a psychological problem in the economy, it's a real problem of private debt loads.

KyussBishop

SupaNova2 wrote: »

And to the thread title, "Welfare keeps the economy ticking". No, no, no!!! Whats left of the economy keeps welfare ticking.

That depends on how you fund welfare. If Ireland funds it on its own, using our (comparatively) high-interest debt, it is a greater burden on our economy than it needs to be.

If it is funded by lower-interest centralized EU debt, or money creation (kept within inflation targets - arguments asserting it will breach these targets are 100% political, nothing to do with economics), this does not have to be such a great burden on our economy into the future.

The other issues with money creation is our external trade balance: The created money will be spent on buying resources, and if those resources can't be sourced within Europe, they will increase Europe's imports over exports, affecting currency valuation.

Considering how resource-rich Europe is, this will only affect a small number of key resources, and thus does not have to have a significant effect on valuation.

SupaNova2 wrote: »

If you increase welfare less people will opt to work, you will have a lesser supply of goods and services chased by more money. This is what is absurd about the claim welfare keeps the economy ticking. It is people producing goods and services in the economy that allows welfare cheques to actually buy something. It is the economy that keeps welfare ticking.

The simple solution here (even though I disagree with your conclusions), is to use the money to give people jobs instead of welfare, as that is far more efficient: You are paying people for their labour, for doing something productive, not paying them for doing nothing.

The idea that welfare keeps the economy ticking though, is a part of 'sectoral balances': A public sector deficit, is (and this is true as an accounting rule) a private sector surplus (giving the private sector much needed money, for deleveraging debts and for spending).

That 'public sector deficit' does not have to stifle the private economy in other ways (such as by taxes, inflation or devaluation - all of which are avoidable), it depends on how the money is sourced.

Good loser

Joan Burton must be the most single minded, self serving minister in the whole cabinet.

In each of the last two budgets she failed (by €200 m each) to do her job in reining in welfare. It now looks like she is trying to weasel her way out again.
It's all based on political cowardice and/or ambition.

Our deficit is closely watched by our international lenders. Unless we eliminate it the interest rate on our borrowings will jump - note Portugal recently. For the last six months most of the national economic news has been bad.

KyussBishop

KyussBishop wrote: »

The simple solution here (even though I disagree with your conclusions), is to use the money to give people jobs instead of welfare, as that is far more efficient: You are paying people for their labour, for doing something productive, not paying them for doing nothing.

Quasi Communism? The labour party and the beards would love this. They already got a head start with the Job bridge scheme

KyussBishop

Deleted User wrote: »

Quasi Communism? The labour party and the beards would love this. They already got a head start with the Job bridge scheme

Public health isn't Communism, public servants in the legal system isn't Communism (would hate to see what a private legal system looks like), and in general, public jobs does not equal Communism.

Really, Communism is just a tired ideological label, used to create a divide in the debate.


What I am talking about, is when the private sector doesn't want workers, and leaves a load of them unemployed, that government gives them something to do (and earn from) until the private sector wants them again.

This actually benefits the private sector and capitalism in general, by greatly reducing the damage caused by economic crisis - it's a much more efficient economic stabilizer than welfare, because it doesn't waste peoples labour potential by leaving them doing nothing.

I always prefer tackling the root causes of the high unemployment rate rather than run something like a modern quasi communist gulag

KyussBishop

Deleted User wrote: »

I always prefer tackling the root causes of the high unemployment rate rather than run something like a modern quasi communist gulag

You don't know what Communism is, do you?

nesf

Jawgap wrote: »

I think 'classical' economists would suggest that open economies can't engage in demand management using the conventional instruments of fiscal and monetary policy.

However, neuro-economists would argue strongly that sentiment and confidence can be manipulated to stimulate or suppress demand.

In that vein, it's not the abolition or introduction of measures that's important it's the language or the dialogue that people are exposed to that influences them to a degree.

Take the example of the last few budgets - the relentless doom and gloom from September onwards with ministers almost vying with each other to come out with the most pessimistic statement can't have helped confidence.

I think the government's strategy was based on driving people's expectations down - to make things sound so dreadful that when budget day came and it was bad, it wasn't as bad as people expected and that allowed them to claim 'victory' as they sought to grab credit for deflecting the worst of the cuts.

I'm not advocating Enda and Michael go skipping through the daisies to tell us everything will be honey and sunshine, but I think the budget process needs to be either completely confidential or [my preferred option] completely transparent. Cut out the spin and the strategic leaking because at the moment the process is more damaging than the output.

That sounds more like a Behavioural Economics argument than a Neuroeconomics argument.

KyussBishop

KyussBishop wrote: »

You don't know what Communism is, do you?

more like you don`t know what quasi means or you really don`t see the similarities between forced labour and eh forced labour.

KyussBishop

Deleted User wrote: »

more like you don`t know what quasi means or you really don`t see the similarities between forced labour and eh forced labour.

You're trying to straw-man my position with your own unfounded assumptions. Nowhere have I advocated forced labour.

If you're ignorant of the policy I put forward, that does not justify completely making stuff up about it (that people would be forced into labour), and attributing that as part of my views; that just compounds your own ignorance of the policy I'm describing.

clairefontaine

She's a idiot. Welfare is not a buoy. It is a pacifier. If there were no welfare, there would be riots and higher crime, thus upsetting the taxable classes even more. She knows this. She's trying to ameliorate the resentment of what's left of the emaciated tax payer.

Yes there should be a safety net. But the poles holding it up are cracking. Or emigrating.

Unless rent allowaynce is propping up property values- that I don't know, maybe someone else does.

clairefontaine

clairefontaine wrote: »

She's a idiot. Welfare is not a buoy. It is a pacifier. If there were no welfare, there would be riots and higher crime, thus upsetting the taxable classes even more. She knows this. She's trying to ameliorate the resentment of what's left of the emaciated tax payer.

Yes there should be a safety net. But the poles holding it up are cracking. Or emigrating.

Unless rent allowaynce is propping up property values- that I don't know, maybe someone else does.

95,000 households are supported by rent supplement, which the Department of Social Protection says is about half of the total private rented market in Ireland.

In 2009 the Department paid over €500m in rent supplement.
http://www.rte.ie/news/2010/0610/rent.html

KyussBishop

KyussBishop wrote: »

What I am talking about, is when the private sector doesn't want workers, and leaves a load of them unemployed, that government gives them something to do (and earn from) until the private sector wants them again.

This actually benefits the private sector and capitalism in general, by greatly reducing the damage caused by economic crisis - it's a much more efficient economic stabilizer than welfare, because it doesn't waste peoples labour potential by leaving them doing nothing.

It is always preferable to tackle the reasons why the unemployment rate is so high. Sending people off on work programs does not do one thing to solve any of the real issues.

nesf

Deleted User wrote: »

95,000 households are supported by rent supplement, which the Department of Social Protection says is about half of the total private rented market in Ireland.

In 2009 the Department paid over €500m in rent supplement.
http://www.rte.ie/news/2010/0610/rent.html

More like 40% of the market and 96,800 people. (source: Daft report details here: http://www.daft.ie/report/joan-burton)

Interesting graph of rent vs house price index there actually.