Why austerity is a good idea

Jawgap · 01-07-2013 12:30pm

Whether we are high cost or not can depend on how you define cost.

In my experience of working in a few countries, our unit labour costs compare well to other countries - and on that basis we're actually cheaper than Denmark (based on personal experience) and probably some of the other Scandinavian countries.

Costs mount up because of the length of time taken to get things done - the bureaucracy in this country is unreal - and I say that working as a public servant.

The project I was involved in, in Denmark (an IT installation in a science park / campus) took three months. I reckon to do the same installation here would take twice as long, because I reckon you'd need to deal with half a dozen different agencies / government departments - whereas in Denmark you dealt with one.

draiochtanois · 01-07-2013 1:02pm

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ardmacha · 01-07-2013 2:25pm

Cut VAT from 23% to 15%
Instead of everyone buying from the North, the internet etc people would buy from here. It would help with tourism, transportation, etc
Yield would go up so it would be at worst revenue neutral at best would generate additional tax revenue.

Quite apart from the fact that many things bought in the Internet attract the Irihs rate of VAT and many things bought in the North are food etc with no vat, this would require a 50% increase in sales volume to be revenue neutral. How likely is that?

Cut TDS from 166 to 100 and pay them the average industrial wage

I'd like TDs to be above average people. In any case this saves a negligible amount of money.

Make minister for Finance an appointee rather than an elected official. someone like the head of the central bank - get a top CFO from industry and get them to sort out the whole budgeting function

This one has potential.

draiochtanois · 01-07-2013 2:39pm

This post has been deleted.

realitykeeper · 04-07-2013 11:23pm

Noreen1 wrote: »

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.

If the aforementioned measures required to make Ireland a low cost economy were taken, then prices would be forced to drop. Competition would be a very small part of this downward pressure on prices but even if you were part of a cartel Noreen1, your cartel would quickly realize the futility of trying to defy gravity.

The simple fact is that if enough money is taken out of the economy people will not be able to buy at current prices. Lets say a particular shop is part of a cartel and their prices are fixed at a high level - all of a sudden they would find their clientele dwindle to nothing. Perishable goods in the shop would have to be dumped and what you would probably find is a sharp rise in shoplifting.

I am not saying that businesses do not have a legal and moral right to make a profit. Of course they do, but in a low cost economy the customer base is more suited to non value added products. For example, raw unwashed/unpackaged spuds from a local farmer would be more appropriate than washed and packaged mini spuds from Dutch factory farms.

I know that if a shop sells lower value goods, their profit will be smaller and so they will be only able to pay less rent and not more. Therefore they can do a deal with their landlord or if that can`t be done they can go out of business.

It is also true that many of these shops are now owned by NAMA and without rental income NAMA will incur bigger losses than would otherwise be the case and this is another reason for the government to re-privatize the zombie banks along with their toxic assets. If the international lenders cut Ireland off from credit as a result, the country can respond by redoubling its efforts to drive down costs to the point where it has a budget surplus which in turn can be used as a promotional selling point for Ireland Inc.

Noreen1 · 05-07-2013 12:21am

beeno67 wrote: »

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

Now, there's an interesting difference of opinion.

http://www.independent.ie/opinion/columnists/david-mcwilliams/what-new-property-bubble-tells-us-about-inequality-29390814.html

In the 12 weeks to June, food price inflation was running at above 5pc, this is 10 times the rate of inflation, which was only 0.5pc last month.

Whereas I've been known to question McWilliams in the past, in this instance, I'd say his figures are more impartial than IBEC.

Geuze · 05-07-2013 12:41am

Inflation rates are published by the CSO.

www.cso.ie

Food and non-alcohol beverage inflation is 1.5%:

http://www.cso.ie/en/media/csoie/releasespublications/documents/prices/2013/prices/cpisubindices/pic_may2013.pdf

Noreen1 · 05-07-2013 12:52am

realitykeeper wrote: »

If the aforementioned measures required to make Ireland a low cost economy were taken, then prices would be forced to drop. Competition would be a very small part of this downward pressure on prices but even if you were part of a cartel Noreen1, your cartel would quickly realize the futility of trying to defy gravity.

The simple fact is that if enough money is taken out of the economy people will not be able to buy at current prices. Lets say a particular shop is part of a cartel and their prices are fixed at a high level - all of a sudden they would find their clientele dwindle to nothing. Perishable goods in the shop would have to be dumped and what you would probably find is a sharp rise in shoplifting.

I am not saying that businesses do not have a legal and moral right to make a profit. Of course they do, but in a low cost economy the customer base is more suited to non value added products. For example, raw unwashed/unpackaged spuds from a local farmer would be more appropriate than washed and packaged mini spuds from Dutch factory farms.

I know that if a shop sells lower value goods, their profit will be smaller and so they will be only able to pay less rent and not more. Therefore they can do a deal with their landlord or if that can`t be done they can go out of business.

It is also true that many of these shops are now owned by NAMA and without rental income NAMA will incur bigger losses than would otherwise be the case and this is another reason for the government to re-privatize the zombie banks along with their toxic assets. If the international lenders cut Ireland off from credit as a result, the country can respond by redoubling its efforts to drive down costs to the point where it has a budget surplus which in turn can be used as a promotional selling point for Ireland Inc.

All true - if we were self-sufficient.

Since we're not, your theory doesn't work, in the real world.

If we can't afford oil, for instance, it doesn't matter if consumption drops.
We're too small to make any difference in World markets.

What about the shops that are not owned by NAMA? What is the percentage of shops owned by NAMA, anyway? Have rents in NAMA owned properties actually dropped since the crises began? What about upward-only rent reviews? Do you think that these issues have any bearing on actual rents being paid?

As to unwashed spuds bought from a local farmer? Are you aware that the local farmer cannot sell you these spuds without a licence? One which is prohibitively expensive for small producers, and that's before you count the man hours required for actually selling the product?

How do we drive down the cost of imported products? Again, the market is too small for Ireland inc. to make any difference to the price of items such as vehicles, or "white goods".
We need the vehicles, refrigeration etc, but the amount that prices will realistically fall is limited.

Unfortunately, there doesn't appear to be any such limits on the degree to which consumers income can drop - as many people who have become unemployed, or have experienced a loss of income through wage decreases and an increase in taxes can verify.

In short, austerity might work, in a self-sufficient economy, where decreases in the cost of living could be matched to a decrease in income. (If that were possible, which I doubt!)

However, for a small open-market economy, the only effect austerity has is to decrease disposable income, which in turn, ensures the failure of the SMEs, which (combined) are actually the biggest employers in the state, causing a tremendous increase in social welfare costs.
That is precisely what has happened, so far, despite the mass exodus of emigrants.

Geomy · 05-07-2013 12:55am

I hadn't time to go back through the post's so not sure if the damp cold winter months were mentioned.

We also have to spend a lot of money on washing, drying, heating, and warm clothes etc

Warming up the house so that the kids and vulnerable people are not too cold or damp, its a vicious circle.

Couldn't there be community days out cutting back overgrown forests and invasive shrubs etc
Loading up the cutbacks according to grades from kindling to log size's and distribution of them to the families who helped out and to the vulnerable etc

Vulnerable as in sick, elderly, and genuinely disabled people.

beeno67 · 05-07-2013 7:26am

Noreen1 wrote: »

Now, there's an interesting difference of opinion.

http://www.independent.ie/opinion/columnists/david-mcwilliams/what-new-property-bubble-tells-us-about-inequality-29390814.html
Whereas I've been known to question McWilliams in the past, in this instance, I'd say his figures are more impartial than IBEC.

I quoted inflation rates for 5 years back up by Eurostat. McWilliams talks about food inflation over a 12 week period and compares it to overall inflation over a month.
Typical McWilliams rubbish.

realitykeeper · 05-07-2013 12:35pm

Noreen1 wrote: »

If we can't afford oil, for instance, it doesn't matter if consumption drops.

Naturally, the money we do have would have to be prioritized for the things we really need. Obviously oil would be a priority whereas overpriced vanity items such as a cotton shopping bag printed with "I`m not a plastic bag" would be somewhat further down the priority list.

Noreen1 wrote: »

What about the shops that are not owned by NAMA? What is the percentage of shops owned by NAMA, anyway? Have rents in NAMA owned properties actually dropped since the crises began? What about upward-only rent reviews? Do you think that these issues have any bearing on actual rents being paid?

Just like the shopkeepers, the landlords (be they NAMA or anyone else) will very quickly realize the futility of trying to defy gravity. If they refuse to cut the rent they will find that their tenants simply can`t pay. Rent arrears will rise and they can put up with that indefinitely or they can evict or they may find that the tenants choose to vacate the premises and that the property is no longer rent-able at their former asking price.

Noreen1 wrote: »

As to unwashed spuds bought from a local farmer? Are you aware that the local farmer cannot sell you these spuds without a licence? One which is prohibitively expensive for small producers, and that's before you count the man hours required for actually selling the product?

People adapt to new realities. They will buy directly from farmers. The law will be become impossible to enforce because both buyers and sellers will be forced to ignore it out of necessity. Apart from spuds, what I am really referring to is goods the customer can afford so goods which or not highly processed would be more affordable than those which are. Vanity items and quality brands would sell less whereas practical items and "yellow pack" brands would sell better.

Noreen1 wrote: »

How do we drive down the cost of imported products? Again, the market is too small for Ireland inc. to make any difference to the price of items such as vehicles, or "white goods".
We need the vehicles, refrigeration etc, but the amount that prices will realistically fall is limited.

In many cases we would simply have to do without many of the better quality imported goods we have gotten used to. In addition, cars and trucks would be kept on the road for longer before being scrapped. Things like car pooling would increase. There would be fewer state subsidized services eg bus routes/journeys but again those services would be used far more so there would be less wastage.

Noreen1 wrote: »

In short, austerity might work, in a self-sufficient economy

People will adapt when they have no other choice. We do not need to be 100% self sufficient, trade will continue but priorities would have to be given to what is really necessary.

Noreen1 wrote: »

However, for a small open-market economy, the only effect austerity has is to decrease disposable income, which in turn, ensures the failure of the SMEs, which (combined) are actually the biggest employers in the state, causing a tremendous increase in social welfare costs.
That is precisely what has happened, so far, despite the mass exodus of emigrants.

Financing would have to change. For example, home mortgage financing would have to stop altogether so people who cannot buy outright would have to rent. Financing should be kept exclusively for SMEs which are geared toward exporting or replacing imports.

AlekSmart · 26-07-2013 12:02am

Rojomcdojo wrote: »

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

Yesterdays launch of Pavee Point's leaflets on young traveller self-harm and bullying saw the organization raise substantial issue over Austerity based cuts to Traveller Education Services.

http://www.irishtimes.com/news/social-affairs/secondary-schools-failing-traveller-children-pavee-point-claims-1.1474882

It appears to be the PP case that cuts to Traveller Focused Education supports are somehow less sustainable than elsewhere in the Education System...

“The Traveller education budget got cut by 87 per cent under austerity measures,” she said. “We now no longer have visiting teachers for Travellers, we no longer have the special resource teachers for Travellers, we don’t have a whole load of other supports that could have maybe intervened at an earlier stage. That’s why it’s becoming more apparent that it’s a problem.”

Personally,although I feel that there is huge inequity in much of how the Irish Education is funded,I'm far from certain however, that the level of blame which PP wishes to place upon the State can be borne out.

So,how can any State balance the requirements of sectional groupings,such as Travellers,with the lack of means to fund these requirements ?

That as much as anything else,appears to be the basic contradiction of the Austerity regime ?

maninasia · 26-07-2013 6:07am

Chinasea wrote: »

But, one of the main problems I see in this country is that we only cut our cloth to fit, when we as individuals or made pay for it.

Many of the Scandinavian, Baltic countries, and for all I know Asian countries would be horrified, absolutely horrified if they were to see the needless waste that we live by in Ireland.

i.e: was leaving someone into admissions in the hospital this week and the clerk printed off pages of labels for the patient and put in their folder. Max 10 labels would have been enough. Prescription at €1.50 written out for said patient with a supply of 60 tablets, when one months supply would have easily sufficed. And so on and so forth.

So for the wrong reasons OP, it would seem that austerity could be a good idea because of the needless waste and lack of collective innate foresight.

What I find jarring is that we continue to waste so much needlessly despite a full on recession..

What's most noticeable in Ireland is the constant charging for well...EVERYTHING. You name it you have to pay a fee for it, that's probably the biggest difference with Asian nations that I can garner (they haven't taken up the nickel and diming strategy invented by the Brits and Yanks yet).

I don't think that Ireland seems particularly wasteful, rather it just seems expensive for most things. If anything there is a real lack of manpower in Ireland, it can be hard to find staff and real people to deal with.

I will say that every country has waste in the system, where I'm based they give out too much subsidised meds as that's what the patient expects and docs can make a percentage, and some patients visit the doc/hospital too often due to few limits on visits. This is changing now.

So waste exists everywhere, it should be controlled, but what's more important are overall charges for services and value for money! As mentioned taxes are out of control, especially VAT, which pushes up the cost of everything, as it gets compounded all the way up the value chain.

Renegade Mechanic · 26-07-2013 6:13am

realitykeeper wrote: »

**within days, the cost of goods and services would also plummet**

Oh ho ho ho ho ho no they wouldn't:)

Jawgap · 26-07-2013 7:40am

AlekSmart wrote: »

.....

So,how can any State balance the requirements of sectional groupings,such as Travellers,with the lack of means to fund these requirements ?

....

Maybe these 'sectional groupings' can do what communities up and down the country to - organise, fundraise and help themselves by building schools literally and metaphorically from the ground up.

bbam · 26-07-2013 9:10am

realitykeeper wrote: »

Naturally, the money we do have would have to be prioritized for the things we really need. Obviously oil would be a priority whereas overpriced vanity items such as a cotton shopping bag printed with "I`m not a plastic bag" would be somewhat further down the priority list.

Just like the shopkeepers, the landlords (be they NAMA or anyone else) will very quickly realize the futility of trying to defy gravity. If they refuse to cut the rent they will find that their tenants simply can`t pay. Rent arrears will rise and they can put up with that indefinitely or they can evict or they may find that the tenants choose to vacate the premises and that the property is no longer rent-able at their former asking price.

People adapt to new realities. They will buy directly from farmers. The law will be become impossible to enforce because both buyers and sellers will be forced to ignore it out of necessity. Apart from spuds, what I am really referring to is goods the customer can afford so goods which or not highly processed would be more affordable than those which are. Vanity items and quality brands would sell less whereas practical items and "yellow pack" brands would sell better.

In many cases we would simply have to do without many of the better quality imported goods we have gotten used to. In addition, cars and trucks would be kept on the road for longer before being scrapped. Things like car pooling would increase. There would be fewer state subsidized services eg bus routes/journeys but again those services would be used far more so there would be less wastage.

People will adapt when they have no other choice. We do not need to be 100% self sufficient, trade will continue but priorities would have to be given to what is really necessary.

Financing would have to change. For example, home mortgage financing would have to stop altogether so people who cannot buy outright would have to rent. Financing should be kept exclusively for SMEs which are geared toward exporting or replacing imports.

I see the plan now...

Make us a 3rd world economy, then anything will be an improvment..
I'm sure you appreciate that you're using the destruction of peoples living standards as a tool to somehow "fix" the economy.

"The law will be become impossible to enforce because both buyers and sellers will be forced to ignore it out of necessity"

i particularly like this bit... the good news is we get to choose which laws we get to ignore... for your new Ireland, the most important thing to have will be a gun, the motto I'm getting here is, do what needs to be done to survive, not exactly a modern eutopia.

CruelCoin · 27-07-2013 8:45am

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...

This would not happen in the short term.

If i've paid out for the labour/materials etc to manufacture a product, i'm not going to instantly drop the price to the new material/wage costs, as that would make me a loss on what i have already produced.

This price lowering would happen very slowly, as existing stock is sold.

Within days is bolloxs. The nation does not clear it's entire inventory of stock "within days".

SpaceTime · 27-07-2013 1:15pm

I still think the way out of this is to devalue the Euro and inflate the economy.

The alternatives aren't politically sustainable, particularly when Spain runs out of social insurance funds to pillage for day to day expenditure and that's likely to happen by 2014.

This ultra strong Euro and internal deflation mantra being pushed by the right wing parties in Germany and few other countries is going to completely destroy the Euro and quite possibly the EU.

Since when has Europe's focus become austerity and protection of banks? Most European politics is centre or centre left.

I can't see this ending without a very bumpy landing for all of us, including Germany.

realitykeeper · 28-07-2013 11:43pm

bbam wrote: »

I see the plan now...

Make us a 3rd world economy, then anything will be an improvment..

It is far better to preempt the inevitable than wait for it to happen.

johnnyskeleton · 30-07-2013 7:38am

bbam wrote: »

I see the plan now...

Make us a 3rd world economy, then anything will be an improvment..
I'm sure you appreciate that you're using the destruction of peoples living standards as a tool to somehow "fix" the economy.

Any drop in premium first world standards does not automatically make an economy a third world economy.

But if you insist on that analogy - we already are a third world economy, but we can mask over that by borrowing huge amounts of money to keep the fires burning. Many third world countries did likewise, with about a decade of unsustainable borrowing to fund a reasonably high standard of living, then spending the rest of eternity crippled by that debt.

So let's live within our means now, however difficult that might be (and no, it won't set us back to the level of a developing economy) and recover rather than pretend that nothing is wrong and commit the country to a debt burden which we cannot realistically hope to repay any time soon.

johnnyskeleton · 30-07-2013 7:50am

SpaceTime wrote: »

I still think the way out of this is to devalue the Euro and inflate the economy.

And when we stop that stimulus and credit crunch mark 2 comes along, what do we do then?

SpaceTime wrote: »

The alternatives aren't politically sustainable, particularly when Spain runs out of social insurance funds to pillage for day to day expenditure and that's likely to happen by 2014.

I agree with you, but I think that while the austerity policies aren't politically sustainable, the inflate our way to success policies aren't economically sustainable. Given that, despite what Krugman et al believe, we can't reinvent economics, I think people need to understand that the cuts are necessary for the greater good.

"Ask not what your country can do for you, but what you can do for your country."

Or, if you don't feel particularly patriotic, if you can look your children in the eye and tell them that you are shovelling a load of debt onto their working/taxpaying future because you are not prepared to cut your standard of living to pre bubble times, then you can plausibly object to the austerity measures.

This ultra strong Euro and internal deflation mantra being pushed by the right wing parties in Germany and few other countries is going to completely destroy the Euro and quite possibly the EU.

Since the Euro first started, there have been people saying that it was going to be destroyed imminently, yet it hasn't. Since the start of the depression people have been saying that the euro will collapse, but it has performed better than the dollar or the pound. It's a funny world we live in that a strong, reliable currency is considered to be more at risk of collapse than a weak devalued one!

KyussBishop · 30-07-2013 10:00am

The Euro is only as strong as the weak link in its participating countries - if social turmoil flares up in a country, because of the complete failure of European governments to agree on how to deal with the crisis, and if that leads to a country exiting the Euro, could easily see a cascade of other countries doing the same.

Austerity is no where near a 'necessary' policy - all of the economic solutions are already known (Yanis Varoufakis has many immediate options very well laid out here); it is a political problem at a European level, not an economic one.

We've given Europe significant power over governing our lives, and they have been failing us enormously for the past 5 years - the political/economic system in its current configuration is doing us more harm than good, and there is no appetite for reform of it in Europe, by the looks of it.

If we continue the path we're on, we're fúcked for another 5-10 (maybe 15) years (unless by miracle, Europe decides to engage in recovery policies - the last 5 years weigh heavily against that, it is just a vague hope at this stage), and if we exit this path we're fúcked also, but might avoid the same problem in the next economic crisis then.

SpaceTime · 30-07-2013 10:10am

Jawgap wrote: »

Maybe these 'sectional groupings' can do what communities up and down the country to - organise, fundraise and help themselves by building schools literally and metaphorically from the ground up.

If there's one thing we do not need it's more schools!
We've more schools per capita than almost any other country in Europe and every one of them requires a principal, a vice principal and a huge amount of state funding to keep them going.

We need investment to expand existing schools and consolidation of duplicated schools i.e. where you've say boys, girls, catholic v1, catholic v2, protestant, etc etc. in the same town/suburb they should really form a single unit (even if keeping the existing buildings for the moment) and have a single management structure operating the whole thing thus minimising overheads and allowing for things like smaller class sizes.

We've the most fragmented education system you could possibly imagine and it has HUGE amounts of overheads largely due to the fact that you need a very expensive principal and all the management structures in very small institutions.

We need more voluntary groups building more schools like we need a hole in the head! There's a hell of a lot more to a school than 4 walls and some blackboards.

In fact, consolidating urban schools would lead to a situation where we could even invest more in small rural schools where the geographic spread would require them.

I'd rather see funding for schools in remote areas than seeing 8 or 9 schools in one suburb of Cork, Dublin or whatever.

....

Sorry for going OT, but that whole situation of endless fragmentation of services here really annoys the hell out of me. There's absolutely no joined-up thinking in Ireland on education or health, it's all about sectional interests getting their own way and spending vast amounts of state money for no logical reason to achieve poorer results than a better planned system at hugely increased cost.

You've a choice between : more schools of every type you can possibly think of all run down and struggling
or : more education i.e. teachers, schools in rural areas where they're needed, libraries, support services etc.

The budget doesn't stretch infinitely both ways. We need to make some actual decisions on whether we want to just keep pandering to sectional / vested interests or actually run public service in the interests of the greater good!

bbam · 31-07-2013 8:39am

johnnyskeleton wrote: »

Any drop in premium first world standards does not automatically make an economy a third world economy.

But if you insist on that analogy - we already are a third world economy, but we can mask over that by borrowing huge amounts of money to keep the fires burning. Many third world countries did likewise, with about a decade of unsustainable borrowing to fund a reasonably high standard of living, then spending the rest of eternity crippled by that debt.

So let's live within our means now, however difficult that might be (and no, it won't set us back to the level of a developing economy) and recover rather than pretend that nothing is wrong and commit the country to a debt burden which we cannot realistically hope to repay any time soon.

I agree that spending and income have to be better matched, over time.

The notion of an overnight adjustment somehow being the cure for the whole economy is just simplistic.

The "austerity" we are currently inflicting is damaging enough without completly knocking people flat. Maybe in the major urban centres there is sufficient work available, but in rural Ireland unemployment is rife, employment oppertunities have evaporated.

What OP suggested would create an even wider gulf between those lucky enough to have work and those unfortunite to have none. The unemployed would be driven into a survivalist mode, many turning to the black markets, many to crime.

Why austerity is a good idea

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