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October 09, 2009

Comments

Proposition Joe

"those on low and average incomes who make up ... the bulk of the public sector payroll"

Michael, can you back that assertion with some numbers and a source?

I find it really hard to believe that the "bulk" of the public sector earn less that the low forties (which is the average income across the economy). In the normal sense of "the bulk" meaning a sizable majority.

Seeing as the average public sector salary is slightly north of 50k, it would be just about credible for the median to be in the low 40s.

But it would require a very odd salary distribution indeed for a large majority (as opposed to a bare 50.1%) of public servants to earn below 40-odd thousand.

MichaelBurke

An excellent post. The moral argument is a compelling one; why should the poor bail out the rich who have gambled heavily and lost? But the economic rgument no less so. The slump is a collapse of investment, led by propoerty and contstruction. The deficits are a function of that (+ the bailouts). A policy aimed at curbinf the deficit hrough spending cuts will have the oppostite effect ('reverse multipliers', if you like), while only a policy (state-sponsored who else?) of reviving investmet has a chance of reversing the downturn. The economic revival will take care of the deficit. Attempting to do the opposite would simply be to repeat the mistakes of the 1930s, still as tragedy though, not farce.

Martin O'Dea

Michael, having read your posts for a long time in 'The Recession Diaries' and trying to understand the tenor of your detractors and that somewhat justifiable innate reluctance to spend when things are going not to well, a thought struck me today - and that is that we are pre-programmed from the collective consciousness' recollection of trying to kickstart an economy in the 70's, pouring money down the tube; and then heading into another decade of indebted monetary misery.

However, I believe the key difference here - and the reason that these fears can be negated is that we now have a high functioning economy. We have the companies, the structures, the employees, some of the infrastructure, a public that can recall positive consumer attitudes and though a diminshing wage intake (and large amounts of personal debt - still a significant amount of money is in circulation.

In the 70's there, of course, was an oil crisis a key element of the actual economy disrupted in a largely manufacturing based Irish economy. Of course, there may well be serious resource difficulties in the coming decades, this isn't one of those occasions - there is a readjustment to be made, piscally and psychologically and certainly the housing boom would have repurcussions and the banking crisis needs time to right itself and all of this offers an opportunity for social change - you are right, we have got to stop a depression taking fut as cut follows cut down a spiral of economic inactivivty and job losses.

Eoin O'Mahony

And yet the source of these data, the ESRI, this morning call for a 20% cut in child benefit?

Martin O'Dea

For whom do the ESRI speak? On who's authority?

Michael Taft

Proposition Joe - the raw data can be found here (http://www.kildarestreet.com/wrans/?id=2009-02-17.826.0). Annualising the CSO's latest figures, the average industrial wage is currently €42,800. Using the raw data, we can see that 43% of public servants earn below €40,000; 54% below €45,000 and 66% below €50,000. Two caveats, though: (a) these are not full-time equivalents. There are a number of part-time workers at the lower end. I have tried to find the stat but have so far been unsuccessful; (b) this is without taking into account the pension levy which is in effect a wage cut.

Thanks for the comment, Michael and you're dead on. I would just make one small point - pursuing a stimulus approach will be able to deal with the cyclical portion of the deficit (that is, that portion of the deficit arising out of depressed economic activity). It won't be ale to deal with the structural part of the deficit (that is, the part of the deficit that would remain once the recession is over; this was caused by inane Fianna Fail policies of cutting stable taxes in the past and over-relying on property tax revenue). No one will be able to identify this until after the recession is over and we start closing the output gap (the ESRI has estimated it to be 8%, the Government says 6%).

However, this doesn't undermine your point. Attempting to address the deficit - whether cyclical or structural - through deflationary policies will only worsen the cyclical end without impacting on the structural end. Fiscal policy must do one thing and one thing only: shorten and lessen the impact of the recession. Once we are out of the recession, we can let normal growth reverse the cyclical deficit and examine the most progressive options to deal with the structural aspect - at a time when fiscal consolidation measures will be more beneficial. Hey, it's not like the structural deficit is going anywhere.


Martin - I think you're right. Whatever about the problems we have today - and many of them are indemic to a distorted economic base (low investment, over-reliance on FDI), we have a much stronger export base and a much higher skill base than when we emerged from the 1970s/1980s. What is so frustrating is that the Government (and thier allies in the media) don't see the strengths we can play to in trying to get out from under recession. As to the ESRI - I guess they speak for themselves (though, unfortunately they speak for the economic orthodoxy as well). You might be interested in the post I just did on the ESRI commentary out today (link below).

Eoin, yes - the ESRI wants to cut Child Benefit by 20%. They want the Government to proceed with a €4 billion fiscal correction next year - made up of the tax increases and spending cuts. Even factoring this into their rojections - they accept that this €4 billion cut (and the tax increases will cut people's disposable income), the deficit will only fall by €550 million and the burden will remain the same as this year. Is anyone doing the maths?

Comment on ESRI Report: http://www.progressive-economy.ie/2009/10/deficit-rising.html

Martin O'Dea

Michael,
forgive my little analogies, just to try and straighten things in my own mind; but this seems to me in line with a pair of doctors talking with a patient who is suffering muscle wastage as a result of being inactive. ESRI suggests staying in bed as your a little weak - of course, you wany to go out (its a lovely day) TASC etc suggests that the longer you stay in bed the worse the wastage will become and wants to help you up and on your way again. ESRI/FF suggests that that is what you want to do but is bad for you and that it requires leadership to advise you to remain where you are.

In reality this caution v optism arguement is false in its premise, you NEED exercise and - as you rightly point out in your linked article - we have kept you in bed for a year now and the wastage is verifiably worse

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