My Photo

Blog powered by Typepad

Statcounter


« Public Sector Workers of Ireland Unite (you have nothing to lose but a shed-load of grief) July 22nd: The Recession Diaries | Main | Risking Ayn Rand's Ire »

July 24, 2009

Comments

CMK

The cutting consensus seems to me to be getting further and further away from coherence and reality with each passing day.

Listening to Michael Somers yesterday I was shocked by several things:

1) His absolutely relaxed approach to the national debt

2) his confirmation that we have 25bn in the bank on deposit that we can access any time we want. We could borrow at the dreaded 400m a week for well over a year and pay it back, with interest, in a flash

3) we could borrow at the current rate for several years and still not reach levels of debt/GDP that we had in the mid-90's nevermind the 80's

4) that the 25bn on deposit does not include the Pension Reserve Fund in which there several billions more.

Listening to David Murphy and the rest of the business commentariat you'd swear that an IMF team were on standby in Washington ready to swoop at a moment's notice to "sort the Irish out".

Following this debate I'm more and more convinced, and the evidence is mounting, that the Right wing in this country (that includes almost the entire print and broadcast media) view the current crisis through deeply ideological lenses.

We're witnessing not only an economic crisis but a profound crisis of journalism here. While I think the economy can and will recover, Irish journalism has jumped knowingly into a cesspit, and will never emerge from it.

Mack

Is the Stability and Growth Pact one of the drivers of this?

From Wikipedia :-

The actual criteria that member states must respect:

an annual budget deficit no higher than 3% of GDP (this includes the sum of all public budgets, including municipalities, regions, etc)

a national debt lower than 60% of GDP or approaching that value.

http://en.wikipedia.org/wiki/Stability_and_Growth_Pact

---

While the restrictions have been loosened slightly surely we're not off the leash entirely?

--------
CMK - Much debate on both sides is idealogically driven. In fairness we've had pretty steep tax increases in the last 12 months too...

CMK

Mack, I'd quibble with your claim that much of the debate is ideologically driven from both sides. Time and again we have claim made by the Right ("Most generous benefits in Europe" et) that is refuted by those arguing from the Left. The latter, to me at least, seem to be arguing from a more coherent facts based perspective. While the right seem to be driven by a form of unreflective hysteria and unexamined premises. This site, and others, is an admirable example of the facts based approach the Left is taking.

I'm not against cuts per se. And I think the top echelons of the PS are suitable candidates. And I'm not against tax increases, they should never have been reduced to current levels during the so-called "Boom".

But regarding the Growth and Stability Pact - yes, we're in danger of breaching it but we're no different from other Euro members and don't Italy has ever, in the history of the Euro, come close to reaching the targets set by the pact.

Mack

CMK -

I think that's a little harsh, and heavily influenced by perspective.

Michael's research is great, but it often isn't the full story (and I'm sure Michael would agree he has responsibilities to the members of his union) - I'd advise you to read some of the blogs from right wing economists too, when you find they're saying the same thing it's normally a good sign...

By and large I think most of them (left and right) have the best interests of the country at heart, they just have a combination of different ideas on how that is best achieved and perspectives on the benefits (and damage) caused by different policy actions.

Left leaning articles will often highlight the problems with cutting wages / not giving pay rises but gloss over the problems with jacking up taxes (which are often very similar! - Henry Hazlitt's economics in one lesson, makes the point that the 'sins' of the left are often of omission, missing what might have been at the expense of what is.. http://jim.com/econ/). Both sides have their sacred cows (e.g. I haven't seen anyone on the left argue for say 20% PS wages cuts _and_ increasing the workforce by an additional 20% - which presumably would be a net benefit to the economy). And stats do get abused pretty heavily on both sides of the debate (although unless you examine them in detail, you may not notice it). I regularly choke on my cornflakes reading Gene Kerrigan, but that doesn't mean he's not a valuable addition to the debate.

Sarah Carey's claim of "Most generous benefits in Europe" was hyperbole, but Irish benefits are _substantially_ more generous than those of the UK our European neighbour with the closest economic model. I don't think she's an economist, by the way, so her information is likely to be second hand.

Hugh Green

'Sarah Carey's claim of "Most generous benefits in Europe" was hyperbole, but Irish benefits are _substantially_ more generous than those of the UK our European neighbour with the closest economic model.'

I think this is a revealing instance of how ideology frames debate on economics despite widespread pretensions to cast-iron rationality.

If economics is a science, as so many of its practitioners claim, then it why should it concern itself with 'generosity', since generosity is a question of moral sentiment?

Mack

Hugh -

That wasn't written in an paper published in an economics journal it was written in a newspaper by a journalist. News articles and blogs would be less readable stripped of emotional language and people on 'both' sides do it (e.g. David Begg describing those who advocated wage cuts as "having ice in their veins").

James Conran

"20% PS wages cuts _and_ increasing the workforce by an additional 20%"

I don't know about 20% for either magnitude but I'm certainly sympathetic to the idea of the government reducing unemployment through direct hiring, funded if necessary by PS wage cuts. I agree this has not been a widely canvassed option on the left - nor on the right of course.

CMK

Mack, I don't think my point is harsh. The absence of ANY debate, whatsoever, on taxing the rich, closing all tax avoidance loopholes, introducing a wealth tax etc, combined with an almost monomaniacal focus on wage and social welfare cuts is skewing the debate to such an extent that the grounds for rational discussion are diminishing by the day.

I don't, for one moment, believe right-wing economists have the best interests of the country at heart. Of course, that statement depends on what you mean by "country" and "best interests". For right wing economists, it seems to me, a beggared workforce (private and public sector), a degraded class of social welfare receipients, an severely underfunded social infrastructure and an entirely untouched class of wealth owners, is what constitutes the "national interest".

The fact that many right-wing economists on irisheconomy.ie are able to mobilise their very considerable intellectual abilities to attack workers and social welfare recipients, but not the wealthy, indicate severe ideological bias and their understanding of the national interest.

In a context where we have well-known publicans and chums raising hundreds of millions to buy foreign football clubs, a tax fugitive building a 100m euro ranch in Limerick, golf clubs charging 55,000 per year membership, it's simply untenable to ignore the fact that the wealthy have to be, as a matter of urgency, taxed. We simply cannot afford to indulge them any longer. I myself, at this stage, discount any argument for cutting wages and social welfare that doesn't include provision for severe tax increases for the wealthy. Capital mobility is no excuse for not doing so; and the argument should be made for a temporary re-introduction of capital controls until the crisis passes.

That we now also have the banks throwing their weight around, after being supported by the taxpayer, is yet another indication that the one-sided class war that is this economic crisis is moving onto a more instense phase.

Mack

CMK -

"I don't, for one moment, believe right-wing economists have the best interests of the country at heart"

I guess your idealogically bound to the left then ;-)

By and large market interactions have been better at driving living standards (for everybody) higher over the long term. Centrally planned economies have tended to stagnate and crumble - there is no Creative Destruction to sustain innovation.

Incidentally, don't confuse the whining of special interest / vested interest groups with "right-wing" economics. They'll happily use the cover of whatever ideology happens to suit them (see - the privatisation of profits and the socialisation of losses at our banks) to pursue their goals at our expense.

"The fact that many right-wing economists on irisheconomy.ie are able to mobilise their very considerable intellectual abilities "

Lol, I regard them as centrist ;-)

I can understand their argument though. We got here via a credit bubble. A huge amount of money in our economy was borrowed money (not money earnt through producing and selling goods and services). Once the borrowing stopped we couldn't sustain our levels of spending / wages etc. Because we weren't earning money at those levels. They seem to oppose the government replacing the private sector in borrowing to sustain boom levels (and in fairness it didn't work out so well for our banks and households). Necessarily that means our economy adjusts downwards to the size supported by real sustainable economic activity. Their argument is largely that it's better to do it by cutting spending (rather than raising taxes, as a resource is more heavily tax less gets created / used) and increasing competitiveness (so we can earn money exporting to support more workers etc).


"The absence of ANY debate, whatsoever, on taxing the rich, closing all tax avoidance loopholes, introducing a wealth tax etc, "

Taxes have already increased significantly in the last year - the income levies (and even the pension levies) do get proggressively larger. I saw plenty of articles arguing for this prior to their introduction. Closing tax avoidance loopholes are mentioned regularly too.

"t's simply untenable to ignore the fact that the wealthy have to be, as a matter of urgency, taxed"

I think that would increase the risk of a flight of the wealthy, but I agree they should be encouraged & cajoled to invest locally.

"Capital mobility is no excuse for not doing so; and the argument should be made for a temporary re-introduction of capital controls until the crisis passes."

Jeebus. No. You trust the government to have complete access to and control over the entire fruits of your families labour? (This idea that the state is the people is nonsense, political representatives can f**k the people over just as easy, and when given excessive power much more easily, as big business). Just look at what the Argentines have spent the last decade doing (appropriating bank accounts, pensions etc)?

Hugh Green

'That wasn't written in an paper published in an economics journal it was written in a newspaper by a journalist.'

True, but it didn't stop you employing the same value judgement in your post in reference to the UK, just after you made the point about how people can be heavily influenced by perspective.

Hugh Green

Mack,

To elaborate. The problem with economics as a discipline is how it elevates, or perhaps legitimates the elevation, of a partial view to the status of universal truth.

Take, for example, your statement about Schumpeterian creative destruction to sustain innovation. You are saying that creative destruction is a good thing, but you say nothing about in whose terms and under what circumstances. Does your statement take into account the workers who get thrown on the scrapheap and suffer the indignity of unemployment?

Just as you are making your point about how the state is not the people (a point I might tend to agree with), you are saying that we need a certain form of state to engender a particular process which is by no means beneficial to the citizens of that state. Well, I think that's a rather partial point of view.

CMK

Mack, you're setting up a false dichotomy by implicitly arguing that the only options are a) raw in tooth-and-claw free market capitalism; or b) Soviet sytle planned economies. Centrally planned economies have failed but we're also living through the very initial stages of (yet another) failure of free market capitalism. The onus is on us too explore alternatives to these two failed models. Not an easy task but an urgent one. I'm a Socialist, yes, but I recognise we wouldn't have many of the nice trinkets that enhance our lives, without some form of market interaction. To use a cliché some "third way" is possible and desirable.

Regarding your point on taxes increases: the increases you mention affect everyone in the tax net, and disproportionally impact mid to lower paid workers. My point is that we need to go after the rich as a priority before we starting cutting social welfare and wages. The fairest option is to allow for modest increases for the lowest paid and social welfare recipients and aggresively cut all tax loopholes and start taxing large estates etc. Ditch the softly, softly approach towards the rich and get them to stump up.

Finally, your last point in response to my call for capital controls. I fail to see what the difficulty is. For workers (i.e the vast majority of people) capital controls are a non-issue entirely. The results of the Outer Mongolia cricket league are of more impact and import. But I take your point that the state is not the people and we're really seeing what that means here when our futures are being mortgaged to bail out and support banks that have no compunction whatsoever in squeezing workers for more profits; where the same banks would not exist now without workers paying their taxes.

Capital mobility is a key plank of economic sedition and treason given the threats of divestment, direct and implied, that are made whenever a left leaning redistributive government is elected. For that reason alone, it should be curbed or abolished.

Mack

CMK

"Mack, you're setting up a false dichotomy"

I disagree that I set up dichotomy. Every economy in the world follows a combination of socialist and capitalist policies. It's a matter of the degree to which we either pursue centrally planned solutions or allow the market to allocate resources.

Ultimately, apart from those with special / vested interests in a particular policy, most people argue for left / right economic solutions because they genuinely believe they will improve living standards across the board. I believe, by and large, market interactions allocate resources more efficiently than government beuaracracies - by and large I think the evidence supports that proposition. I'm not a fan of unregulated free markets though, particularly when taxpayers are asked to underwrite risks taken by market participants.

- Taxation -

I guess you presume the government can use capital more efficiently that it could be allocated via the interaction of private companies and consumers? I.e. that it's better to tax than encourage investment and growth? Beyond a minimum level of social security and public services, I disagree with that approach. So we'll have agree to disagree.
I do believe the approach I favour is better for society though, and I assume you have similar beliefs about your own preferences..

- Capital controls -

I'm pretty sure that would be anti-EU to abolish it. It would send the wrong message to those who do / would invest their capital here, and would put all future governments in quandary. Not only would we not be able to attract investment capital, but the government would find it difficult to lift capital controls as citizens would move their money abroad as soon as they did. Property rights are one of fundamental tenants of our society, I think capital controls are abrogation of citizens property rights. If threats are made, but the redistributive policies are genuinely in societies and the economies best interest. Call their bluff, make the changes, take the short term pain if some investors pull out - others will take their place once they see the success begin to shape up..

Mack

Hugh -

Living standards across the board in the West are far above those enjoyed by the aristocracy even a century a go -

I'm sure Marx would be impressed with -

Electricity, refridgeration, running hot water, sewage, computers, mobile phones, cookers, washing machines, medical advances,fresh food from all over the world - I'm sure you can think of hundreds of improvements.

Many of them came from government action, many from the private sector - but all of them involve change obsoleting old technologies and job roles. (It's politically easier to do that when the 'market' - i.e. consumer choice, obsoletes a techology and job than when an elected representative has to do it).

I absolutely take your point about workers thrown onto the scrap heap by advances, but ultimately those workers also benefit from those advances. What if we had frozen innovation were it was two centuries ago? Would workers, protected from competition be better off today? It's pretty plain the answer is no (unless you are Amish). In the medium term innovations tend to create more jobs rather than less.

I think it's an excellent idea to provide support to those displaced (training, social security etc), but preventing innovation occurring in the first place is myopic.

Mack

Make that comparison with Aristocratic living standards 150-200 years a go (they bathed less than once a month back then, as the cold was fatal - which reminds me to highlight central heating as another innovation).

Mack

CMK -

"Centrally planned economies have failed but we're also living through the very initial stages of (yet another) failure of free market capitalism."

This is a crucial point I think. What happened in the banks last year wasn't a failure of capitalism, it _was_ capitalism in action. The banks took undue risks and went bust as a result. I've never read any description of capitalism that says there won't be recessions & crashes. Business failures are probably _the_ most crucial part of a functioning capitalist system. Good businesses drive out the bad, drive up the average quality of existing businesses - and therefore the average quality (or affordability / convenience etc) of the goods and services available to citizens. That's what drives living standards higher for everyone in the long run.

(Although unfortunately due to their nature failures of bad banks can cause otherwise good businesses to fail a la the Great Depression. At least we've been spared that so far in this recession.)

Hugh Green

Mack

'but ultimately those workers also benefit from those advances'

So, how would you explain that to, say, a car worker in Detroit?

I don't have the time to address the rest of your post now, but I will do in a couple of days. Cheers.

Mack

Hugh -

I'd recommend he work his socks of to try and turn the company he works for around, but presuming that they can't fail

-

Once he relocates (Detroit is in serious decline) and finds another job, he can purchase a superior quality, more reliable, longer lasting, cheaper to run (more mpg) Japanese car for less than the junk heaps he used to build (my old American car had a habit of breaking down, so I suspect there is good reason why the US Auto industry is going bust). I'd certainly be in favour of society in general ensuring he received adequate funds while he looked for work, and that society contributes to his retraining and that he receive a decent redundancy package (state subsidized if necessary).

If you disagree with this analysis - would you purchase an old Soviet-era Lada to keep just to keep an Eastern European worker in employment? Or would you forgo central heating for your family to keep the coal man and chimney sweep in a job? Or electricity to protect the worker in gas lamp company, or so the candle maker can keep his job? If so, fair play, I respect your integrity, but it's unreasonable to expect others (particularly our poorest) not to take any opportunity to improve their lot.


By the way, do you think we should continue to pay Irish builders huge amounts of money to build about 3 times more houses than we as a society need every year? Should we force our young people to pay 2006 prices to keep wages as they were?

This link might be interesting, as I think it is relevant to the Creative Destruction debate. The Luddites were an intelligent group acting rationally in their own self-interest (despite being pilloried today). Unfortunately their interests conflicted with those of society at large.

http://en.wikipedia.org/wiki/Luddite

Hugh Green

Mack,

Neither Marx nor indeed Lenin was opposed to technological developments under capitalism. Both saw them as a precondition for the eventual victory of the proletariat. However, Marx thought that capitalist relations of production should be overthrown because he figured that private property and wage-labour were monstrous impediments to human flourishing, not because they were an impediment to the availability of particular goods such as toasters and washing machines.

Your argument that free-market capitalism is good and ought to be maintained because it produced x,y and z... is not a very good argument. Slavery led to significant technological advances and improved living standards: does that justify it?

Your assertion that an auto worker losing his job in Detroit is ultimately to his benefit is ludicrous. If you got the sack today because your employer figured it would be cheaper to produce elsewhere, would you welcome the move? Would you have the foresight to realise that in the end it was all in your benefit?

Tomaltach

Mack,
You are completely trivialising the experience of job loss in an environment where the economy is in deep recession. The phrase 'once he relocates' seems to roll off the tip of your fingers as if nothing more were involved than just that, fingers dancing across a keyboard. To be honest at best it is glib. You have no idea what that phrase means do you. "Once he relocates". Have you ever tried to sustain a family and perhaps a negative equity mortgage while you roam far and wide to find a job? Me neither, but I imagine it is hardly eating candy.

I acknowledge your point about support, training and redundancy. Trick is, how much? Irish statutory? Irish welfare? Or what have you in mind.

Mack

Tomaltach -

Not the tone of reasoned debate. Detroit is in serious decline - how to address that is a separate issue and not one I'm familar with - and personally I wouldn't sit around and hope. That's not trivialising something, it's real world advice. Cities and regions decay under socialist systems too. Btw, in most US states citizens can walk away from negative equity as loans are non-recourse. Perhaps something we should introduce here.

"I acknowledge your point about support, training and redundancy. "

Glad to see we're on the same page on the substantive point.

"Trick is, how much? Irish statutory? Irish welfare? Or what have you in mind."

Whatever is neccessary.

Hugh -

Innovations do benefit all workers eventually, and unfortunately they do render jobs obsolete. If you take the long view the raise living standards for all workers, in particular the poorest. You say -

"Neither Marx nor indeed Lenin was opposed to technological developments under capitalism. Both saw them as a precondition for the eventual victory of the proletariat"

Great! But think through the full implications of that. I fully appreciate the benefits socialism has brought to our society, in particular it offers a lot in helping mitigate the personal downside of innovation. But the emotional nature of the response above (and yes I appreciate it is an emotive issue) suggests to me that the decision as to which innovation succeeds and which dies is best left to the masses (via their purchases) than centralised in a corruptable government. How we deal with the fall out is another matter...

Hugh Green

'If you take the long view the raise living standards for all workers, in particular the poorest.'

That would also justify certain brutal measures taken in Stalinist Russia, but there'd be no point getting 'emotional' about it, right?

I really don't know what you mean by innovation being determined by the purchases of 'the masses' (whoever they are). Last time I looked, the Pentagon -to name one important latter day motor of innovation- wasn't available for purchase. And funny enough, 'the masses' don't seem to have much of a say in what it does.

The comments to this entry are closed.