January 27th Morning: The Recession Diaries
It really is surreal. Hundreds of jobs are going in the banking sector, Retail Excellence Ireland warns that 25,000 jobs could be lost in the first quarter. The economy is turning in on itself. And the Government is obsessing over public expenditure cuts. People are demanding to know what can be done to protect their livelihoods and Fianna Fail Ministers debate cutting the Carers’ Allowance. It’s all worthy of a Dali painting.
It’s against this backdrop that the Irish Times proceeds with it’s ‘What is to be Done’ series is on the economy. First up is John Fitzgerald of the ESRI. He rightly claims that
‘What Ireland needs now is a strategy for digging ourselves out of our current hole and restoring normal growth.’
In many senses, however, Fitzgerald doesn’t offer solutions. Rather he outlines options. For instance, he rightly declares that restoring ‘order to the domestic banking system’ is a primary task for the Government. But he is content to outline the options: recapitalisation or further nationalisations. However, his ordering of choices suggest the direction we should head in.
Cut the Public Sector Pay bill: we can choose between cutting public sector pay and/or making public sector workers redundant. Whichever, cut we must.
Cut the Social Welfare Bill: Eerily, Fitzgerald opens up the possibility of cutting social welfare, claiming that recipients are getting a ‘dramatic’ boost in real incomes owing to the decline in the Consumer Price Index. We are, of course, talking about the lowest income groups in the country - the unemployed, pensioners, the disabled, lone parents, etc. We are also forgetting that in the last year these groups suffered disproportionately from rising food costs, thus reducing their real income by a higher amount than other groups. No matter - consider the cut.
Cut Capital Investment: this could be done by either postponing projects which ‘wouldn’t have a major impact on the economy’s productive potential’ or by pocketing the savings arising from the fall in the cost land and building. Another, more profitable course would be use the savings to reinvest into more capital projects - lord knows, with our infrastructure ranking 64th in the world, we need a lot of upgrading. Good for productivity, good for job creation, good for growth. But Fitzgerald is first and foremost viewing these options through the lens of fiscal retrenchment. So cut.
Cut the Minimum Wage: In keeping with his earlier calls for cuts in private sector wages, Fitzgerald suggests more cautiously: ‘Possible obstacles to preserving jobs arising from the minimum wage may be considered.’ In other words, an invitation to cut.
Beyond the cuts, Fitzgerald looks forward to tax increases ‘beginning with the possible recovery of the economy some time in 2010′. He puts forward a number of options:
- Cut personal tax credits to lower the threshold at which people begin paying taxes
- Increasing the top rate of tax
- Abolish the PRSI upper threshold
- Abolish tax expenditures
- Introduce carbon tax
- Introduce a property tax
Now all of these are worthy of serious debate, especially as there is no doubting that following the recession, the tax base will have to be bolstered. Worryingly, though, Fitzgerald doesn’t suggest these tax increases will go into improved public services or sustained job creation measures to re-employ those made jobless during the recession.
‘. . . Government will have to choose between further cuts in employment and public services or raising taxes’.
So we will have to slash the public realm upfront and, when the recovery starts, we will have to increase taxes or cut even further. Tax increases will have to be instituted to merely maintain an already degraded level of public services. Hope postponed.
Let’s be clear: John Fitzgerald has never been part of the neo-liberal brigade. Though writing in a personal capacity, he comes with the gravitas of the ESRI in tow. His article shows how much the traditional centre ground has shifted. All we are offered is a buffet of cuts topped off with a desert of tax increases. None of this is mediated by any public intervention being considered and pursued in Washington D.C, London, Berlin and Canberra. Indeed, Fitzgerald positively rejects these routes.
‘For Ireland it is vital that action is taken to boost the euro economy to complement that being taken in the US. Some debate has taken place on whether a fiscal stimulus would be appropriate in Ireland. However, the crisis in the Irish public finances means that it is not feasible or desirable to do so.’
The strategies pursued by a number of other countries - from Obama’s $800 billion stimulus to Germany’s €50 billion - are dismissed out of hand, without any discussion. Indeed, this is becoming a standard claim among many commentators: (a) we need action to boost the economy; however (b) we can’t take such action ourselves; besides, (c) we wouldn’t want to do it anyway; but (d) we need action to boost the economy.
Ultimately, Fitzgerald doesn’t present any options to boost the economy. We must wait on the kindness of strangers. In the meantime we must make the same mistake as Fianna Fail governments did in the early part of the decade - pursue pro-cyclical strategies: cut, cut and when that is exhausted, tax. Instead of ‘digging ourselves out of the hole’ we are digging ourselves ever deeper.
It almost makes you want to take up painting.
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EU Should Admit Greece is Bankrupt | Christian Rickens
The unvarnished truth - the second Greek Bailout should not have happened.
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How else can one explain the fact that around a quarter of the package won’t even arrive in Athens but will flow directly to the country’s international creditors? The holders of Greek government bonds are to get some €30 billion as an incentive to convert their old paper into new bonds. The aim is to keep alive the illusion that Greece isn’t bankrupt — after all, the creditors are voluntarily forgiving part of the debt. The financial sector is cleverly manipulating the fear that a Greek bankruptcy would trigger a fatal chain reaction.
That leaves €100 billion. But that too isn’t geared to what Greece needs in order to get back on its feet. It’s linked to an estimate of how much debt the Greek economy can bear without collapsing. International technocrats agree that with debts amounting to 120 percent of gross domestic product, the country can just about go on servicing its debt. That’s the level at which the cow can go on supplying milk without dying of exhaustion. So 120 percent became the goal.
Collaboration, with our European partners | Cunning Hired Knaves
The European project was supposed to be a bulwark against the dangers of fascist ambition, but now it is the instrument used to dismantle European democracy in the interest of the risk adverse looking for a steady income stream from the provision of the social net by those who cite the words and actions of old fascists while doing so.
The post Collaboration, with our European partners by Richard of Cunning Hired Knaves summed up in one sentence. For much better sentences and many more urgent points read the post.
On Sunday there were massive demonstrations throughout the Spanish state, with half a million people on the streets of Madrid and 450,000 in Barcelona, protesting against the labour ‘reform’ planned by the Partido Popular, the right-wing party that most closely represents the interests of the power elites that conserved their position when the transition from dictatorship to democracy was undertaken.
S.P.A.R.K. protest at cuts to lone parents, Dublin 18th February 2012
Many families were cut in the last budget but lone parent families were particularly hit by the Fine Gael/Labour Party government.
The key elements are that single parents can’t take advantage of training such as Community Employment (CE) Schemes and when the youngest child turns 7 years old, the parent is declassed as a lone parent but treated as an ordinary worker even though there are few affordable creche places. There is a bill coming up in March which will copper fasten some of the worst elements of government plans.
There is particular anger directed at the Labour Party because they are associated with women’s rights and a more progressive society.
Please share the link to this video
Exiting the euro | Michael Roberts
Michael Roberts argues that those in Greece who cite the example of Argentina when suggesting that Greece should leave the Euro are not necessarily looking at the whole picture. The situations are not the same, Roberts points out, citing Argentina’s former central bank governor at the time, Mario Blejer and his recent piece in the Financial Times. He also points to research based on the the experience of five recent devaluations of economies in crisis (including that of Argentina) which “shows that they lead to a 10-20% fall in real GDP and take five to ten years to recover to previous real GDP levels. But that is not to say that there is no alternative to “lowering wages, privatising the state sector, reducing taxes for the corporate sector (especially big business) and ‘deregulating’ labour markets i.e. the super-exploitation of the Greek people to raise profitability.”
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Solidarity campaign to support the people of Greece
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[...]
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Ian Stewart | The mathematical equation that caused the banks to crash
In The Observer, Sunday 12 February 2012
Anyone who has followed the crisis will understand that the real economy of businesses and commodities is being upstaged by complicated financial instruments known as derivatives. These are not money or goods. They are investments in investments, bets about bets. Derivatives created a booming global economy, but they also led to turbulent markets, the credit crunch, the near collapse of the banking system and the economic slump. And it was the Black-Scholes equation that opened up the world of derivatives.
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Greece: a Sisyphean task | Michael Roberts
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As Greece stares into the abyss, Europe must choose | Maria Margaronis
Do we really want to live in an economic union that must destroy the future of millions in order to just tick along? Maria Margaronis points out that the situation in Greece today says little about Greece and everything about the EU.
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Comment by: Robert Browne
Feb 5th 2009 at 01:02
If you read any economic blog on ireland it is full of facts and figures, the deluded economists trying to out-do themselves with analysis. It is all about theories and convoluted formulae. We are in the position that we are in because of one simple fact. WE HAVE BECOME ONE OF THE MOST CORRUPT COUNTRIES IN EUROPE it has nothing to do with getting a few formulae wrong! It has everything to do with gross corruption by successive governments of every hue and colour.
So corrupt, in fact, as a people have we become that we no longer realizes just how far we have fallen! We have TV presenters who are earning multiples of what the Taoiseach or Prime minister of the country earns. Judges who have become millionaires while presiding over years of Tribunals of Inquiry into “corruption”. Inquiries that have become shameless gravy trains of “legal abuse”, if there is such a concept, of legal abuse, of the tax payer. In Ireland it certainly exists and these tribunals are still squeezing the last few euro’s out of the tax payer. The public do not even need these judical “Reports ” which are now worse than useless. We have seen enough. Spare us the “Reports”.
This country will only start to recover when it collapses or implodes, no longer able to service the absurd levels of debt needed to sustain the corrupt political parties and agendas. We have 800 quangos with over 5000 political appointees and more at almost every level in society.
When Moody’s, S&P and the creditor nations realize how daft they are to prop up our corrupt government the collapse will be precipitated! Then ireland as a people can start again, many of us look forward to that day.