Austerity

2010

Not a Vintage Year

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This is a post by Michael Burke originally posted on Notes on the FrontMichael works as an economic consultant. He was previously senior international economist with Citibank in London. He blogs regularly at Socialist Economic Bulletin.  You can follow Michael at @menburke

The publication of the ESRI’s latest Quarterly Economic Commentary follows the recent publication of the national accounts for 2014. But they were both strangely muted affairs given that the headlines were GDP growth of 4.8% in 2014 and GNP growth of 5.2%. The ESRI is forecasting 4.4% and 4.1% respectively for 2015- although it does not have a very good forecasting track record.

Not only are these the strongest actual and projected growth rates since the recession began but they are also the strongest growth rates in both the EU and in the OECD. So why the long face? Why are people still taking to the streets to protest water charges and the government parties getting no bounce in the opinion polls?

One factor is that despite all the talk of recovery, even on the distorted GDP measure of activity the patient is still convalescing. The economy has not returned to its pre-recession peak, as shown in Chart 1 below. GDP contracted by 12% from the end of 2007 to the end of 2009. In the 5 following years about 70% of that shortfall has been recovered.  On that trend it will be 2016 before the economy is finally in recovery.

Chart 1. Real GDP

MB ESRI 1

On most indicators including GDP the level of activity is now back to around the level last seen in 2010, which was hardly a vintage year. Following a deep recession, industrialised economies much more usually bounce back equally sharply. But this is a slow, painful and incomplete recovery from a deep recession.

Stagnation apart from exports

There is another factor in the subdued mood. GDP is a measure of activity. But it is not designed to be a measure of prosperity. It is widely accepted that recorded export activity is hugely distorted by the activities of multinational company operations in Ireland. Yet since the economy stopped contracting at the end of 2009 these highly distorted net exports (exports after imports are deducted) have risen by an annualised €16bn, almost exactly equal to the rise in GDP.  Net exports, many of them purely fictitious, account for the entirety of the partial recovery.

Chart 2 below shows that the key components of domestic activity are either still falling or are stagnating after a sharp fall. Personal consumption is over €7bn below its peak on an annualised basis and is stagnating. Government spending is €5.6bn below its peak and continues to contract. Popular anger is actually inclined to grow the more there is talk of ‘recovery’.

But the most dramatic contraction is in fixed investment which is now €23.6bn below its peak at the beginning of 2007. The decline in investment led the recession and continues to act as the main brake on recovery. The fall in investment now far outstrips the total decline in GDP since the recession began.

Chart 2 Personal Consumption, Government Consumption and Investment

MB ESRI 2

There might be grounds for increased optimism if the ESRI were plausibly making the case for higher consumption, government spendign and investment. But that is not the case. Private consumption and government consumption are projectedf to rise by just 2% and 0.5% respectively in 2015. Investment is forecast to rise by 12.5% following a double-digit increase in 2014. Even if the ESRI’s optimism is borne out, the fall in investment is now 60% from its peak. So it would take another 4 years of growth at that pace to begin a full recovery.

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What would Europe Win from a Grexit? ‘Peace and quiet. (Pause…) For a period’

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Two recent interviews with Marxist economist, and now Greek MP Costas Lapavitsas are worth have a look at, particularly as they outline his view of the strategies that Syriza need to follow during the engineered ‘breathing space’ created by recent negotiations with the European institutions. He also outlines how a strategy he has long advocated, a Greek exit from the Euro, should be managed.

The first, published on the 12th of March in Jacobin magazine. The interviewer was Sebastian Budgen, an editor at Historical Materialism.

And Varoufakis himself explicitly located his position within a kind of Keynesian framework, and is allied with people like James Galbraith who are openly Keynesians.

Let me come clean on this. Keynes and Keynesianism, unfortunately, remain the most powerful tools we’ve got, even as Marxists, for dealing with issues of policy in the here and now. The Marxist tradition is very powerful in dealing with the medium-term and longer-term questions and understanding the class dimensions and social dimensions of economics and society in general, of course. There’s no comparison in these realms.

But, for dealing with policy in the here and now, unfortunately, Keynes and Keynesianism remain a very important set of ideas, concepts, and tools even for Marxists. That’s the reality. Whether some people like to use the ideas and not acknowledge them as Keynesian is something I don’t want to comment upon, but it happens.

So I cannot blame Varoufakis for that, for associating himself with Keynesians, because I’ve also associated myself with Keynesians, openly and explicitly so. If you showed me another way of doing things, I’d be delighted. But I can assure you, after many decades of working on Marxist economic theory, that there isn’t at the moment. So yes, Varoufakis has worked with Keynesians. But that isn’t really, in and of itself, a damning thing.

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Syriza’s Only Choice: A Radical Step Forward

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An article by Spyros Lapatsioras,[1] John Milios[2] and Dimitris P. Sotiropoulos[3]

 “One must know how to employ the kairos of one’s forces at the right moment. It is easy to only lose a little, if one always keeps foremost in the mind the idea that unity is never the trick, but the game.” [4]

1. Introduction

The transitional “bridge Agreement” of the 20th of February is a truce intended by the Greek government and welcomed by the other side (the European “institutions”). Within the truce period (the next four months), the conditions for negotiating the next agreement will be shaped. This could mean that everything is still open. However, that is not true for two reasons. First, the very transitional agreement changes the balance of power. Second, the “hostilities” will continue in the course of the next four months (i.e. the review of the commitments and the re-interpretation of the terms by each party).

2. The agreement of the 20th February: A first step on slippery ground… 

2.1 Negotiation targets

In the first substantive phase of negotiations at the Eurogroup of the 12th February, the Greek government sought an agreement on a new “bridge program” stating that it would be impossible to extend the existing program on the grounds that it has been rejected by the Greek people:

  1. The “bridge program” would not involve conditions, reviews and so on, but should be an official manifestation of the willingness of all parties to negotiate without pressure and blackmail and without any unilateral action.
  2. In the above context, Greece would forgo the remaining installments of the previous program, with the exception of the return of the 1.9 billion euros that the ECB and the rest of Eurozone’s national central banks gained from the holding Greek bonds (programs SMP and ANFA). Greek authorities could issue treasury bills beyond the limit of 15 billion euros to cover any liquidity emergencies.
  3. At the end of this transitional period: (a) Greece would submit its final proposals, which according to the program of the government would include a new fiscal framework for the next 3-4 years and a new national plan for reforms; (b) the issue of a sovereign debt restructuring-reduction would come to the negotiating table.

The German government and the “institutions” (EU, ECB, IMF) came to the negotiations with the position that Greece had to request a six-month “technical extension” of the existing program – renamed as the “existing arrangement” – to enable its successful completion. 

2.2 The outcome of the negotiation

The agreement of the 20th of February includes a four-month extension of the “Master Financial Assistance Facility Agreement (MFFA), which is underpinned by a set of commitments.” The extension of the Agreement (“which is underpinned by a set of commitments”) means: (a) evaluations by the three “institutions,” (b) commitments and conditions, (c) scheduled installments as they appear in the previous Program, subject to a positive evaluation, (d) return of the profits from holding Greek bonds by the ECB and national CBs, but subject to a positive evaluation by the “institutions” (even given the “independence” of the ECB).

In short there is a rejection-withdrawal of the Greek government’s negotiation targets (1) and (2). In addition, there is no explicit reference to how the government will cover its short term financing needs (e.g. issuing treasury bills to cover bond redemptions, interest payments and other possible emergencies) until the completion of the assessment. In this regard, the reference to the independence of the ECB may imply its “discretion” in assessing the extent to which the Greek government responds positively to the “commitments” that accompany the extension of the agreement (something which undoubtedly will complicate any “interpretative” attempts in relation to the agreement on the part of Greek government).

At the same time, the February 20 Agreement includes the statement: “The Greek authorities have also committed to ensure the appropriate primary fiscal surpluses or financing proceeds required to guarantee debt sustainability in line with the November 2012 Eurogroup statement.” This means that the Greek government refrains from the target of debt restructuring-reduction and adopts the sustainability plan based on debt repayment mostly through primary surpluses. This implies the rollback from point (3b) of its initial negotiating package.

What the Greek government has won (aside from the mere change in terminology, about which there was intense debate) is:

  • A. Part (a) of section (3) of its initial suggestions, namely the right to propose reforms to the “institutions” for approval with regard to fiscal consolidation and growth. The policy measures agreed by the previous government (reduction of pensions and increase of VAT in the islands) were thus taken out. Both sides agreed to give particular emphasis to the “overdue” fight against corruption and tax evasion, public sector efficiency, improving the tax system, etc.[5]
  • B. Further negotiations on the size of the primary surplus for 2015. Instead of the previously agreed 3% of GDP, the new agreement leaves open the issue of a lower primary surplus for 2015: “The institutions will, for the 2015 primary surplus target, take the economic circumstances in 2015 into account.”

It is clear that the new agreement is a truce, but truce is by no means a tie. The agreement is a first step on slippery ground. The Greek government may have gained time, but the political landscape seems quite tough, having minor similarities with the initial minimum negotiation targets set by the Greek side on the 12th February.

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Euro Finance Ministers Michael Noonan and Yanis Varoufakis

Government Misleading Europe about Austerity and Ireland’s Debt Crisis

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The government is misleading Europe about the reality of austerity and the debt crisis in Ireland so as to avoid admitting that they took the wrong approach with austerity and their failure to get a meaningful debt deal. The truth is austerity is based on flawed economics and it hasn’t worked in either Ireland, Greece or for Europe and Ireland’s debt is unsustainable.

Austerity has devastated Irish society. For most people recovery is just a word being spoken by politicians and the media. The Central Bank and ESRI have highlighted that the much lauded growth figures do not reflect the true health of the Irish domestic economy because they are artificially inflated by multinational and financial activities that do not take place here.

Austerity has resulted in 1.4 million people, almost 31% of the population, suffering from deprivation – which is up from 14% in 2008 and 37% of children suffer deprivation (up from 18% in 2008). The legacy crises are multiple – from mortgage arrears, rent, homelessness, childcare, hospitals, and community services. Unemployment figures are largely reduced because of emigration and the use of unpaid jobs schemes. Domestic demand remains static and working class communities, small towns and rural areas are devastated. Austerity has not worked for the low income and working people of Ireland. At a European level the Euro area is mired in stagnant growth of 0.8%, mass unemployment of 11%, and a debt-to GDP ratio that that has risen from 72% in 2009 to 92% today.

The calculations of economists Reinhart and Rogoff that austerity was required to reduce government debt levels below 90% in order to return to growth was also found to be incorrect. The IMF has also admitted that it underestimated the negative impact of austerity’s higher taxes and spending cuts on economic growth and unemployment.

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Grexit or Compromise: Which Way for the Greek Left?

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The last 10 days, from February 11th to February 20th, saw some critical developments in Greece. After a number of clashes in the Eurogroups of 11th, 16th and 20th February, an agreement was reached extending the “current arrangement” with the Troika for 4 months. This agreement, as is generally agreed, was a heavy compromise on the part of the Greek SYRIZA-ANEL government, putting into doubt the possibility to carry out its program, i.e. SYRIZA’s Thessaloniki program. There was another serious compromise too, when, on February 18th, Prokopis Pavlopoulos, a representative of the conservative camp and leading figure of the ND party, was elected President of the Republic.

The same period witnessed, on the other hand, some big demonstrations in Greece and other European countries too, centered round the task of cancelling debt. Although not as massive as those in the 2011-2012 period, they show some real hope of a new rise of the movements and their possible intervention in the scene. Significantly, these demonstrations, which begun as acts of spontaneous support to the Greek government, seem likely to continue after the compromise made – a new one was announced for February 26th in various facebook pages.

Taken together these developments pose some serious questions. Does SYRIZA relinquish its promises of a substantial change with regard to the previous austerity ND-PASOK regime? Is such a change feasible within the EU through an acceptable compromise reached after a negotiation? Or is it impossible and Greece should head instead for a payment default and exit the EU – the prospect broadly known as “Grexit?”

In this article we will discuss these questions, with an eye to the coming solution of the Greek drama when the four month prolongation of the Memorandum ends.

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How the Austerity Con Works

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This article originally appeared on Socialist Economic Bulletin on Monday the 23rd of February. 

‘The Austerity Con’ is the title of a recent article in the London Review of Books. It is written by a leading Keynesian economist Professor Simon-Wren Lewis, who is also a fellow of Merton College, Oxford. The article is available to non-subscribers here. It deserves to be widely read because it contains two important arguments against austerity.

The first argument nails the lie that austerity was necessary because of an immediate crisis of government funding. The second argument exposes the myth that austerity has been responsible for an improvement in government finances. Both of these arguments will be familiar to regular readers of SEB and Prof. Wren-Lewis will give them a far wider airing. Given that averting the crisis in government finances is offered by the supporters of austerity as its main justification, the title of his piece is fully justified.

However there is a difference of view among opponents of austerity about the nature of the current crisis. It is important because it underpins both the overall analytical framework and the suggested policy prescriptions. Prof. Wren-Lewis says, “The place to begin is 2009. By then the full extent of the financial crisis had become apparent.” He goes on, “The financial crisis was leading consumers and firms to spend less and save more. That made sense for individuals, but the problem was that because everyone was doing it, the total amount of demand in the economy was falling. As demand fell, firms produced less, so they reduced their workforce.”

This is not entirely accurate. Demand is comprised of two components, consumption and investment. By taking a step back to 2007 it possible to see more clearly how the crisis arose. Regarding the industrialised countries as whole grouped in the OECD it is possible to see that only one of these experienced a sharp fall. This was investment not consumption.

Fig.1 below shows the level of real GDP and its key components, consumption, investment and net exports. The data is presented in both in constant prices in constant Purchasing Power Parity exchange rates and is itemised in the box below.

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Debt? What Debt?

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With the Dail to debate a private members motion from Catherine Murphy, TD calling for support for a European Debt Conference, it is worth looking over Ireland’s debt numbers; especially as we will get a flood of claims from some quarters that our debt level is fine, its’ sustainable, we don’t need debt relief, etc. etc. etc.

The starting point in such debates is the question:  is Irish debt sustainable.  This can, however, descend into a black hole of formulae.  Simply put, just about any debt can be considered ‘sustainable’ if the debtor is willing to starve the kids and live under the railway bridge.  ‘Sustainable?  Sure, but there will be sacrifices’ (which, in Ireland are never inventoried).  If you believe this is an exaggeration, consider the EU elite’s attitude towards Greek debt levels. 

Let’s go through some bald numbers.

Debt 1

Irish debt is among the highest in the 19 Eurozone countries.  Officially, it is at 110 percent of GDP; when measured against our fiscal capacity as suggested by the Fiscal Council, it rises to 122 percent.  We’re placed fourth though look out for Cyprus and Belgium in the next few years.

When we turn to what some call an ‘illegitimate’ debt – that private banking debt that we all ended up paying for – Ireland remains league leader.

Debt 2

While banking debt makes up a quarter of our GDP, in the Eurozone the total debt is less than 2 percent.  And for Ireland, this doesn’t count the nearly €20 billion taken from the National Pension Reserve Fund for recapitalisation – since this is categorised ‘investment’ and not debt.   Were it not for the official banking debt, our overall levels would be close to the average Eurozone level. 

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Tsipras versus Cameron: people versus bankers

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This article originally appeared on Socialist Economic Bulletin on the 1st of Feb 2015. 

David Cameron became the first elected politician in Europe to criticise the election of the Syriza government in Greece and was quickly followed by George Osborne. This might seem odd as Britain is outside the Eurozone and has limited direct influence over its policies. But the urgent and unrestrained nature of the criticism is very revealing about what is at stake in the anti-austerity struggle and specifically the very different roles being played by the British and Greek governments.

The Syriza government represents the popular will to end austerity. Only the parties of the left increased their vote in the recent election, and that was overwhelmingly to Syriza’s benefit with a rise of 9.4%. But entirely new parties and even parties of the traditional right adopted similar anti-austerity rhetoric in an effort to shore up their vote. The election showed the Greek popular majority wants to end austerity.

In Britain the banks have an extraordinarily large weight in the economy. Consequently, this dominance is felt through all areas of political and social life. A recent Global Financial Stability Reportfrom the IMF (pdf) demonstrated the dangerously lop-sided nature of the British economy by focusing on ‘shadow banking’, the artificially created networks of companies and vehicles to disguise the real liabilities of the banks. In Britain shadow banking accounts for over 350% of GDP. The next highest exposure of all the industrialised areas or economies is the Eurozone at less than 200% of GDP. The phrase ‘too big to fail’ is insufficiently grave to convey the threat posed by the outsized level of British bank liabilities.

This explains the sudden and intemperate Tory interventions against the newly-elected Greek government. The British government represents the interests of British big businesses and the most important of these is the banks. The banks have sharply reduced their loans outstanding to Greek borrowers. As Martin Wolf the Financial Times’ chief economics commentator explained recently, the banks in general were the key beneficiaries of the bailout, not the Greek economy or its population. Since the €254bn bailout organised by the Troika just €27bn was to support the Greek economy. The rest went to creditors with British, German and Dutch banks at the head of the queue for the taxpayer-funded bailout. But the huge debt is incurred by Greek taxpayers, and so the debt burden is unbearable.

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Photo credit: Euronews

Syriza’s Victory: Turning Hope into Reality

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This article by Michael Burke and John Ross was originally posted on Socialist Economic Bulletin on Monday the 26th of January

The Greek people have inspired every progressive force in Europe, and beyond, by electing the first anti-austerity government in Europe. Syriza has similarly inspired every progressive person with the great political skill with which it outmanoeuvred the forces in Greece and Europe who attempted to scare the Greek people into not voting for it. As Alexis Tsipras said immediately after its victory Syriza has opened up hope for the Greek people – and many others as well.

The key question now is how to turn hope into reality.

Syriza has outlined clearly its orientation – which should be supported by every progressive force. Syriza has said it is not seeking to exit from the Euro. It wants Greece’s unpayable and unjust debt renegotiated. The immediate priority of the left throughout Europe must be to organise support for this demand of Syriza during the coming negotiations. It is to be welcomed that not only the political left but also far wider groups arguing for a rational economic policy support this course – including eminent figures in their profession such as Nobel Prize winners in economics Joseph Stiglitz and Chris Pissarides. All efforts must be redoubled across Europe to gain support for the renegotiation of Greece’s debt – a course which corresponds not only to the interests of the Greek people but to the interests of rational economic policy across Europe, and therefore to the interests of the people of Europe.

Whether or not these negotiations succeed, however, the new Greek government is faced with key choices in economic policy. This is even more the case as, if the economic policies of the new government do not succeed, sinister forces that failed to win this election will seek to turn Greece backwards.

The first and immediate priority, of course, is to reduce and eliminate the appalling humanitarian suffering imposed on the Greek people by the austerity policies. Creating jobs, raising wages, restoring pensions, recreating the best possible social security are the top priorities. As always politics must take precedence over economics.

But to sustain the improvement in the living standards of the Greek people it is necessary to relaunch economic growth. And the key to economic growth is necessarily investment. Without rising investment an economy cannot grow.

Under the conditions of Greece it is even more unrealistic than normal to rely on the private sector for investment. It is the collapse in private investment which has driven economic collapse in Greece and economic recession across Europe. Since 2007 Greece’s GDP has fallen by €57bn of which the bulk is the fall in investment at €36bn. The only way to secure economic growth is therefore to embark on a programme of state investment. Those countries which have used state investment as their key instrument to promote growth have enjoyed outstanding success – for example Ecuador, Bolivia and China.

In a country such as Ecuador, which has enjoyed 5% GDP annual average growth over 10 years, real incomes per capita have risen by over 2% a year, and 10% of the population has been lifted out of poverty. This has been driven by state investment which has now reached 15% of GDP.
Economic growth, led by state investment, will in turn create the conditions under which the private sector will begin to invest again.

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A New Kind of Trade Unionism Emerging

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This article was originally posted on the Trade Union Left Forum on the 14th of October.

A new kind of trade unionism is emerging and consolidating itself within the right2water campaign, led by Mandate and Unite and supported by OPATSI, the CPSU, and the CWU. These unions are bringing the broader social and economic interests of their members to the fore and committing resources, time and effort to support mobilisation not only of members, but also the working class and communities more generally.

By viewing their members as workers (as opposed to people paying a subscription for work-place representation services) these unions are placing the workers’ immediate social demands alongside, and equal to, their immediate work-place concerns. This is crucial if the trade union movement is to really represent its members and to recover its power and leverage in society. Wage increases alone will not improve the lot of workers while the political economy of the country is being restructured from one made up of citizens to one of customers in a toll-booth economic and political structure.

The TULF on many occasions has suggested that the trade union movement has a unique position in Ireland in having the resources and channels of communication to support the mobilisation of working people in a way that no left party can. And now it seems that some unions are realising this potential, which is both necessary and welcome.

The right2water alliance is a genuine alliance of union, political and community groups, making a clear demand and statement, “calling for the Government to recognise and legislate for access to water as a human right. We are demanding the Government abolish the planned introduction of water charges.”

As well as the five unions mentioned, community groups and parties have signed up to the campaign. Some 40,000 people have signed a petition calling for the scrapping of the water charges, close to 100,000 marched at the demonstration on 11 October, and more local actions are planned for 1 November.

The right2water campaign is not dictating tactics to communities or individuals but is building and growing a broad campaign of groups and people based on the principle of water as a human right and as a publicly owned utility and resource. Some on the left have attacked the campaign for not demanding non-payment; but at this moment building the biggest, broadest alliance against water charges and privatisation is the priority. A turn towards direct non-payment may be necessary in the future, but right now the campaign’s strength is in growing and building the alliance rather than splintering over tactical matters.

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Demanding the Future: The Right2Water and Another Ireland

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This article was originally posted on Critical Legal Thinking on the 29th of September.

The American abolitionist Frederick Douglass once observed that if you find out ‘just what any people will quietly submit to … you have found out the exact measure of injustice and wrong which will be imposed upon them’ and that such injustices ‘will continue till they are resisted with either words or blows, or with both’. In Ireland, after six years of austerity and regressive tax reforms that have punished Irish working people for the benefit of Irish and European bond holders, it seems the Irish establishment may have finally discovered the measure of injustice that the people will not tolerate.

The Irish government is currently implementing a plan to install water meters, so that people’s domestic water usage can be monitored and they can be charged for the amount they use. In this way they are abandoning the traditional funding model for water provision in Ireland, which saw it paid for out of general taxation. This move by the Irish government is consistent with a global trend over the last twenty years towards the increased commodification of essential services, with water seen as a particularly lucrative market. Taking advantage of the economic crisis, as most governments in Europe have, the Irish government has accelerated a broad neoliberal policy drive (privatisation of services, cuts to public sector jobs, regressive taxes) under the well-worn mantra that “There Is No Alternative”.

However, this new tax–this commodification of an essential public good–is being met with trenchant resistance from working class communities throughout the island. From Crumlin to Togher, Edenmore to Caherdavin, communities have mobilised to prevent the installation of water meters in their areas. In these protests the community activists have remained resolute in the face of attempts at intimidation from both the company established to commodify the water service, Irish Water, and the police. As well as engaging in direct action to prevent the installation of meters, the bourgeoning movement is also encouraging a boycott of the attempts by Irish Water to enrol residents as “customers”, and calling for non-payment of any future bills.

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Stag-covery

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Stag-covery (n): a situation where statistical recovery occurs within a persistent economic stagnation  

The CSO’s new release shows a statistical recovery and a stagnant economy – a state of affairs that can be described as stag-covery.

The headline rates show a GDP quarterly increase of 2.7 percent.  This might seem solid enough but all this is driven by net exports.  The domestic economy remains mired in stagnation.

DEI1

The worst of the economic crash ended in 2010.  Since then it’s just a matter of bouncing along the bottom.  In 2013 consumer spending fell, spending on public services bumped up marginally while investment fell marginally.  We can debate the swings and roundabouts (impact of the pharma cliff, aircraft leasing, etc.).  But the narrative remains the same – the ship sunk to the bottom and is struggling to get back to the surface.

The first quarter of 2014 didn’t get off to a hectic start.  On a quarterly basis:

  • Consumer spending fell, though this shouldn’t be too surprising given that it was coming off a quarter that contained Christmas spending.
  • Spending on public service resumed its long-term fall – by over 2 percent.
  • Investment fell by a substantial 8 percent.

It is this inability of the latter to generate any momentum upwards that is particularly worrying.

QIG2

This represents is a potential problem for the Government.  In the last quarter investment fell by 8 percent.  Yet the Government has pencilled in investment growth of over 15 percent this year.  Of course, the game isn’t even half over but this is an especially poor start.

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Closer to the Bottom than to the Top

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Irish living standards are now closer to the bottom of the EU-15 countries than to the top; they are closer to Greece than to Germany or Belgium or the UK or most other EU-15 countries.

Eurostat has just released its annual estimates of household living standards. To measure this they use Actual Individual Consumption (AIC).  According to Eurostat:

‘In national accounts, Household Final Consumption Expenditure (HFCE) denotes expenditure on goods and services that are purchased and paid for by households. Actual Individual Consumption (AIC), on the other hand, consists of goods and services actually consumed by individuals, irrespective of whether these goods and services are purchased and paid for by households, by government, or by non-profit organisations. In international volume comparisons, AIC is often seen as the preferable measure, since it is not influenced by the fact that the organisation of certain important services consumed by households, like health and education services differs a lot across countries.

For example, if dental services are paid for by the government in one country, and by households in another, an international comparison based on HFCE would not compare like with like, whereas one based on AIC would. . . Actual Individual Consumption per capita is an alternative indicator better adapted to describe the material welfare of households.’

In short, AIC captures goods and services bought by households and by Governments on behalf of households.

The following table shows the relationship of European countries’ living standards to the EU-15 average, with the EU-15 equalling 100.

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Ireland is approximately 11 percent below the average EU-15 living standards.  We rank 12th in the league table.  What’s noteworthy is that we are closer to Greece than to most other countries.  We are 14 indice points above Greece but 15 points below the UK.  There are eight other countries above the UK.

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Scapegoating During a Time of Crisis

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The following piece is based on a much longer article ‘Scapegoating During a Time of Crisis: A Critique of Post-Celtic Tiger Ireland’, co-written by Micheal Flynn, Lee Monaghan and Martin Power. It is available here.

Austerity and Scapegoating: two sides of the same coin

Class war is in large part a propaganda war; it is in no way confined to formal political life, but  works its way through all the institutions of society. For the most part it is the ruling class that is advancing – most obviously through the commercial media, which so often serves to divide, disempower, demoralise and dis-benefit the working class.

Only a few years ago it was generally accepted that bankers, developers and speculators destroyed Ireland’s economy. In the wake of the collapse, Brian Lenihan’s claim that ‘we all partied’ was rightly understood as an attempt to deflect blame from those actually responsible. Most understood that it was the recklessness of the investing classes, coupled with the political decision to socialise private bank debt that had forced hundreds of thousands on to dole queues and/or through airport departure gates. For a time, the anger of the population was focused squarely of those that had destroyed the economy.

Yet, notions of collective responsibility have been carefully fostered ever since. The idea of a specifically Irish lust for property (or even a ‘property-owning gene’) appears to have become the common-sense of our time. The commercial media, with the help of the trendy economists elevated to celebrity status, such as David McWilliams, reason that everything went askew because of a ‘cult of property’. We Irish gave in to a ‘mass delusion’ – or as Indakinny so eloquently explained ‘we all went a bit mad with borrowing’.

Consequently, and very conveniently, the role of developers, speculators and politicians – their systematic destruction of alternatives to crippling mortgage debt, the role of section 23 tax breaks, the endemic planning corruption revealed by the Mahon tribunal, are all put out of sight as blame is socialised. This makes it far easier to justify the on-going socialisation of debt, which in turn helps to rationalise the ‘tough decisions’ that government insists are unavoidable. The subsequent apportioning of blame to specific targets is likewise done in a manner consistent with the distribution of austerity.

As expected, cuts to the public sector have gone hand-in-hand with attempts to demonize public sector workers. With the public sector now on the chopping block, ‘over-paid’ and ‘under worked’ public sector workers have been identified as unbearable burdens on the public finances. Rather than remain focused on where the billions are actually going, attention is paid to a ‘privileged’ public sector. This cultivation of resentment gives licence to savage cuts and softens the public up for privatisations. Even better, damage done to the highly-unionised public sector also damages the trade union movement, which when weakened makes for more effective attacks on pay and conditions down the line.

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