Austerity

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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.

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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.

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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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Flying Pigs and the End of Austerity

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Do you really believe that 2015 is the last year of austerity?  If you believe that fiscal pigs will fly, then, yes, 2015 will be the last year of austerity.  However, if you are even just a tad sceptical then read on.  For 2015 is not the end – it is just the end of the beginning.  After 2015 we will be into a new phase of real austerity.

The Government has produced a budgetary scenario up to 2019.  They emphasise that this is just a scenario.  They even underline it.

‘Again it must be stressed that this is purely an illustrative scenario.’

So this is one possible future that the Government is considering.  However, given that they have published it twice means that this scenario is being serious considered – especially as they have not produced any other scenario.

The key to understanding why real austerity will continue up to the end of the decade is the premise of this scenario:

‘Expenditure is assumed to increase by 1 per cent per annum.’

Ok.  And how much do they expect inflation (GDP deflator) to increase by?  1.4 percent per annum.  So each year the increase government expenditure will not match the increase in inflation.  Therefore, each year it will be cut in real terms – that is, after inflation.

Let’s run through some basic numbers – focusing on primary expenditure, which excludes interest payments.  This means we’re looking at expenditure on public services, social protection and investment.

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1,230,000

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1,230,000. This number should be burned into the debate.  This the approximate number of people included in the CSO’s enforced deprivation rate.  This is the number of people who suffered two or more deprivation experiences in 2012.  This is more than one-in-four – 26.9 percent – of all people in the state.  This is a number that should drive the debate from here on.

The CSO sets out eleven enforced deprivation experiences:

Without heating at some stage in the last year * Unable to afford a morning, afternoon or evening out in the last fortnight  * Unable to afford two pairs of strong shoes * Unable to afford a roast once a week * Unable to afford a meal with meat, chicken or fish every second day * Unable to afford new (not second-hand) clothes *  Unable to afford a warm waterproof coat * Unable to afford to keep the home adequately warm * Unable to afford to replace any worn out furniture * Unable to afford to have family or friends for a drink or meal once a month * Unable to afford to buy presents for family or friends at least once a year

Those who suffer two or more of these experiences are officially categorised as deprived.

Deprivation has been rising since the beginning of the recession.  In 2007, 11.3 percent were categorised as deprived.  In 2012, it rose to nearly 27 percent – more than doubling.  In absolute numbers, it has increased by nearly three-quarters of a million.

In this overall number there are approximately 375,000 children, aged 17 and under.  Since 2007, this number has increased by 180,000.

There are sections of society that are under severe pressure.  The following is the deprivation rate for particularly vulnerable sectors:

  • Social housing tenants:  50.7 percent
  • Lone parents:  49.5 percent
  • Unemployed:  49.4 percent
  • Not at work due to illness or disability:  48.5 percent

In these groups, one-in-two people live in deprivation.

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The Case of the Elusive Paid Job

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I’ve heard a great deal recently about economic recovery and job creation. Ireland’s unemployed should be optimistic, and if we’re not, well, who’d want to hire us with that attitude? All we need to do is ride it out, keep a positive outlook and before we know it we’ll all be upstanding citizens again, able to pay our bills without the weekly humiliation of social welfare. I’d like to believe that, but I don’t see any evidence of it: all I see in the jobs pages are some high-tech, highly specific positions in large multinational companies, jobs that require qualifications and languages that very few Irish people possess, and an enormous, unshakable, mass of Job Bridge Internships.

Yesterday I looked up one of the main recruitment sites and put “Cork” and “admin/PA/secretarial” into the search engine. I got five results for paid jobs (not Jobs Bridge), four of which were: “Finnish Customer Service Associate”, “Polish Accounts Assistant”, “Logistics Administrator with Turkish or Hebrew” and “German SAP Rep”. The outlook is similar whenever I search for vacancies. I’m under no illusion, I fully understand the requirements of EU free movement of workers, and I don’t deny the right of any person to take up work in another EU member state, but I cannot see how these jobs are going to filter through to the vast majority of unemployed people.

The system implies it’s our own fault; Irish people didn’t learn the right skills, we should have been able to predict the future. We’re told that we’re living in a globalised world now, and it’s up to us to stay “relevant” to ever-evolving labour market requirements, requirements that now, seemingly, we are surplus to. We are in over-supply: cheap, expendable and easily substitutable.

The Irish unemployed, it has transpired, must be happy to do Job Bridge Internships. After all, we are the great unemployable, why wouldn’t we be satisfied to work a full week for our dole? We deserve it for not learning obscure languages or qualifying in high-tech areas that didn’t exist five years ago. Every second job advertised, that doesn’t require unreachable and prohibitive levels of experience – from cleaner and meat-counter assistant to teacher, solicitor and scientist – is a Job Bridge Internship.

When I was in university it was common for students to work in retail or as waiters or waitresses part-time to fund their studies. Now almost every low-paid casual job is a Job-Bridge that requires the lucky participants to be on the Live Register for three months, so I can’t see how students could possibly hope to work. It’s not just students: so many people I know in their late twenties and early thirties, people with post-graduate qualifications and years of work experience, have not only done Job Bridges but have had to compete with other similarly qualified people to get them. When I hear of a friend getting an actual, paid job, it’s like a miracle, and even then it usually comes down to personal contacts.

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Friday Stat Attack: Ireland Holds the Record for Longest Domestic Recession in the EU

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Some commentators are celebrating our ‘recovery’.  Some have even said that we have recovered relatively quickly, after a dramatic fall.  Here we go again – rewriting history, distorting the current situation.

Ireland holds the record for the longest domestic demand recession in the EU.  And the really bad news is that we may not be out of it yet.  The following table breaks down the length of consecutive domestic demand recession that EU countries have suffered since 1960.

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Almost all EU countries have, since 1960, suffered at least a two-year domestic demand recession – with the exception of France and Malta (though data only goes back to 1996 for the island).  Some domestic demand recessions have been harsh – Estonia’s two-year experience saw a fall of over 30 percent; some have been mild – Poland’s two-year experience saw a fall of less than one percent.

Ireland – along with Spain and Greece – have the longest consecutive domestic demand recession:  six years.  And in the tradition of breaking the tie, let’s count the number of years that domestic demand fell since 1960:

  • Ireland:  12 years
  • Greece:  10 years
  • Spain:  9 years

With 12 years where domestic demand fell, Ireland wins on points.

Indeed, Ireland wins the double:  longest domestic demand recession and the highest number of years where domestic demand fell.  Since 1960, Ireland has spent 23 percent of the time suffering from falling domestic demand. That’s the cup.

But, surely, this is nit-picking – what with all that recovery going on.  So don’t worry about it.

Enjoy the weekend.

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In Ireland, the Jobs River Flows Uphill

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There’s a lot of confusion out there.  IBEC found the recent fall in consumer spending ‘puzzling ‘ – what with all the increase in employment.  Others have found it strange, too – strong employment growth but falling consumer demand.  Shouldn’t the big increase in employment translate into higher consumer spending and domestic demand?  What’s going on here?

Well, it’s only puzzling if you accept that employment grew by 60,000 over the last year.  However, once you lift the lid on the numbers and find that the 60,000-growth number in the CSO’s Quarterly National Household Survey (QNHS) is a statistical quirk, then it starts to make sense.

First, let’s note the CSO’s warning about interpreting trends in employment growth during the period they are realigning their sampling base with the 2011 census.  This realignment ensures that their Quarterly National Household survey sample is aligned with the population.  They do this after each census.

‘After each Census of Population the sample of households for the QNHS is updated to ensure the sample remains representative. The new sample based on the 2011 Census of Population has been introduced incrementally from Q4 2012 to Q4 2013. This change in sample can lead to some level of variability in estimates, particularly at more detailed levels and some caution is warranted in the interpretation of trends over the period of its introduction.’

Now let’s look at the employment numbers.  Between the 4th quarter in 2012 and 2013, employment grew by 60,900 – or 3.3 percent (not seasonally adjusted).  However, self-employment grew by 33,400, or 11.5 percent.  So, self-employment made up 55 percent of all employment growth.  Is this realistic?  No.

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Losers and Not So Losers

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It is often argued that the recession has been rough on all of us but that high income groups have had it the roughest.  European Commission Director István Székely came to Dublin late last year to assure us that the ‘the better-off sections of Irish society have borne the largest share of the brunt of the bailout programme’.  I don’t know whether this was intended to soften the blow as it were, making the austerity programme more palatable. I do know, however, that it is not true.   Dr. Székely is not alone; many have argued, using ESRI findings, that higher income groups have borne the greatest burden during the recession.  I will critique the ESRI findings below but first let’s go through some other evidence.

Wage Increases Higher income households have managed to increase their incomes, as noted in a recent Friday Stat Attack.

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This is not true for all sectors.  For instance, public sector managers and professionals have taken substantial hits in income. And there are compositional effects to take into account.  However, at a national level we see that this group has received a substantial increase in income compared to other workers whose weekly earnings have flat-lined.  Even if higher-income groups have taken a hit through tax increases they have managed to recoup a large part of this through increases in earnings.  This didn’t happen for most other workers, never mind those on social protection.

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Losing one’s job is probably the biggest hit a household can suffer.  How have theselosses been distributed?

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Managerial and professional employment has actually increased during the period of recession while all other occupations have experienced a decline – in some cases, substantial declines.  And the occupational groups suffering a loss have lower income than the managerial and professional groups.   So lower income groups, on average, have been hit by the jobs recession much harder than higher-income groups.

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Friday Stat Attack: The Low-Paid Economy

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We need to keep wages and employers’ PRSI (the social wage) low to ensure we are competitive. That’s the line being spun everyday by employers’ organisations, Government Minister and a number of commentators.  You’d think from all this that Ireland suffers from high labour costs.  Do we?  Not a bit.

How much would average Irish labour costs have to rise just to reach the average of other EU-15 countries?  Quite a bit.

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As seen, labour costs in the business economy (essentially, the private sector) would have to rise by over 16 percent to reach the average of other EU-15 countries.

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Ireland Needs A Wage Increase

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2014 should become the year of the wage increase.  Lord knows, workers need one.  Falling incomes, rising prices, increased taxation, cuts in income supports and public services – all have contributed to a toxic situation where living standards are falling, especially under the continuing burden of household debt.  So, yes, a wage increase is not only desirable but necessary.

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In the last five years weekly earnings have fallen by three percent, with the low-paid sectors (marked with an asterisk) of recreation and hospitality, along with the public sector, taking the biggest hits.

We should remember the compositional effect on these numbers.  For instance, if you have three people earning €5, €10 and €15 respectively, these three would average €10.  However, if the lowest paid loses their job, the average of the other two increases to €12.50.  Yet, those two didn’t experience a wage increase; it’s just that the composition has changed.  So, we might find in many sectors, the actual fall in weekly earnings for many/most workers is more (and vice-versa).

No doubt, arguments about ‘wage competitiveness’ and ‘wage inflation’ will be raised (isn’t it odd we never hear about ‘profit competitiveness’ and ‘profit inflation’, or ‘poverty competitiveness and inflation’?).  These are arguments we will return to later.  Hear I want to outline another issue – one which will impact on the kind of economy and society that is being created for us.

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How Bad Will It Get?

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Chancellor George Osborne has recently been promoting two ideas. One is that a recovery is under way and the other is that further cuts in government spending are needed, up to £25bn.

The contradictory nature of those two statements tells us something important about the nature of the current recovery and the actual content of economic policy. It is clear that however weak the current recovery is, the overwhelming bulk of the population will not benefit from it. Austerity policies have always been aimed at transferring incomes from labour and the poor to capital and the rich. So for example, a VAT increase was said to be necessary to cut the deficit yet was simultaneously implemented with a cut in the corporation tax rate which reduced government revenues by almost exactly the same amount.

The popular shorthand for this is a recovery solely for the 1%. The class content is clear. The policy is designed to boost capital at the expense of labour and its allies.

Austerity is not at all designed to boost total economic output, in which capital might be one of the beneficiaries. The reason is simple. In the ordinary course of events an economic downturn or slump leads to a fall in profits far greater than the fall in output. A simple recovery in output could entrench that for a prolonged period.

So, the owners of a car firm sell cars worth £1,000 million in a year. Their main costs are all the inputs of labour, capital and raw materials amounting to £800 million. But these largely to tend to stay the same or even continue to rise a little when the downturn occurs. Suppose sales fall by 10% to £900 million. Input costs are unaltered in aggregate. Now profits are only £100 million and previously they were £200 million. On a 10% decline in sales, profits have fallen by 50%. Profits fall faster than output.

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The Irish Media – Cheerleaders For Austerity

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This article by Julien Mercille first appeared on the Social Europe Journal on the 17th of December.

A study of Irish press coverage of austerity between 2008 and 2012 conducted at University College Dublin confirms that the media have been relentless cheerleaders for austerity. The case is so overwhelming that it may even surprise proponents of austerity. The full report is available here.

Ireland has distinguished itself among European countries by implementing austerity at the outset of the current crisis, while a number of other governments reacted by first enacting Keynesian stimulus packages, in parallel to bailing out their banks, before turning to austerity. Austerity might be good for elites, but it attacks ordinary people by cutting government spending on social services, health care and welfare. It seeks to make labour more ‘flexible’ by dismantling and downgrading work conditions and protections to give more power to employers over employees. On top of that, it raises regressive taxes like the VAT and encourages privatisation of state-owned enterprises and assets, often sold to investors at bargain prices.

European authorities themselves have announced explicitly, and even proudly, that austerity is used to attack the welfare state and ordinary people. Mario Draghi, the ECB president, declared in an interview with the Wall Street Journal that the European ‘traditional social contract is obsolete’ and that ‘there is no escape from tough austerity measures’. He further said that continuing ‘shocks’ would ‘force countries into structural changes in labor markets’. Accordingly, Europe’s population faces repeated attacks from corporate and political elites, a fact noted by the New York Times recently when it observed that ‘Americanized labor policy is spreading in Europe’. It remarked that in 2008, 1.9 million Portuguese private sector workers were covered by collective bargaining agreements, but that the number is now down to 300,000. Greece has cut its minimum wage by almost a fourth, Ireland and Spain have frozen it, and in general labour protections have been reduced in peripheral Europe, so that austerity is ‘radically changing the nature of Europe’s society’. The developments will transform so deeply the social fabric that the chief economist of the International Labour Organisation described them as ‘the most significant changes since World War II’.

Therefore, in order for elites to convince the population that austerity is good for them, or to reduce the intensity of protests against it, a lot of ideological work is needed. This is when the media step in.

Ireland might be a somewhat special case on the European media landscape because all its major news outlets are right-of-centre. While that’s bad for those who want to know what is really going on, it’s good for the Irish and European elites who want a favourable spin on their policies.

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