Careful with that ‘austerity’ narrative Brian(s)… August 24, 2010
Posted by WorldbyStorm in Economy, Irish Politics, The Left.trackback
I’m on a holiday of sorts this week and last, and very pleasant it is too – away from the grind of work. Anyhow, I was at a party on Saturday evening where I got talking to a man who had worked for one of our more profitable semi-states, but in more recent years was now out on his own with his own company.
He was a bit older than me, perhaps early to mid-50s and his tone was one of utter dejection with our current economic situation. As he said, there’s nothing happening out there. So intrigued I asked him how bad was it?
“Very,’ came the response. ‘There’s no demand in the economy, either consumer or commercial.’
‘So what,’ I asked…’what was the solution?’
‘We’re going to have to cut the minimum wage, cut social welfare… people are paid too much here. We just have to cut and cut and cut until we’re competitive.’
‘Okay,’ I said. ‘But what about consumer demand? How will that pan out if those cuts are implemented? And what about ability to meet debt repayments in terms of loans and mortgages which will increase relative to falling wages?’
He eyed me at this point, ‘Don’t know if you work in the public or private sector…’ I didn’t enlighten him. ‘…But everyone has been cut and…there’s going to be more.’
‘I’d still be curious about consumer demand if cuts are imposed?’
‘Well, some people were just greedy,’ he said. ‘They bought houses for mortgages they couldn’t afford, half a million, three quarters of a million and…now they can’t pay them back.’
‘Absolutely, so are you suggesting they should just go to the wall?’
‘It’s all going to go down before there’s any recovery.’
Change of tack, ‘We need leadership, something that can pull this around, people who’ll say it like it is.’
‘The government?’
‘No, they’re useless. And the other shower, Fine Gael and Labour… they’d be worse.’
‘So maybe someone else…’
‘We need a National Government. Someone who’ll tell them what it’ll be like if the IMF come in. Sure if we’d had the IMF it’d be better. They’d make the cuts necessary.’
‘And what does that do to demand when you have people who have defaulted on mortgages, or are made unemployed and can’t repay those mortgages? How does that help the economy? Doesn’t that make the situation worse again?’
At which point he shrugged.
Later when he was leaving I wished him good luck with his own business given the situation. He looked a bit surprised for a second, then said, ‘Me? No, my business is grand. Doing fine.’
And it’s important to note that there are businesses, small, medium and large which are hurting badly in this crisis, and in truth when a business hurts its workers to hurt. And there are many many who have with considerable initiative and enterprise established their own businesses which are in serious trouble. So I don’t dismiss any of his concerns in those regards. They’re absolutely genuine.
Now, what struck me most forcibly about that conversation which is near verbatim was the answers. This was not that an unintelligent or vindictive person (well no more than most of us), but that instead a narrative generated by the media over the past two years, and in no small part driven by the government and its proxies has now spiraled dangerously out of control.
And in political terms you can chart how that could have occurred, that the original softening up of the public sector for cuts and levies (albeit that this was often elided with public expenditure) which was headlined as being almost the fundamental key to tackling the economic crisis, established a narrative of others who would have to have pain inflicted upon. And that when the crisis continued, or actually continued in piecemeal fashion and no turnaround manifested itself that that created a sort of cognitive dissonance. In other words, if the initial actions taken weren’t sufficient, then what was? Who is to be turned to next?
Curiously that has had the effect of further delegitimising the government, already on hugely shaky ground given that it oversaw the navigation of the state into the crisis in the first place. Because its own actions self-evidently aren’t working, or are insufficiently working (not to mention that the scope of cuts alone is enormous and staggered across three or four years so it’s no case of jam tomorrow).
And politically, or rather how this has played with circles in the media, this has been utter poison. With no revival in FF’s poll ratings and the other conservative formation still doing poorly there has been no evidence that the proscriptions are being accepted in anything like the way that was envisaged.
Which explains the consequent disillusion and disenchantment expressed in most of that media at what is happening and also the otherwise inexplicable casting around for alternatives such as the PD redux rumours.
Which further explains why someone like the guy I was talking to would ultimately be still locked into a narrative whereby FF and FG and Labour are useless, but somehow a National Government comprised of these same formations will do the trick. Or where his personal circumstance is fine but all is disaster. Or where the very solutions he proposes only exacerbate the crisis he entirely sincerely is appalled at. Indeed he has no belief in any of the solutions and seeks ultimately some quasi-authoritarian approach as if that will somehow magic the situation away.
You know, without indulging in hyperbole, this a very curious moment to be living through…
Quick question before I go off on one….did you ask him, or did he tell you, whether any friends of his have found themselves in trouble?
I did as it happened but he didn’t reply in the specific, it was another ‘everyones hurting’ funny thing is I have a couple of good friends whose businesses as effectively sole traders have had 40 to 60 % collapses in revenues due to public sector expenditure cuts.
I suppose it’s hard to know what that means, whether it’s “no”, or “yes, but none of your business”, or what. I was moved to ask from an experience I had on another discussion board a couple of years ago where on one thread, this (highly dislikeable) chap ,a consultant, was going on about how a couple of his mates had lost their jobs, and then on another, started screaming about public sector workers and their gold-plated pensions. I put two and two together and decided that he’d been up the pub with his newly-unemployed chums, all of whom the sort who expected to do well in life and this could never happen to them, and they’d spent the evening blaming public sector workers who as we know do nothing, cannot ever lose their jobs and in retirement live in luxury.
Anyway….firstly, I’m not surprised that your friend’s business is actually doing OK, because I think most businesses are, and will. They won’t, by and large, be booming, but actually business failures will largely be down the smaller end of the scale. Even among businesses which have a substantial stake in public-sector expenditure, the likelihood is that they’ll shrink rather than go bust. And when there are large businesses that crash, not only will that likely be due to past recklessness (or over-optimism, if we prefer) but the people who head those businesses and made the wrong decisions won’t become poor.
I say this for a few reasons, but partly to say that no, evidently we’re not all hurting, nor will we. Partly to say that these people live by (with apologies) a narrative by which they are hard-working people who get on because of that hard work, and they’re not going to stop believing that: and except in the most direct cases of dependency on state expenditure, all their instincts are and will be against reflationary and state-led economic approaches. When people say that look, deflationary economics, austerity, hurts business too, it really doesn’t have that much purchase on business because it doesn’t hurt them nearly enough to reverse, rather than intensify, their worldview.
And if it did hurt them, do we think they’re going to turn to Keynes? I think they’ll prefer to start looking in some very nasty places indeed.
There’s a lot of ‘living off fat’ and ‘hoping something will come up’ among small businesses, freelancers and sole traders, in my personal experience. And there’s no reason to suppose things will not get a lot worse and many of these will go out of business or emigrate. After all nearly 40% of the domestic economy was construction-related and, in the absence of public investment in the built infrastructure, there is no prospect of a small amount of that returning, with consequences for all traders dependent on that business.
The transnational sector is here largely for the tax scam as Michael Taft points out here. If the EU starts getting tough on corporation tax shelters then this starts to look very shaky.
As to why people don’t have make the linkage between deflationary policies and the collapse of the domestic economy – well no party with media access (I’m thinking mainly of Labour) has unequivocally and loudly promoted an alternative.
But the reason no party’s done that is that they’ll be monstered by the media, which itself is connected to the fact that all the beliefs and prejudices of the business classes are against it. And I know I’m repeating myself, but I think it bears repeating – either things will not get significantly worse for those people, in which case they will not easily change their minds, or it will, in which they’ll change their minds, but in favour of very unpleasant alternatives.
I have a couple of good friends whose businesses as effectively sole traders have had 40 to 60 % collapses in revenues due to public sector expenditure cuts.
What do you think is the target business sector of the new public sector guidelines which have been pushed in the past week? The threshold for putting tenders up online has been halved, and the requirements for the business to show that it’s likely to exist long enough to carry out the contract have been removed.
Just to clarify and this detracts in no way from your points, the irony was that this guy wasn’t a friend of mine, just someone I bumped into at a party, whereas the people who I know who’ve actually been hit very very hard are my friends. And absolutely, the solutions this guy had weren’t good at all.
There’s a lot of face-saving involved with those who say all is fine – in fact the official managerialist line is to say your business is doing fine whatever the truth. Bushels of salt needed, as you know, unless you have access to the books.
I say this for a few reasons, but partly to say that no, evidently we’re not all hurting, nor will we.
But which broad groups arent hurting? I cant think of any other than the current generation of DB pensioners.
I find it hard to believe that most businesses haven\’t suffered some decline after a precipitous 15% or so slide in GDP. Public sector workers have been hit with levy and paycuts, private sector workers hurt with job insecurity, cuts in hours etc, all workers have been hit with significant tax rises, farmers have seen prices down and REPS payments gone, most welfare dependents other than the OAPs have had their benefits cut, most property owners have seen the value of their assets decline.
Or course there are going to be some outliers that have gotten away scot-free, but not that many I\’d suspect.
The thing is, as I suggested above, most businesses above a certain side can afford to “suffer some decline” – they have to lay people off, profits fall a bit, investment plans are cancelled or postponed, but the people who run them remain reasonably comfortable. Not ideal for them, but if you’ve seen any evidence that large sections of the affluent classes are moving leftwards as a result, then your eyesight is better than mine. Or if you think they will – well, we’ll see.
Or course there are going to be some outliers that have gotten away scot-free, but not that many I’d suspect.
Jet-setting property moguls and their model girlfriends/suddenly (and mysteriously) wealthy wives?
I would say that all solid businesses that expanded under the boom will now have to contract, but they’ll survive, whereas the parasitic ones that arose over the last ten years to flog unnecessary stuff will go to the wall – a lot of specialist retailers and, my particular favourite, those cowboys trying to sell us all second homes in Turkey and Bulgaria.
What I find most interesting about your conversation, WbS, is how many people still think the boom was ‘normal’ and now everything has gone to hell. We have such short memories.
I don’t think anyone thinks the boom was normal, but things certainly have gone to hell, in that while emigration, unemployment and a low standard of living were the norm for much of the century, the features of the current crisis, particularly debt and negative equity, mean that it will be considerably more catastrophic than simply a return to the norms of our economic shitehouse. This is especially so considering the fact that already decimated public services will be further chopped to pieces. Also, the massive expansion of residential areas during the boom with no corresponding services will lead to social problems on a scale we’ve never seen before (Breakdown of traditional communities is not necessarily a bad thing, but having nothing to replace them is a disaster). This ain’t a return to normal, it’s going to be a protracted crisis with protracted negative consequences for working-class people, though, obviously, not for the parasites at the top.
I think there are those who think the boom was normal, Keynesians for one, who tend of think of it as being an economy running at ‘full capacity’, which, if it were true, would mean we wouldn’t have any slumps. But I completely agree that we are in a very difficult position after the legion of mistakes that have been made, not least in terms of loading up the next few generations with debt just to bail out some reckless banks.
But, on a positive note, I do think a protracted crisis can be averted. Negative equity is not as big a problem as it could be (as long as you don’t plan on moving), and I think too that the patterns of living you refer to can lead to different kinds of community.
When I think about the kind of social problems that are around the corner I think about the Dolphins Barn area in the mid 90′s. You’d go there and there would be a missing generation. You’d see kids and their grand parents but the generation of the 80′s were either dead from heroin or in prison.
if you’ve seen any evidence that large sections of the affluent classes are moving leftwards as a result
Well I dont think we can assume that the feeling of economic pain and voting leftwards naturally follow one from the other. Obviously the pattern holds for a certain section of the population, the voters shifting from FF to Labour are a case in point.
But some people react to a squeeze on their means with a shift to the populist right, or a jump to another center-leaning formation with different branding. I wouldn\’t see any crazy 1930s style lurch to the hard-right occurring, but there is certainly a gap in the market for a Varadakar type figure for the coping classes to rally round.
Jet-setting property moguls and their model girlfriends/suddenly (and mysteriously) wealthy wives
I\’d be the last to defend those a-holes, but in fairness while not reduced to poverty by any means they have mostly taken a large hit to their net-worth. Previously fantastically wealthy, now merely comfortable.
Previously fantastically wealthy, now merely comfortable.
Or dead. Local previously wealthy guy shot himself last month due to “money problems”.
Previously fantastically wealthy, now merely comfortable.
If that level of (even reduced) wealth is ‘comfort’, then most of us will never know it. Nearly all will get out the other side without bankruptcy, and most will probably still emerge with substantial assets whose repayments to the banks have been reduced by their (fellow middle-class) bank manager – and subsidised by PAYE workers.
Whether you get off scot free in this recession could depend on whether you are wealthy or merely rich:
I don’t doubt that many of the pan nationals are only here for tax breaks. But am I seeing an alternative being posed which sounds to me like Arthur Griffith national self sufficiency, perhaps inside tariff walls.As far as I can see we are screwed if we do and screwed if we don’t.
Within the status quo we need a popular front to allow us to walk away from Anglo-Irish bank. It looks like it will cost us one years complete tax take.After the initial schock the bond markets would allow it and lend to us. In fact they might see it as a positive move.Funnily I see this as more important than the cuts because paying for Anglo will cost us a lot more than the cuts made and to be made.
Normality is relative. Bought your house within the last say 8 years and you have negative equity and prpbably a decreased income, if noit drastically reduced. Plus fear. This will stop you spending.
Retired, like me, on public service pension, so far untouched, mortgage paid, then ok. Mind you my 3 kids, one unemployed, one in college (so out of jobsmarket,) one gone to Japan,(no prospects here). So I am not untouched.
I think that aside from the cuts reducing demand, so has job losses and also fear. My advice to anyone outside the state sector is to have at least 6 months of mortgage payments saved. Do not go for an extension of your house if you have a high mortgage. Ipso facto tghis reduces demand, opposite of stimulus if you please.
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Brian Lucey todays Irish Times. Let the bondholders pay, not us.
Brian Lucey for president, we could do a lot worse.