The Cedar Lounge Revolution

And the Budget? October 21, 2010

I’m mining the Sunday Business Post this week, and no mistake. But why should that be so odd? Like or loathe it, and I sit in the former camp – largely, the SBP is a serious paper that doesn’t hide its ideological and economic leanings under faux-populism or mealy-mouthed liberalism.

That we now have a mainstream media that is almost entirely at one with the economic orthodoxy is near unremarked, but it is a remarkable situation, is it not? Despite the fact that the austerity measures continue to miss targets – and why is it that there isn’t more said about how the economic policies adopted here are by the one supposedly crucial metric we are offered, the size of the deficit, not regarded as being appallingly inappropriate given their evident lack of success? This week we saw the Labour Party and Fine Gael, as I noted before, operating as supplicants, but perhaps that’s incorrect. Perhaps they were more like conduits, feeding yet more bad news out into the public space, news that for some inexplicable reason the government had chosen not to tell the electorate.

And what also remains inexplicable is the panic amongst the great and the good that somehow the policies adopted won’t be pursued, or perhaps it is all too explicable. Those policies haven’t worked, the situation (as was predicted by many, worsens), the cuts proposed now assume even more baroque proportions (if it weren’t for the actuality of their impacts when implemented upon both the least well off and those on middle incomes). We have already, so it is said, had adjustments the scale of which are near unprecedented in modern European economic terms. I fear that this has led our leaders to believe that almost anything will be accepted, that there is no limit to what they can inflict upon us.

Anyhow. For all that the SBP editorial can be pretty naked at times. Take the following. The Budget… it’s going to be bad…

The government will shortly announce a programme of spending cuts that will be far more severe than anything the country has previously witnessed.

These will come against a background of discretionary public spending that has already been pared to the bone in many areas.

Unbelievably bad…

As this newspaper has reported in recent weeks, officials in some government departments have been left reeling by the scale of what they are being instructed to implement.

Ireland is not alone in this exercise.

All over the world, economies are being subjected to brutal austerity programmes, necessitated by the costs of dealing with the near collapse of the financial system and the deep recession that followed it.

A note of doubt…

There are real reasons to doubt that the current vogue for austerity – as much an article of faith in the European Commission and the European Central Bank as it is in London, Washington or other political capitals – is suitable for the world economy right now [erm, my sense was that Washington dissented from this].

The risk of a renewed, or double-dip, recession remains real.

Swiftly dismissed…

But it is pointless, really, for Ireland to waste too much of its time considering these questions – and it is the politics and economics of make-believe to advocate that Ireland run its fiscal policies on a different basis from the rest of the world.

Hmmm… on the one hand we’re told about Irish exceptionalism (our situation is uniquely awful – true to an extent – but probably not irremediably so), on the other we’re told everyone’s at it.

We have a deficit that has been stabilised but is far too large.

We have a €19 billion gap between our annual incomings and our outgoings, before any account is taken of the bank bailout.

The markets that lend us that money want an austerity package, or they will cease lending.

Yes, but as ever the problem with that is that we’re on an austerity path, that this was mapped out over the past number of years and continues to be. The outline was made public as to the targets to be met some while back.

I still wonder why the SBP is so exercised by this. Both Fine Gael and the LP agree with the broad outlines of what is believed to be done, yet in editorial after editorial they seem to argue that all are arguing from bad faith. I’d love to think that might be, even in small part, true. But I strongly doubt that it is which makes me wonder what precisely is going on.

In simple terms, they want a plan which convinces them that they will get their money back if they lend to Ireland.

Ah, so the SBP doesn’t believe the Government either. But why would that be? perhaps it’s the fact that the economy is flatlining under the impact of cuts and a lack of stimulus. Or perhaps they believe that the Government might break in the face of…well… what? Mass public protest? No sign of that so far, though if there were mass mortgage defaults we might see something a little more pointed. Or is it that they really believe that as the cuts bite yet further into services and provision in a context where much has ‘already been pared to the bone’ that they are actually afraid that there is no way that this can be passed politically by the electorate, and hence the rushing around the last few weeks to cobble together a faux national consensus where none genuinely exists, and now this.

This – and not the EU Commission, or the political game-playing going on domestically – is the key issue.

And as ever this ‘painful’ medicine is now acknowledged to do almost as much harm as good [or if you believe the IMF as much, full stop]. The ESRI certainly seems to think there are problems, the IMF is somewhat equivocal, though the Commission in its wisdom continues to adhere to 2014.

The spending cuts will be severe and damaging, deflating the economy by their impact.

They will hurt most those on lower incomes, because those who depend on the state are by definition more exposed to reductions in spending.

Meanwhile the middle and higher earners will suffer more [I presume the 'more' isn't meant in relative terms - unless the SBP has lost all contact with reality] from the inevitable hikes in taxation.

Achieving political and public acceptance of the package is now an urgent task for the government.

The Greens’ initiative to seek political consensus – though likely born more out of political self-interest than anything else – at least recognises that there is an issue here.

The government – this one and the next one – must convince the public that the budget package to come is necessary, that it is fair and, crucially, that it will pave the way for better times ahead.

But check this out…

The case for fairness is complicated; fairness means different things to different people.

Too many people believe it is fair that someone else should pay for things. Some believe that the better-off should pay; others point out that having an income tax system which omits almost half of all taxpayers is hardly fair.

Too many people? Well, that’s a line bordering on chutzpah when I and you and everyone we know has been presented with the bill for the systemic failure of a financial, construction and banking sector which no more than a handful had any hand act of part in same. Indeed this is a dismal example of how narrowly focused the SBP editorial line here and previously has been. Taxation has always been regarded as bad, and it’s only now in extremis that it is tolerated, barely. We have a society that has since the late 1990s been living on borrowed money with ludicrously low tax takes, and burdens. And as I noted yesterday even Cliff Taylor writing in the SBP this weekend notes the reason why a tax system omits almost half ‘reflects both the distribution of income here and the way the system operates’. In other words most people are – relatively speaking – paid relatively low wages compared to a much smaller group making considerable money and consequently paying much more in taxes.

But the government must make the case that the overall package is broadly fair, rather than being bogged down answering the charges of individual interest groups. The case for the future can only be made by a government which believes it has a future itself.

It is difficult to see how the present government can communicate the last message.

It has lost the will and the capacity to talk to the voters. It does not believe it has a future itself. It is increasingly clear that the budget must be followed by a general election early next year.

And yet why? To legitimise the current situation? The attempt to corral all within an ‘agreement’ on economic policy demonstrates how essentially meaningless an election will be. This is moving towards the antithesis of politics.

******

On a different matter I found the SBP editorial on the current ‘analysis’ of the semi-state sector and the companies and staff to be remarkably narrowly focused as well. After lashing ‘gold-plated pensions’, etc…

It is a fatuous argument to say these companies are ‘profitable’. If the ESB or Bord Gáis incurred lower management and staff costs, they could charge less to consumers and businesses.

Hmmm… The problem with that line is that if the companies were in the private sector they would then presumably have to see significant portions of their ‘profits’ diverted to shareholders. Would the situation be better? I’m somewhat dubious of that proposition.

The energy regulator is correct to look for pay cuts at ESB, as opposed to the proposed increases.

The same should apply to state companies across the board.

A dose of reality is needed here. If the boards and management of these companies will not drive this, then the government must.

It is ridiculous to be discussing the prospect of pension and welfare cuts when some of the best-paid employees and managers in the country are not asked to make any sacrifice for the common good.

What is the point of public ownership of these companies, if they do not act in the public interest?

I find there’s something irksome about having to hear how state enterprises, well those that do turn a profit, have to impose a regimen that the SBP would condemn as communistic were it to be applied in the private sector. Imagine introducing limits on wages in the private sector, putting an upper limit on pensions, and so on. It simply wouldn’t wash. Indeed note how all the populist rhetoric of the Harris’s and that ilk balks at anything so… radical.

Whatever about the PS/CS more broadly where the government must balance income/expenditure, the arguments for such constraints in the semi-states which do turn a profit seem curious in the extreme, and not merely because higher wages in profitable enterprises increase the tax take for the government. As ever, if the wage/pension offends thee, well increase the tax.

Thought that’s not an argument I suspect we’ll be hearing from the SBP editorial any day soon.