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Contradiction piled on contradiction… December 5, 2012

Posted by WorldbyStorm in Economy, Irish Politics.
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The SBP editorial this weekend calls for the following in today’s Budget:

Government expenditure simply must be reduced. For all the cacophony about cuts, and all the noise from public sector unions about how much pain their members have taken, there are a few important facts: public spending has not been reduced as a share of the economy. No public servant has lost his job involuntarily

How the involuntary loss of jobs assists our economic situation is unclear. It continues:

But given the enormous constraints within which the government operates, we believe it must place a much greater emphasis on growth. Yes, we must get our deficit down. But unless we expand our economy, the adjustment will be longer and more painful and more damaging to social fabric than it already has been. The government’s policy must be: growth at all costs, even if the cuts have to be deeper in the short term.

But wait:

Will further austerity further depress the economy? Of course it will. Is there a realistic alternative to further cuts in public expenditure? No, there’s not. Is there anything to be gained by delaying the cuts in the name of fairness, or substituted tax measures that will depress growth and job creation? We believe not.

So. The measures proposed will do nothing to create growth. They will, in fact, ‘depress’ it. And yet the SBP suggests that economically this is a good thing. Yet again it resiles from telling us how much we can expect the measures it advocates as regards the Public Sector to ameliorate our situation. All it can offer is the following:

The private sector will be the engine of recovery and job growth. But it won’t be able to do that if it is strangled by taxes and regulation. Allowing the private sector to recover must be the priority for the budget.

But a private sector with yet more spending sucked out to of the economy is a private sector that can’t grow. Let me quote a voice from the SBP’s pre-Budget roundup of business people…

“They can’t take any more from the PAYE worker because they are being squeezed far too much, therefore the disposable income isn’t out there. As such, there will be pressure on retail. Our biggest challenge is to sort out the current situation with the troika and try either to extend our loans or get relief on our debt.
“There isn’t any hope if we continue to take money out of the economy. The economy is at breaking point; you can see shops closing around the country. There is only so much that people can take.”
Pat McDonagh, founder and managing director of Supermac’s, the fast food chain

As it happens I hold no candle for the public sector, other than a concern that attacks on public sector conditions and pay will inevitably result in yet further attacks on private sector conditions and pay – and having spent most of my working life in the latter area I’m all too well aware how that dynamic works and how painfully poor provision is for workers there. But PS workers are PAYE workers too.

And the contradictions pile up. Austerity will depress the economy. So full speed ahead with cuts. And alternatives?

This means no new taxes on employment. No changes to the sick leave status quo, forcing employers to bear more costs. In the future, maybe, but not now. No more red tape – and more aggressive action to reduce the burden of regulation and sometimes ludicrously intrusive labour laws.
We are assured that the budget will be fair, as if that will satisfy people. But what’s really fair? Strangling the country with high taxes and red tape and consigning a generation to high unemployment and emigration, or doing everything you can to generate the growth that will give governments the resources to protect welfare and social spending in the future?

But what works? The current approach can’t. Kenny refused to answer Shane Ross last week in the Dáil chamber when he was asked if the debt was unsustainable, but the general consensus is that it is not – a consensus, by the way, which stretches all the way to the editorial writers of the SBP. That being the case, and given this economic analysis here that suggests tax increases are only slightly less damaging to an economic recovery than expenditure cuts – with the consequent point that they are less damaging to the society itself and social solidarity, then what is the case for the SBPs adherence to the latter? Surely it couldn’t be ideological?

Sure it could.

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Comments»

1. Depps - December 5, 2012

`Cliff Taylor piece from Monday makes the contradictions even more apparent: http://www.businesspost.ie/#!story/Home/News/COMMENT%3A+The+figures+that+set+the+budget+battlefield/id/19410615-5218-50bc-8f29-32f803943802

“To what extent the austerity is itself holding down growth is, of course, a key area for debate.However, it underlines that we really need a recovery to set in to help the figures get back into line by boosting tax receipts and taking some of the pressure off spending areas like welfare and health which are put under pressure by recession and rising unemployment.”

“Day-to-day spending next year is forecast to be just over €53 billion and tax and other revenues to be just under €40 billion. A big part of the problem is the increasing cost of servicing the national debt, which will rise from €6.5 billion this year to over €8.1 billion next year.”

“Capital spending this year at €3.4 billion will be below the €3.6 billion target for the year, itself a 16 per cent reduction on 2011. Money is being saved here to make up for current spending overruns.
This is not a great idea in the middle of a recession, as capital spending can lay the foundations for growth.”

“So total revenues are forecast to rise – before budget measures – by less than 2.5 per cent. The Budget will change this – but will not alter the underlying issue which is that if some kind of growth does not appear, the figures will be hard to achieve.”

So basically Taylor is acknowledging that on-going austerity and an unsustainable debt pile is preventing any growth… but instead of stating the obvious even from a capitalist perspective (i.e. we need to significantly restructure our debts and drive growth through government investment) all the editor of the SBP has to offer us is a vague hope that the we can secure a modicum of relieve on the bank debt (which most commentators seem to think will have little economic impact) and warning that if growth doesn’t materialise we are fecked

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2. WorldbyStorm - December 5, 2012

+1

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3. sonofstan - December 5, 2012

The tone is increasingly theological isn’t it? We are sinners and we must pay, austerity is the one true path, but still, God (in three persons) may with infinite mercy, allow us a glimpse of the world redeemed through growth ….

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4. CL - December 5, 2012

‘internal devaluation’, pushing down wages to make the economy more competitive, requires massive unemployment.
Despite the increase in competitiveness, export-led growth has not resulted. Therefore more internal devaluation is needed and this requires even more unemployment. This will be achieved by more austerity budgets and by the ever-growing amount transferred each year in interest on the debt, 8 bn next year. The emigration safety valve relieves some of the discontent, but some stresses are appearing.

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CL - December 5, 2012
5. Ed - December 5, 2012

“But what’s really fair? Strangling the country with high taxes and red tape and consigning a generation to high unemployment and emigration, or doing everything you can to generate the growth that will give governments the resources to protect welfare and social spending in the future?”

All through the boom years, we had to listen to PD ideologues and economists telling us that Ireland was doing so well because we had a free-wheelin’, low-tax, lightly-regulated economy, not like those continentals with their burdensome anti-growth policies stifling private enterprise (Germany and France were the main examples given, you might remember). Now, it seems they were wrong – all along, the Irish economy was being strangled with high taxes and red tape. It makes you wonder how the boom ever got to be so boomy. I’m guessing Germany will now be held up as an example of the great things you can accomplish by rolling back government regulation.

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6. Bartley - December 5, 2012

… a concern that attacks on public sector conditions and pay will inevitably result in yet further attacks on private sector conditions and pay

Is that really the way it works?

Do public sector pay levels and conditions act as a bulwark that protects private sector workers?

Given the relative lack of mobility between the sectors, I’m doubting it.

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sonofstan - December 5, 2012

Figures? Relative to what? or where?

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WorldbyStorm - December 5, 2012

Above and beyond the cheerleaders like John Fitzgerald who called for PS wage cuts etc in order to increase ‘competitiveness ‘in the private sector, the OECD in 2009 was explicit that national wage agreements risked extending public sector conditions to the entire economy and this was a problem because ‘bargained wage(s) that result may not be closely linked to factors relevant for the private sector’.

In the mid-2000s my experience of organising in the private sector was that we were able to look across at provision in the public sector and use it as a standard against which our situation could be measured.

It’s little or nothing to do with mobility, it’s all to do with exemplary effects. Not so much remuneration, though that didn’t harm us, but in particular holiday days, sick leave etc were a benchmark we were able to utilise to force the minimal provision we were given prior to that upwards. Not to the same level, but upwards nonetheless.

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Bartley - December 6, 2012

@WbS

It’s little or nothing to do with mobility, it’s all to do with exemplary effects.

It’s little or nothing to do with mobility precisely because there is little or no mobility between the sectors (see the figures furnished to SonOfStan above).

Demonstration effects impacting from one sector to the other are far weaker if the two sectors operate effectively as separate castes.

It’s one thing to point to superior conditions elsewhere, it’s a far more powerful thing for it to be known that the best employees can easily jump ship and start enjoying those same conditions.

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Bartley - December 6, 2012

Figures?

Here’s a figure for you: 1.

Yep, one. Uno. Ceann amháin.

That’s the number of private sector recruits into a high level position in the civil service position over a five year period.

Not for want of trying, as there were 314 applications from the private sector over that period.

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CMK - December 6, 2012

Source?

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Bartley - December 6, 2012

@CMK

Source?

The Department of Finance released the figures at the request of Róisín Shortall, questioning Ciarán Connolly (secretary general responsible for PMDS) in committee during May 2010.

These data were widely reported at the time in the MSM, as I’m sure google will confirm for you if you’re so inclined.

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sonofstan - December 6, 2012

Why would you limit it to ‘high level positions’? – and why only in that direction? (private -> public)

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Bartley - December 6, 2012

@SoS

Why would you limit it to ‘high level positions’?

Those were the data reported.

and why only in that direction? (private -> public)

Because the argument is that easy mobility in that direction would be much more effective in establishing PS conditions as a bulwark for private sector workers (as opposed to relying to nebulous demonstration effects).

Mobility in the other direction wouldn’t be of much use when arguing with a private sector employer that she’ll lose all her best staff unless she adopts public sector norms.

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sonofstan - December 6, 2012

Those were the data reported.

Not really seeing how it proves anything much: it would be akin to concluding that there was no significant Polish involvement in the workforce here because we only had one ever Polish university president.

Well done on the plural verb for ‘data’ though.

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7. sonofstan - December 6, 2012

‘…..ever had one’

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8. Dr.Nightdub - December 6, 2012

Yesterday: Noonan announces a Budget based on an estimate of +1.5% growth in GDP next year

Today: ECB estimates that next year’s eurozone GDP will be somewhere between -0.9% decline and +0.3% growth

Either (a) we’re somehow back to being the Celtic Tiger or (b) Noonan’s plan is toast before we even get to January and he’s gonna come back for more

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9. Bartley - December 7, 2012

@SonOfStan

Not really seeing how it proves anything much: it would be akin to concluding that there was no significant Polish involvement in the workforce here because we only had one ever Polish university president.

Not akin in the least.

There were 82 high level positions contested in the civil service over that period, a decent sample size. A single private sector applicant was successful, giving a fill rate of 1.2%.

Now how many university presidents do we have, and how many of those positions were filled in the period 2005-2010?

Assuming for the sake of simplicity that university presidents’ terms are all the same length as Ferdinand von Prondzynski’s 10 year stint, we would expect half these positions to fall open on average during any given 5 year period.

(And I assume you’re talking about Ferdinand von Prondzynski there, even though he’s arguably more German than Pole … but no matter, such territorial distinctions didn’t matter a great deal to the Soviets, so let’s not quibble about them now.)

Given that we’re graced with 7 universities in this state, we’d expect 3.5 presidential vacancies each 5 years. One of those was filled by a Pole, giving a fill rate of 29% .

Which would exceed the Polish involvement in the workforce across the entire economy.

Well done on the plural verb for ‘data’ though.

Patronize much?

Do you also congratulate your milkman when he tells you that your milk bottles are on the doorstep?

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sonofstan - December 7, 2012

It honestly wasn’t meant to be patronising. Sorry. Most people appear to have long forgotten – or never knew – that ‘data’ is a plural noun.

On the main point, while I’m impressed by your statistical analysis (not patronising either, really) my rhetorical and not exactly serious point was that extrapolating the point you were making from such a tiny sample, and for a particular calibre of public sector job is a bit tendentious.

Have you considered that maybe candidates from the private sector may just not be up to working in more demanding areas?

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Bartley - December 7, 2012

Have you considered that maybe candidates from the private sector may just not be up to working in more demanding areas?

The question is whether there’s much mobility between the sectors, not why the mobility isn’t there.

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sonofstan - December 7, 2012

Fair enough. The sense I got from your quotation of the following datum:

there were 314 applications from the private sector over that period.

Was that you felt there was some bias in public sector recruitment against employing those seeking to enter it from outside. Perhaps I was reading in.

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