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The grand old man of Irish social democracy speaks on the financial crisis… No doubt he’ll have calming progressive thoughts. So, what’s that he’s saying? “We can afford no relaxation of austerity drive”. Oh. August 26, 2009

Posted by WorldbyStorm in Economy, Irish Politics, The Left.
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Some of you may remember a spate of articles in the Irish Times, and other Irish media, during the late 1980s when emigration was at its highest point and when the country appeared to totter on the brink of bankruptcy. The line these took was quite simple, and an example from January 6th 1987 will suffice…

Under the headline, “Is emigration really such a curse?” (and to ask the question is to answer it, for most), Dr. Jim McCabe, senior “education planner’ at the World Bank sought to argue that since we were but a small offshore island with a population not dissimilar to that of Wisconsin relative to the rest of the United States we should expect emigration as a part and parcel of our daily lives…

‘In present circumstances the lesson for us is clear: there is an increasing manpower shortage in Europe. If we are true EEC members and believe in European integration we should see this as a fortuitous opportunity for our young people facing unemployment to look east towards Europe and think of ‘mobility’ and ‘migration’ as normal options.
We should not feel bad about this prospect but grasp the opportunity and put it to good effect.

No doubt.

I should add there was also a sub-genre of these which argued for population control, from a not dissimilar stand-point, being that Ireland had yet to accord with European ‘norms’ on that front (look up September 20th 1989 for one such piece).

Anyhow, the point is that each article was written from a point of view which assumed that the situation in the state could simply not improve. There was no question that emigration would falter, let alone reverse within a short ten years, no chance that the economy might actually strengthen and then strengthen again, or that growth would not merely appear but would be sustained for the best part of twenty years.

And underlying it all was a near-eschatological view that the situation tomorrow would inevitably be worse than today. This, by the way, shouldn’t be news to many of us on the left. We’ve our own eschatological creeds whose precepts one might expect to have been dented, at least a bit, by this latest crisis of capitalism. Garibaldy and myself have argued that now is the time to hit the economics texts in a serious fashion (not least because in this society progressive economic voices are few and far between).

That said, it was puzzling reading Garret FitzGerald last weekend. You would think, would you not, that our greatest living social democrat – of sorts – would, at the least, the very least, be keen to perhaps strike out for new ground, to consider the social impacts of policies that he propose (D_D noted this, incidentally, in the comments of this article by Michael Taft – an article which contains data I will return to).

If so, you would – like me – finish reading the piece a very slightly older but considerably more disappointed person. Because he too appears to have been converted, although judging by previous columns that took no great effort, to the economic orthodoxy that rages in our polity.

For he believes that… A return to growth is a hypothetical solution; it’s time to get real about reducing the deficit. Well, perhaps a sub-editor believes that, I wonder did GFG actually use the phrase ‘get real’. Still, why not? He’s down with the kids.

No, he certainly believes that:

TO ENABLE us to continue to borrow the tens of billions currently needed to keep us afloat we have had to commit ourselves to a combination of spending cuts and tax increases adding up to €26 billion between 2008 and 2013 – on top of which we may have to borrow as much or more again to save our banking system.

Actually, that last is an odd statement, the figures being bandied about for the banking system are multiples of €26bn, not just ‘as much or more again’.

While the final €7 billion of this €26 billion recovery programme, to be found in 2012 and 2013, has yet to be allocated between tax increases or spending cuts, it seems likely that over the whole five-year period increased tax revenue will have to produce at least €10 billion of this total (almost €6 billion of which has still to come), with spending cuts of up to €16 billion – of which €12 billion has still to come.

These are huge figures for a State which this year looks like having tax revenue of only about €33 billion and current spending of €46 billion.

They certainly are, aren’t they? And he goes on to make them seem even more huge…

For, even if we can manage to cut current public spending by over one-third by 2013, the burden of taxation will also have to rise by 30 per cent. (The figures on which these conclusions are based have been verified by the Department of Finance.)

Now this is a real puzzle to me. Because what sort of a society does he envisage will remain, what sort of state provision, what sort of public sector/services after a contraction of a 1/3 in expenditure? And this at a time when demographics continue to nudge upwards with all the calls on those services that that will entail both for the young and the old – and heck, those of us in between who are made redundant, not to mention other state services, like building and maintaining our rail infrastructure (off the point a moment, but I’ve made that journey many times and often wondered about that particular leg of it. It would make one less sanguine about traveling by train, which I guess in Noel Dempsey’s eyes would be a result of sorts).

Anyhow, he’s not merely being pessimistic, but is allying himself with the most pessimistic analyses out there.

It is of course possible that, if we could secure significant cuts in our grossly inflated level of private and public sector earnings (which during the past decade we rashly raised to levels well above those of any of our competitors) a combination of an early global recovery together with rapid growth in what would then be a more competitive economy after 2011 could somewhat alleviate the later stages of this programme of austerity. But that must remain a hypothetical possibility.

Well, not entirely. Both France and Germany are emerging from recession, or already out of it. This week Britain appeared to be moving, even on the level of sentiment, out of it too – and before we knock sentiment let’s note that a considerable amount of the actions taken in our name in terms of cuts and suchlike are in order to assuage the sentiment of bond markets. So that’s not entirely hypothetical.

Whatever alleviation of our lot might prove possible under very favourable conditions in several years’ time, at the present stage we can afford no relaxation of the 2010-2011 stage of our recovery programme, especially given the disappointing end-July tax returns, which suggest that by the end of the year tax revenue may fall short by a further €1 billion.
Disappointing, surely, only to those who are puzzled by increased taxation and reduced wages and an explicitly deflationary economic policy resulting in lower tax revenue.

What proportion of this €26 billion recovery programme has already been secured by steps taken during the past 12 months? The answer is about €8 billion, or 30 per cent of the total, with a further €11 billion due in the next two years.

Well, hold on…

While it is fair to describe the McCarthy report’s €5.3 billion of proposed cuts as a menu from which the Government can draw in order to find the €3 billion cuts it needs in the next two budgets, it could be necessary thereafter to return to that report to find additional cuts towards the further €7 billion of expenditure savings or tax increases needed in 2012 and 2013. However, the extent to which further cuts in public services would be needed in those years would depend upon whether further measures to reduce public service pay and pensions can be brought back into the equation.

But the thing I find difficult to understand is how much of our public services can withstand not merely McCarthy itself, but a further return to that well in subsequent years. Because it’s not just about salaries and pensions (not covered in McCarthy, or rather given a thin fig-leaf since he willingly opined on them).

It is indeed possible that this public service pay issue will in any event have to come up for review in the context of this December’s budget, with a view to avoiding or perhaps postponing some of the McCarthy cuts.
In this connection, much may depend upon the outcome of the study comparing pay rates here and in countries with which we have to compete. This is a long overdue research project which, if it had been undertaken at the beginning rather than at the end of the present decade, might have helped us to avoid the pay splurge of recent years.

Now, I can’t be the only one to wonder precisely what the outcome of such a study might actually reveal. Given we have lived in one of the most high cost economies in Europe perhaps an equally useful comparison might be between costs and wages…

And here’s another thought. We already know that while wages in general in the private sector have been frozen, or in a smaller number of cases been cut, we also have seen evidence that for higher management and above wages having been increased. There’s little mystery to this. Front loading salaries in order to minimise the effects of tax increases is an old old trick. In the context of a global recovery are we seriously being told that Irish companies will buck the trend and eschew salary increases – if only in order to compete at an international level? And in this capitalist economy there is no appetite to curb higher salaries in the private sector, so we know that wage costs will be kept low in the public sector and at lower levels in the private sector.

The figures mentioned above, and summarised in the table below, provide the background against which to assess the seriousness of the reactions by a wide range of interest groups to the McCarthy report. There are, of course, criticisms that can be made about several aspects of that report – and I shall later address some of these – but the fact is that there is an air of total unreality about most of what has been said and written by many of those who have attacked these proposals and who are still in absolute denial about the scale of the crisis we currently face.

Note that he makes no argument against McCarthy, indeed the tone of his piece is that McCarthy is insufficient and that those who disagree are simply not serious. It’s a more roundabout way of arriving at much the same conclusion as Jim O’Leary did a week or so ago where he argued that the only serious analyses were those that agreed with the positions adopted by himself and others who cleave to the new orthodoxy.

So far as I am aware, none of the interest groups that have attacked aspects of the proposed cuts has been willing or able to suggest any alternative means of saving our economy and society. We are at present a country of ostriches. It is time for everyone to wake up to reality.

Which being the case, perhaps he might care to explain how the ESRI, an august body which I believe he has a familial connection with, argues that even if McCarthy is implemented the result would be a grand total of .6 reduction in the borrowing requirement. Given that any forensic reading of McCarthy indicates that it constitutes a fire sale of much (although not all – since some of its suggestions are good and useful) of the public sector in terms of provision of services how does he square that with his much vaunted social democratic sentiments?

Indeed how is it that he can entirely evade the central paradox of this situation, that the measures he champions if taken would, although reducing much of the public sector service to the public to a fine sandy rubble, not in and of themselves do anything to significantly bridge the gap between expenditure and deficit. My read is therefore that for those from a progressive background the project should be to fashion viable alternatives. His is obviously very different indeed.

And an hint of this was raised in this weeks Letter from the Economists to the Irish on NAMA where they noted, in passing, that…

Nama has unfolded against the slow but steady deterioration in the State’s finances. We now look to be on course for a Government deficit of close to €30 billion. In short, this means that for every €1 the State spends, it takes in tax only 50 cent.

To close this gap in State expenditure would require the implementation of more then five times the identified savings of the McCarthy report.

How does anyone seriously suggest that this society could function if such ‘savings’ were made? How do those who say they are social democrat seriously stand over what would be an effective gutting of what few socially democratic inclined aspects of this society (free education up to third level, child benefit, urban and rural transport, a raft of cultural endeavours and so forth)?

Sure, we read from Frances Ruane, head of ESRI, that…

Additional fiscal stimulus is not an option for the Government. Since reducing the general government deficit is key to re-establishing international and domestic confidence, the Government must raise taxes and/or cut spending further. Tax increases can place recovery at risk by undermining competitiveness, while spending cuts place public services at risk, as well as income transfers to those worst hit by the recession.
The extent to which reduced spending leads to a real reduction in services depends crucially on two factors: the cost of the inputs used to provide those services and the efficiency with which services are delivered. This is good news, as it means not all of the reduction in expenditure needs to result in a reduction in services. With regard to input costs, for example, it is still possible, though difficult politically, to achieve further cuts in public sector employee costs, and the cost of produced inputs can be reduced through more effective public procurement.

We have recently seen in the pharmacy sector how the Government can use its role as a buyer of services more effectively in the national interest.

But little of this makes clear sense. For Ruane continues:

The McCarthy report has made some suggestions as to how inefficiencies might be reduced. It is clear from the report that we need a forensic approach that cuts waste in a way that minimises economic and social damage, rather than cutting mindlessly across the board. A further advantage of such careful cuts is that other necessary cuts will be more acceptable when it can be demonstrated that public money is not being wasted.

How is it possible to wring five times the level of ‘efficiencies’ that McCarthy purportedly seeks? I simply cannot see that as achievable. And if that is the case then something is very seriously wrong with the picture we are being presented.

And even if we try to hack at wages in the public sector we know, for example that the returns would be minimal in the context of the deficit. Take John McHale’s most interesting piece in the Irish Times from last week.

Second, the McCarthy cuts are supplemented by a 5 per cent cut in public sector pay phased in over a two-year time frame. This would save roughly an additional €0.7 billion. It would be part of a balanced reduction in wages and benefits in the economy, achieved through a renewed social partnership agreement.

But note that he doesn’t actually say how much that would dent the borrowing requirement. For that you go here, where you will learn that that would result in just .3 per cent of a reduction, and perhaps less. Scale that up to bring us to a 20 per cent cut and – this is rule of thumb, the returns would most likely be much less – we would see 1.2 per cent of a reduction. But think of what such a 20 per cent wage cut would do in terms of cutting consumption and indeed in terms of reduced tax take for the state.

This is – for me – the central paradox of what we have been, and in some instances are being, told about our situation. On the one hand we face an existential threat that will pull this state and society down. On the other hand, awful as many of the McCarthy proposals are they simply cannot bridge the gap. And yet we are continually told that they are the only way forward.

In truth, it seems to me there is no way to bridge that gap in the short to medium term, which suggests to me that either we’re being told a crock, or that we must look at some alternative strategy.

None of which is to argue that there are no reforms or savings that are feasible at this point in time, merely that they are a separate and essentially unrelated issue that will have no genuinely significant bearing on our situation. That by the way is not an argument for not doing them, indeed now is the time to do it. I’ve said it before – a single employment pool for the public sector is a damn good idea, cutting certain ‘privileges’ accrued in questionable ways is likewise. But this is not the central problem (unless we believe we can do away with a large portion of the public sector services with no ill effect to this society and economy) and in dealing with the central problem appears to have little part to play.

FitzGerald might also think a little about the thoughts of Michael Somers of the NTMA who has publicly stated that this state does not face an existential crisis in terms of borrowings, and others who have pointed out that our borrowing situation is – at worst – analogous not to 1985 but to a decade later, and now, as appears to be evident, that in a global economic environment where the picture is improving more rapidly than might have been hoped – perhaps off the back of significant interventions by states. A lesson there surely.

For us to read such eschatological language, and to see such a conformity to the current orthodoxy – and a seemingly unquestioning conformity at that – is a truly dispiriting moment in this crisis.

………………..

As an addition to this, last month in the wake of McCarthy I was talking to someone reasonably close to the government, and in particular one of our smaller progressive parties, who told me that they wished that all those who criticised McCarthy could be publicised so people would see the range of vested interests against it. I asked what the point of that would be and the answer was that it would show that not everyone was willing to take their punishment through the implementation of cuts. When I demurred at the use of the word ‘punishment’ and wondered whether that was appropriate in the context of a society there was, to be fair, a degree of row-back. But, I couldn’t help thinking that this trope about ‘punishment’ and ‘pain’ has gone quite far enough, thanks.

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1. alastair - August 27, 2009

Which being the case, perhaps he might care to explain how the ESRI, an august body which I believe he has a familial connection with, argues that even if McCarthy is implemented the result would be a grand total of .6 reduction in the borrowing requirement.

When did they say this? If you’re referring to the HERMES modeling paper they produced, it wasn’t measuring the McCarthy document’s impact, but on a variety of taxation and expenditure reduction scenarios with only limited bearing on what McCarthy proposes. There’s no attempt in the ERSI paper to account for suggested increased efficiencies in the McCarthy report – but rather just a measure of the consequences of shifting the balance of incomings and outgoings one way or another.

I’m inclined to find Fitzgerald’s position rather more persuasive than those who advocate ramping up borrowing and cloudy ‘stimulus’ packages. No stimulus package has any real merit unless it can show evidence of an ability to clear the debt it creates down the line. Our problem remains the reality that we’ve a need to develop export market revenues to fill the hole once filled by selling property to each other, and we’ve no credible plan that convinces we can do this in a timescale that would make that ramped up borrowing a manageable scenario. With ample funding and opportunity, we’ve only managed to create a domestic export industry that accounts for less than 10% of total export values. The writing is on the wall for FDI revenues – maybe not today or tomorrow, but the serious money and infrastructural developments are going to eastern europe or asia. There’s no doubt that it’s a necessity to rethink how we earn a crust as a nation, but there’s no real hope of re-framing our export revenues in anything other than the long haul, and we just can’t afford to sustain borrowing to retain a standard of living beyond our means for any sort of long haul.

There’s a paradox alright. Fitzgerald might shy away from the inadequacy of the savings created by McCarthy style cuts and public sector wage cuts, but at least the medicine/punishment meme has the advantage of engaging with the reality that our standard of living simply isn’t sustainable, regardless of how you spin notional solutions. His credentials as a social democrat shouldn’t be in any doubt if the context is that of an undoubted reduction of public service provision vs a delayed, but greater reduction of public service provision. That’s clearly his reading of the situation – ‘orthodoxy’ or not. That he underplays the negative impact of learning to live within our means isn’t really surprising – it’s not exactly a compelling pitch.

And in relation to international economic recovery; one swallow doesn’t make a summer, and even if Germany, France, the UK, and (optimistically) the US manage to emerge from recession, it doesn’t change our unique and ongoing economic hole we’ve dug for ourselves. Ramping up Viagra and MS Office production isn’t going to provide a solution to our balance sheet.

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2. EamonnCork - August 27, 2009

On a separate issue, is there not something astounding about the chutzpah with which Garret prescribes economic remedies given that he presided over governments which were economically disastrous. The worst years of the eighties were from 1984-1989 when unemployment never dropped below 15%, Garret was in power from 1982-1987. I’m not making a judgement on his proposed remedies, just marvelling at his ability to elide his own past mistakes as though they’d never happened. In fact Garret’s reputation as (A) a politician of substance and (B) a social democrat, seem to me to be built on sand. The man who announced a Constitutional Crusade in 1981 and brought in the pro-life referendum in 1983 still elicits respect to an extent which greatly surprises me.

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3. Crocodile - August 27, 2009

Garret was assuring us a year or so ago that what we had was a revenue problem, not an expenditure problem. It appears his conversion to McCarthyite slashing is founded on his being convinced that the revenue problem can’t be solved.
Saturday’s article is part of another process altogether – that of making further cuts in public sector wages seem inevitable.When further cuts are proposed, and public employees protest that this will reduce services to what WbyS calls ‘ a fine sandy rubble’, the answer will be: ‘You can save some of them if you sacrifice your pay and conditions.’
Ignoring the facts that no other EU country has cut public service pay, that to do so would close the gap only infinitesimally, and that the effect would be deflationary.

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4. alastair - August 27, 2009

Ignoring the facts that no other EU country has cut public service pay

Which EU country is in our fix? Even Spain is comparitively healthier – running a budget deficit well behind our own, and with much greater potential for recovery through exports. And how do Spanish public sector pay rates compare to here?

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5. Pavement Trauma - August 27, 2009

Ah yes, the ‘stimulus’. It reminds me of a conversation I happened to overhear the other day…

CM: Ah Mr Shopkeeper, back again already? How can I help you?
SK: Well Mr CreditMarkets, I’d like to, eh, borrow a little bit more please.
CM: So soon? Didn’t we lend you two billion last month?
SK: You did, you did. And thank you very much. But we’ve spent it.
CM: On improving the shop, like we discussed?
SK: Well after the interest payments to you and the expenses in the shop we didn’t have much left over so we had to stop the improvements as they got fierce expensive. Sales are still heading south.
CM: So what is the new money for?
SK: [cheerfully] We’re going to spend it in the shop!
CM: Sorry?
SK: We’re going to raise our sales by spending the loan money in it. Sure we’ll get half of it back again. Maybe even more!
CM: Half of it back?
SK: Yes! And then we’ll spend that half in the shop too! Or employ some more staff. They spend most of their wages in the shop you know.
CM: But.. surely, that can’t go on forever.
SK: Oh but it can, as long as you keep lending us the money. It’s called the ‘multiplier effect’. I would have thought a man in your position would know of it. It’s very popular amongst all the shopkeepers these days.
CM: How silly of me. Now tell me, how are sales going?
SK: Oh sales are still heading south at a rate of knots…
CM: Times are indeed tough for everyone.
SK: And we’re really quite expensive, what with all the staff and such. A lot of customers are going elsewhere
CM: But you have to cut your expenses! This is madness!
SK: Oh but we have. The staff now make a significant contribution to the cake fund.
CM: The cake fund? What the ..? Listen. How long more do you think we’re going to keep loaning all this money? I know it’s all backed by that cousin of yours in Brussels-
SK: He’s in Frankfurt actually.
CM: Whatever. What happens when he gets tired of shelling out all that money when the only security he has is on all that overpriced stock you have?
SK: Well [winks] he is rather depending on us for that vote thingie in October isn’t he?
CM: So he is, so he is.
SK: So, about that money ..?
CM: Will a cheque do?
SK: Cash if you don’t mind.
CM: Yeah, I wouldn’t trust the banks around your way either.
SK: See See you in October!

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6. The grand old man of Irish social democracy speaks on the … | Grand can yon tour online - August 27, 2009

[…] saying? “We crapper give no slackening of nonindulgence drive”. Read the original: The noble older Negro of Goidelic ethnic ism speaks on the … Posted in Uncategorized | Tags: 2009-, austerity-drive, financial, have-calming, irish, […]

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7. Crocodile - August 27, 2009

‘And how do Spanish public sector pay rates compare to here?’
I don’t know and I don’t really care. What matters to Spanish public servants is the relationship between their income and their cost of living and the same is true here. No point in comparing wages unless costs are comparable.
The fact that no other EU country has cut public service wages is worth mentioning for another reason. Our media are constantly reiterating that Irish public service unions are over-mighty and their members resistant to ‘reform’. Yet all Irish public employees have already taken a hefty pay cut ( unlike the majority of those in the private sector) and there have been no strikes or riots. As Brian Lenihan pointed out in a moment of candour, there is no way the ‘pension levy’ would have gone through with such acquiescence ( bordering on defeatism) in France or Italy.

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8. WorldbyStorm - August 27, 2009

alastair…some thoughts about the points you raise, a number of which are central to this discussion.

Firstly just to clarify two things, I always assume people reading here are savvy enough to know the point I was making about the HERMES report. I would expect like you that they would make the connection. Sure, that report came before McCarthy, but as it is the only serious analysis of this area that we can use to extrapolate outcomes not least since the McCarthy proscriptions appear so close to its parameters that I think it’s entirely reasonable to do so (worth noting though that the HERMES report findings are probably overly optimistic about outcomes). As regards ‘efficiencies’ I’d be mighty impressed with any process that could wring anything of any substance from that. Or to put it another way I don’t believe that there will be the sort of outcomes there that you seem to propose.

Second thing to clarify is that I never actually referred to any solutions, ‘notional’ or otherwise in the piece, so that’s irrelevant to the point I was making. I was suggesting that GFG wasn’t presenting a social democratic case by arguing not merely for aspects of McCarthy et al, but pretty much the unvarnished implementation of same. There’s not a sliver between him and right wing economic analyses. The accuracy or otherwise of those analyses is a different and entirely arguable matter, but the point is that he’s not looking for alternatives within a social democratic framework. Not even slightly.

And therefore I’m unsure why you think it is somehow ‘social democratic’ social/economic policy to argue for cuts today rather than tomorrow, whether greater or smaller.

Nor do I actually see any evidence of the contention you make that he proposes that by doing this we’ll see cuts avoided further down the line. In fact even in the rosiest situation he explicitly all but rules out the idea that pain today will lead to an alleviation of ‘this programme of austerity’, when he says:

“It is of course possible that, if we could secure significant cuts in our grossly inflated level of private and public sector earnings (which during the past decade we rashly raised to levels well above those of any of our competitors) a combination of an early global recovery together with rapid growth in what would then be a more competitive economy after 2011 could somewhat alleviate the later stages of this programme of austerity. But that must remain a hypothetical possibility.” [btw, inflated as against who? – note he doesn’t mention costs]

So, no real hint there of front-loading the pain so that things will be easier further down the line. An awful lot though, given that we’re facing wage and social welfare cuts, seeing numbers in the PS cut, seeing child benefit cut, seeing 3rd level entry refashioned entirely, seeing a host of cuts across the culture and arts areas, etc to name but a few, of explicitly anti-social democratic policy responses. Following that, what precisely are the ‘social democratic’ areas that remain fully extant? And what aspects of the social democratic village is he (through channelling McCarthy) not advocating destroying in order to save it?

Secondly there’s nothing more notional, as you seem to accept in your I think it’s third paragraph, than the idea we can bridge a gap between 5.3bn and 30bn or that somehow the former will alter the situation sufficiently to fix the latter. Sure, I’m all for small steps, particularly reforming steps, but these aren’t small, these are giant leaps that would rip the social fabric. And if McCarthy will do that what then of the ‘five’ times greater steps necessary to bring us ‘sustainability’?

Thirdly, FDI/exports isn’t the central issue here and I’m probably much more dubious of the notion that our recovery will be driven by them than you. As it happens myself and Conor from DO were discussing this very issue at lunch. Thing is our expansion in the 1990s and 2000s certainly wasn’t FDI or exports driven in the way you seem to propose (and we can see how although exports have held up, against all expectation) that hasn’t hugely assisted our situation). Of much greater importance was the infill economic activity of the small and medium businesses that sprang up across the state providing numerous services to people – and of course the construction market. Whatever about the latter, the former haven’t, as they say, gone away and that presents clear policy problems/opportunities. We could massively increase our FDI and/or pump up our exports and we’d still not see quite the relationship you appear to believe exists appear in terms of sustainable finances.

Oddly that brings us closer in line in our mutual analyses in terms of a deficit problem, but whereas I see the goal to be to sustain that broader economy you appear to think the only option is cuts which I believe will result in a deflationary approach which has and will continue to destroy businesses and employment in that broader economy.

Fourthly, moving on from there the central problem is that what is ‘sustainable’ financially isn’t sustainable socially, and there’s no point in people pretending it is. Ronan Lyons did a neat little exercise where he sought to essentially gut the public sector. I disagree with his outcomes and I’d be appalled if an attempt was made to put it into practice because I think the social ramifications would be quite literally disastrous. We cannot have a PS a third of its current size in this state (and arguably even that wouldn’t be enough to bridge the gap). We cannot depress wages in the PS to a level where we would have what you call financial stability or sustainability (indeed McHale calls for 5% wage cuts across two years – nowhere near enough. What would be? Look again at the thought experiment I do above… that wouldn’t do the trick either). That circle can’t be squared and therefore discussions about it are either pointless or deliberately specious. Which makes me despair of all this. If it is mathematically and socially impossible to bridge then why are we pretending that it can be done? And why is it somehow in practical terms ultra vires to seek alternatives. Alternatives which look an awful lot less notional in terms of generating or stimulating economic activity than the menu we’ve been presented with thus far (indeed, madly none of the measures taken, as Ruane admits, have any hope of generating economic growth or activity short or medium term, and why would they, that’s not their purpose, they’re about, at best consolidation and stabilisation rather than growth generation).

Fifthly, our borrowing situation as mapped across the next five years (McCarthy or not, and since there are options that we could explore in terms of tax, tax reliefs etc that would make up a large degree of any putative McCarthy implementations) is still in line with the mid-1990s. I don’t see that as the apocalypse. Nor, in all honesty do I think we’re in the ‘fix’ you appear to believe we are. Indeed I don’t see that as unsustainable at all.

That’s where I seek to move on from, and you are absolutely entitled to disagree with some or all of that…

Finally I don’t want to be part of a society society that thinks that ‘punishment/medicine’ language is appropriate for whatever reason.

PT, fair enough up to a point, but a society isn’t just an economy. Nor is a society a business enterprise. And I’m very dubious about approaches which try to reduce the former to the latter in both instances, or to simplify hugely complex economic and social processes.

Crocodile, that is a very important point. The PS has taken a hit, and will take more in the Winter. There’s no point in people suggesting otherwise. And you’re dead right that Lenihan, amongst others, has pointed to the passivity of the response.

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9. alastair - August 27, 2009

I always assume people reading here are savvy enough to know the point I was making about the HERMES report. I would expect like you that they would make the connection. Sure, that report came before McCarthy, but as it is the only serious analysis of this area that we can use to extrapolate outcomes not least since the McCarthy proscriptions appear so close to its parameters that I think it’s entirely reasonable to do so

You might think so, but it’s not as presented, is it? No-one has measured the actual impacts of the McCarthy report outside the reductions on cost inputs. It’s certainly not clear how they would impact on numbers of jobs, institutional savings and or efficienciesm etc. Presenting an already existant abstract paper as a measure of the impact of McCarthy (and down to a precise figure of .6% no less) is pretty much equating apples with oranges.

If it is mathematically and socially impossible to bridge then why are we pretending that it can be done? And why is it somehow in practical terms ultra vires to seek alternatives. Alternatives which look an awful lot less notional in terms of generating or stimulating economic activity than the menu we’ve been presented with thus far

No problem with seeking out alternatives. I’d love to hear about them as much as the next punter being impacted by all of this. The problem is that ‘stimulus’ borrowing is no alternative unless it can be shown to help fill the construction bubble hole – and the only realistic route to filling that hole is through domestic exports. No amount of domestic services or retail (or the rather more useful infrastuctural programmes) will generate the sort of money that exports will. And exports/foreign directed services have been the primary generator of wealth in the ‘real’ economy (ie – everything outside the unsustainable construction bubble) for many years now – especially through the 90’s – it’s just unfortunate that 90% of that current resliant export activity isn’t being driven by domestic industry. I’ve seen no serious assessment of our current situation that doesn’t project exports as the primary route out of recession – unsurprising for a state so dependant on imports. That’s the key issue in all of this (the burden of rescuing the banks set aside for the time being). Pumping borrowed money into domestic services isn’t going to generate any sort of economic recovery that gets anywhere near retention of current incomes – and building new export markets is going to be a slow, slow process.

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CMK - August 27, 2009

Alastair, I agree with you, broadly, that export led growth is the only realistic way out of this mess for us, sadly. That is, by the way, about the only thing I agree with you on.

Nonetheless, and to take up your pertinent point about the possible inability of any massive stimulus package to cover the hole in the economy created by the implosion of the construction sector.

Could it not be the case that a stimulus package could be spent, to a considerable degree, creating and supporting state owned (either wholly or paritally) companies that are export orientated?

Could entrepeneurs not accept state funding that was predicated on decent pay and conditions and union recognition for employees? Backed up with worker friendly Flexicurity etc? The same entrepreneurs who probably won’t get capital from the banks for next several hundred years, at this rate.

We are on course towards developing some form of critical mass in science and technology research (if we keep investing, which McCarthy says we shouldn’t), maybe we are on the cusp of making some scientific breakthrough that a state owned company could commercialise and market worldwide, in the process gaining export earnings?

There are plenty of healthy alternatives to the current menu of cuts and hardship. Although the alternatives, such as those sketched above, will involve paradigm shifts in how our economy is understood, on the part of our economics profession and their media groupies and politicians who refuse to think for themselves.

I think someone at either progressive-economy.ie or Notes on the Front noted that since independence the only sources of economic dynamism in this state have been the state itself and multinationals (who came here through the efforts of the state’s servants). To me, at least, it’s obvious that some form of melding of the two forces will have to be contemplated and enacted.

And that would involve a massive increase in state spending (and state earnings, in the medium to long term); something which will be resisted to the death by those currently controlling discourse here. Their solutions (NAMA, cuts, deflation etc) will, I think, hasten the economic and social death that many here (on CLR) intuitively sense is on the way…..

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WorldbyStorm - August 28, 2009

If we don’t do that where precisely is the growth coming from? A denuded private sector that even at the height of the boom was only able to get us around 3% export growth (2000-2005), and earlier in fairness was slightly bettter at 8% (1995-2000). If not there it isn’t coming from anywhere. No development, no hope. And we still lose our public sector provision. No bargain there. And here is a piece from the IT earlier this year which aligns very strongly with your view CMK. http://www.irishtimes.com/newspaper/opinion/2009/0121/1232474670660.html

Re HERMES, I see the professionals such as Michael Taft and indeed the Progressive Economy crew use those figures in that fashion. If it’s good enough for them I can’t see a reason why i’m not allowed to do so.

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10. alastair - August 27, 2009

Finally I don’t want to be part of a society society that thinks that ‘punishment/medicine’ language is appropriate for whatever reason.

Subscribing to the notion that we’ve run out of options to avoid dealing with the reality that we can’t afford the status quo and need to live within our actual means isn’t what anyone wants. It is, however, a preferable line of thought than digging a deeper hole in the hope that some unknown will save us down the road. The ‘fix’ we’re in is real enough.

Punishment/medicine are just an unfortunate byproduct of where we’re at – the state is indeed pretty sick, and the cure is going to be punishing for a time – that’s not because of any inherent masochism, just that we can’t retain what we’ve been used to for a time. All we can do is be as equitable within the parameters presented – and that’s where Fitzgerald retains his social democraticv credentials.

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WorldbyStorm - August 27, 2009

Man, I really don’t have time in my life to be trying to explain why social democracy as a political philosophy is the antithesis of a public discourse that use terms such as ‘punishment/medicine’, let alone from an economic policy standpoint as regards deficits is the opposite of what you seem to suggest etc, and I think you’re a pretty intelligent person in your own way so I can’t help but think you’re indulging in your own version of épater le bourgeois, which is all very fine, but not on my clock if you know what I mean.

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alastair - August 28, 2009

No time to engage with the content, but just enough to damn the messenger. I see what you’re ‘indulging in’ there alright. That’d be ‘pretty intelligent’ ‘in your own way’.

Honestly.

Q: Is this state currently sick?

Q: Is the resolution of that sickness going to be punishing, regardless of what the approach is?

Now – forget your sensitivities about the terminology and deal with the reality.

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Worldbystorm - August 28, 2009

That was not the context that the comment was related to me in the first place i.e. that it would be ‘punishing’ but that it was ‘punishment’. An obvious and significant distinction.

As regards the rest, nope, simply don’t see the point in wasting time trying to engage with someone who patently doesn’t understand a) social democracy and b) doesn’t understand why that sort of terminology has no place in a social democrat discourse. That or it’s baiting.

Either way it’s a waste of my time and energy. And as I noted before in the original piece, I find it pretty offensive as a part of our economic and political discourse, something I’ve also stated on here many many times before across the past two years.

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11. alastair - August 27, 2009

What matters to Spanish public servants is the relationship between their income and their cost of living and the same is true here. No point in comparing wages unless costs are comparable.

There’s every point in comparing the overhead to the state – because each state has to cut according to their cloth. Spain has a budget deficit that’s bad – but a lot better than our own, and a taxation defict that’s actually worse than our own – but their state spending on managing the situation (including their stimulus packages) as a proportion of GDP is lower than our own (and they don’t have the same artificial GDF shew that we do). So they’re spending less to get out of their problems than we are – and managing to include a stimulus aspect to their plans. We’re in deeper shit, and clearly need to go beyond what Spain have to. If our public sector salary overhead isn’t sustainable, then if certainly begs the question – what’s the difference between the Spanish PS salary overhead and our own? The cost of living has taken quite the plunge here lately – 2007 salaries don’t make quite as much sense as they once did.

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12. Crocodile - August 27, 2009

Garret has become gloomier of late, WbyS – and you yourself must be looking back in wonder at a few posts of a year or so ago, which pointed out that free market excesses had got us into this fix, so surely the process of emerging from it would give opportunities to left-wing analyses/approaches.
Instead what do we have? A near universal acceptance that we have no alternative but to prostrate ourselves before the markets, dismantle what welfare state we have and let go of pay and conditions that have taken decades to establish. The markets in their failure have achieved objectives that they could never dream of in their times of success.

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WorldbyStorm - August 27, 2009

But really, only here. Or at least most pointedly here. Irish exceptionalism yet again.

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13. Pavement Trauma - August 27, 2009

Society may not be like a business enterprise but for an economy (for that is the issue) there are similarities. In both cases a situation where outgoings vastly exceeding incomings can only be sustained for a certain period before something has to give. The greater that incomings – outgoings differential, the shorter the period. We don’t want to get to the end of that period and find out what it is that ‘gives’ at that stage.

Obviously the shop = economy analogy breaks down eventually but I had some fun keeping it going for a bit.

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WorldbyStorm - August 27, 2009

Of course, re your point about economies, but the situation isn’t static. Nor is it unamenable to prodding by either private sector or state. I see precious little of the former, so the heavy lifting must be done by the latter. And as I have pointed out above our present situation as regards borrowings is akin to the mid-1990s. That strike me as considerably more sustainable than some appear to make out.

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Pavement Trauma - August 28, 2009

While our levels of debt are comparable to what they were in the mid-1990s, it is the size of the government deficit & the growth in the economy (and hence the rate of increase in the relative size of debt) that is massively different to back then. Between 90-95 the deficit averaged 2.2%, and economic growth was positive, now the deficit is over 10% and economic growth is negative.

So we may the same distance from the edge of the cliff as we were in c1995 but back then we were crawling away from danger, whereas today we are running towards it. It is a pretty fundamental difference.

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14. Worldbystorm - August 28, 2009

I posted a comment in reply PT but it doesn’t appear to have come through, anyhow here’s a reprise.

Running towards it with no means of generating growth and no effort to do so. That’s worse again.

I’m still being asked to believe that massive cuts in public expenditure/provision (and absolute inaction on stimulus) will somehow bring us to sustainability and beyond that growth when we see that those cuts cannot bridge the gap and even such as are proposed will tear the social fabric in a way which I find untenable. I’m suggesting that in such a case it makes more sense to borrow for stimulus purposes. After all what’s the real choice here? If we don’t take a stimulus route we lose enormous tranches of our social democratic compact such as it is, if we do we have a chance of getting through it without losing it all. It’s a gamble. One’s position will be determined by ideology and to an extent outlook. And, by the way, there are intermediary positions (for example freezing expenditures etc for a couple of years, the incorporation of certain reforms of the PS)…

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15. Pavement Trauma - August 28, 2009

Would it be unfair to characterise your attitude as ‘We’re going to crash anyway, so why bother braking so hard?’ Surely cuts of X% now, chosen (however imperfectly) by ourselves are better than cuts of 2X% (or 3X% or ..) a few years hence imposed from without?

I can see two type of stimulus spending that are worth increasing our debt for: 1) Improving our physical infrastructure to raise our potential productive capacity 2) Saving those otherwise viable businesses that would go under due to the international recession. Everything else is the shopkeeper spending in the shop.

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WorldbyStorm - August 28, 2009

Again, just by going by the figures provided how do we bridge the gap? If, as I believe, it’s unbridgeable, or more realistically it doesn’t need to be bridged then it makes no sense to be obsessing about it at the exclusion of measures that would have a positive effect on future growth.

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Pavement Trauma - August 28, 2009

how do we bridge the gap?

In the same way you eat an elephant – one bite at a time. It won’t be one thing, but many (cuts, efficiencies, tax raises, asset sales, whatever it takes). To throw your hands up in the air because there is no easily identified solution is not helpful.

it doesn’t need to be bridged

What, ever?

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WorldbyStorm - August 28, 2009

It’s not a case of throwing hands up in the air. If you’re correct and it can be done one bite at a time – and remember unlike you I’m ideologically opposed to many of the McCarthy recommendations (at least I presume that’s a point of difference between us), so for me I don’t agree with ‘whatever it takes’… I simply don’t think we should do them – how many bites, how long a time? The economists pointed out McCarthy in full was five times less than was required to achieve a balance today. How many bites, how long a time to bridge that gap and more?

I don’t believe that it’s possible to bridge the gap, and nothing I’ve seen convinces me that it is even over five or ten years. And if that’s my analysis, and it’s shared by not merely progressive economists but also conservative ones then what ever moves we make under McCarthy cannot be seen as in some sense ‘serious’. But, those moves fatally injure key legs of welfare/service provision/education. And they are in terms of sums many many billions less than would on any serious reckoning lead to stability.

What are they then? Cosmetic for the most part (and in practical politics we also know that they won’t even be implemented in full. It won’t be 5bn, it’ll be 2 or perhaps 3bn). Therefore I’m going to fight tooth and nail to retain those social democratic elements. And I’m going to argue as strongly as I can for stimulus in order to encourage growth. And I’m going to be profoundly sceptical about claims that we’re close to the edge.

And not just on those issues but on the borrowing we’re doing and will do for NAMA which is many multiples of the amounts supposedly saved by McCarthy. Hence I say reconsider the approach.

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16. alastair - August 28, 2009

That was not the context that the comment was related to me in the first place i.e. that it would be ‘punishing’ but that it was ‘punishment’. An obvious and significant distinction.

I’m not clear what the distinction between punishment and punishing might be, but context doesn’t appear to play any role in the comment I was responding to:

I don’t want to be part of a society that thinks that ‘punishment/medicine’ language is appropriate for whatever reason.

I’m well aware if the tenents of social democracy btw – I’m just not subscribing to the notion that Fitzgerald should be cast from the SD fold because he’s not in agreement with your recipe for borrowing without regard for an obvious means of repayment. If that’s ignorance or ‘baiting’ – then so be it. I’ll keep my toys in the pram.

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WorldbyStorm - August 28, 2009

To be honest that’s a rather asinine response re punishment and punishing. I’m clear on the nature of the comment that was made to me. I imagine most others are too.

Re social democracy, the last thing social democracy is is conservatism dressed up in social democracy, i.e. your apparent concept – and btw your approach is a conservative economic one (no shame there, but let’s be honest about it) -of GFG supporting cutting away whatever social democratic elements remain of this state.

Re the toys. By all means do whatever you want to. Your purpose here puzzles me. it’s not to convert since you tend, as was evidenced by your entertaining Sean, South of Garryowen contribution, to be one of instant critical (and overwhelmingly negative) response.

You’re no species of social democrat, let alone democratic socialist that I recognise. You can’t explain how the gap can be bridged, etc… but you’re certain that alternatives are ‘notional’. And since neither of us are movers and shakers in these circles it’s hard to credit that you think you’re going to change peoples opinions on the economics of the situation.

So what pray tell is the point? To argue that somehow what GFG proposes sits within social democracy, or that the rhetoric of ‘punishment’ is social democrat, well I’d call that close to baiting – particularly if you do know what the tenets of social democracy. I’ve pointed out before in relation to your tone as directed against others that this isn’t a bearpit like P.ie.

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alastair - August 28, 2009

You’re no species of social democrat, let alone democratic socialist that I recognise. You can’t explain how the gap can be bridged, etc… but you’re certain that alternatives are ‘notional’.

I can’t account for your personal political pigeonholes, but I plead guilty to an inability to bridge the defecit the same as the rest of us. That’s why I support attempts to curtail any expenditure that attempts to fill the 15 – 20% of our economy that we have no choice but to wave goodbye to for the forseeable future. It’s gone and our new ground zero needs to take account of that fact. All projections and strategies in rescuing this economy are notional – and yes – that includes any and all alternatives to the proposed govt route. That is a certainty.

Fitzgerald has decades of activity and commentary inder his belt – more than enough to make clear his Social Democratic bent – and if he reckons that cuts are required to save the patient, then that’s not through any ideological shift or antipathy to public service provision – it’s because the money isn’t there to support it. A position that you might choose to pop into your ‘economic conservatism’ pigeonhole, but one that stems from a man all too familiar with the consequences of extended faith in borrowing to prop up a shortfall in national revenues.

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WorldbyStorm - August 28, 2009

Return and look at GFG’s economic record, as EamonnCork did. Abysmal is the kind way of putting it. So I won’t and don’t take his thoughts as the last word on anything, whatever his self-described view of being a social democrat.

And the key point, which I made above and remains certain now is that a gap that can’t be bridged can’t be filled in the way that you suggest. It’s entirely notional. And I long before admitted that the route I suggest is aspirational. Of course it is. There’s no certainty in any of this.

But I’m doing that standing on clear social democratic/democratic socialist economic ground. And there’s a sufficient body of work and thought behind that to generally support it without one having to concede that the supposed orthodoxies are the last word either.

This is a difference of opinion. Opinion, not fact. I get it, always have as it happens. You will too, no doubt.

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17. alastair - August 28, 2009

Between 90-95 the deficit averaged 2.2%, and economic growth was positive, now the deficit is over 10% and economic growth is negative.

Not to mention the shift in what constitutes the Irish GDP since those years. The situation is worse than the figures suggest because that portion of our GDP made up of FDI revenues is so much greater – 20% in ’95, 75% in ’09. So the real enough deficit needs to be measured against that reduced portion of GDP that constitutes actual domestic productivity (rather than the churn generated by multinationals).

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18. Crocodile - August 28, 2009

‘I’m not clear what the distinction between punishment and punishing might be’
Maybe I can help, Alastair.
My training regime for the marathon may be ‘punishing’ in the OED sense of ‘severely taxing’, but it is not ‘punishment’ in that no retribution for an offence on my part is implied.
The economists and commentators who speak of the necessity for ‘punishment’ are making the suggestion that the suffering undergone is in some way deserved and therefore justified.

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19. alastair - August 28, 2009

The economists and commentators who speak of the necessity for ‘punishment’ are making the suggestion that the suffering undergone is in some way deserved and therefore justified.

You sure you’re not ascribing your own bias in relation to economists there? If the commonly proscribed ‘pain’ of sorting out the economy is punishing/punishment, there’s no culpability implied. I’ve yet to hear from an economist that measures that impact on everyone are ‘deserved’ by everyone. Conversely I’ve heard lots of commentary about ‘sharing the pain’ – acknowledging that those without any culpability have to carry some of the burden created by others.

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WorldbyStorm - August 28, 2009

The comment was made to me very clearly by someone with a very specific interpretation. So are you sure you’re not ascribing your own bias in relation to the terminology there?

Pain, by the way, isn’t punishment.

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alastair - August 28, 2009

I don’t want to be part of a society that thinks that ‘punishment/medicine’ language is appropriate for whatever reason.

Clearly you’ve issues with the terminology beyond what your Green mate said to you. There’s no other reading can be made of your own statement (which is what I’ve already pointed out was what I was repsonding to).

And pain is, be most people’s reckoning, a punishment. You believe otherwise?

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WorldbyStorm - August 28, 2009

Really, you just dig yourself in deeper. But carry on.

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20. Crocodile - August 28, 2009

Well, Charlie McCreevey, David Adams in yesterday’s Irish Times and several others have offered the opinion that ‘we all’ got carried away during the boom years, the implication being that we all deserve to pay the price now.
I would suggest that the prosperity of the boom years was very unequally shared. This insistence that we all must share punishment reminds me of one of those school blanket punishments when the teacher was too lazy to find out who’d committed some crime, so the whole class was punished.
You can say as often as you like that we are where we are and distinguishing between those who caused the slump and those who didn’t is of no value. You won’t convince me. Unless we assign culpability we make no moral distinction between thief and victim – and victims should not have to pay for thieves’ crimes.

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alastair - August 28, 2009

You can say as often as you like that we are where we are and distinguishing between those who caused the slump and those who didn’t is of no value. You won’t convince me.

Ah well – that doesn’t really matter. The point is that there’s no-one able to clean up this mess, but all of us. I’m one of those largely innocent parties in the bubble – I’ve built up no debt to speak of, spent most of the tiger years on spectacularly unspectacular income, bought the gaff well before prices went silly, never taken out a car loan, never paid interest on a credit card, generally been financially cautious to the point of scabbiness. I’m well past caring that it’s unjust that I’m asked to help carry the can for those who gambled and lost out for all of us – indignation at the unjust nature of it all won’t help fix the problem. This isn’t about a refusal to isolate/identify the perp – it’s about the fact that the perp can’t fix the problem – things have moved on.

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21. alastair - August 28, 2009

Really, you just dig yourself in deeper. But carry on.

You were saying about asinine?

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WorldbyStorm - August 28, 2009

I’m still not trying to pretend the meaning of a conversation and a very specific term was something other than it was.

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alastair - August 29, 2009

and again:

I don’t want to be part of a society that thinks that ‘punishment/medicine’ language is appropriate for whatever reason.

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22. EamonnCork - August 29, 2009

In a minute Alastair is going to say, “it was my cunning little trap and you fell for it, nyahahahaha.”

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23. Worldbystorm - August 29, 2009

You know precisely what I mean and to argue otherwise, or indeed any further, is entirely disingenuous. But again… it’s your time. Keep going as you see fit.

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24. Worldbystorm - August 29, 2009

That last 23 was addressed to alastair – just to clear up an confusion.

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25. Makes no sense at all… « The Cedar Lounge Revolution - September 16, 2009

[…] Except there’s a problem there. The figures don’t add up. Even a 5 per cent cut across the board, as advocated by John McHale recently (and note our Stephen is remarkably sanguine about the deflationary effects of such an act) would only save €0.7bn or to put it another €13 million saved a week if it were lashed in in one year, or €6.5 million per week if it is introduced across two. I mention that last because McHale argues for the policy introduced across two years although he is no man of the left – perhaps because he’s a little less sanguine about the deflationary effects… And by the way that would deliver at best .3 per cent reduction in the borrowing requirement. […]

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