Speaking of Goldman Sachs…

As we were here… Richard Curran has a sensible piece in the Sunday Business Post which cuts through some of the rhetoric extant at the moment, and perhaps is of a piece with this on Irish Economy recently where… was sceptical about the rhetoric surrounding public sector pay cuts while arguing for targeted cuts in certain areas.

He expresses healthy scepticism of a talk by Goldman Sachs International Chairman, one P. Sutherland who while arguing that ‘things were getting better… in terms of international perceptions of Ireland and its ability to work through the crisis’ also argued for front loading of ‘pain’ in the budget beyond €3.6bn and appeared, according to Curran, to be calling for public sector pay in Ireland to be cut [cut further, though Curran doesn’t say that].

But Curran makes a useful point when he notes that:

Pay has already cut across large swathes of the economy. Cutting it further could well be a dangerous game. If public sector pay here were cut to the European average it would do a lot for our exchequer balance. however, Irish public sector employees carry higher personal debt levels than the European average as do Irish citizens across the board.

And he continues:

If you cut pay in too extreme a fashion, without a mechanism to cut people’s debt, it’s no longer about them tightening their belts; they will simply be personally insolvent.

European pay rate comparisons might be a useful guide in some ways but if we set them as the target without taking Irish people’s own debt situations into account, real financial carnage will ensue on a personal level.

This is a useful counter to a rhetoric of pain which often appears to assume that economic austerity is good in and of itself without considering the broader systemic ramifications. Michael Taft for years now has been arguing that quite apart from the deflationary impacts on the broader economy of such proposed cuts their actual cost-savings benefit is so minimal as to make little difference to our financial situation.

As it happens the politics many/most on the left advocate will de facto cut wages through increased taxation – how else do we pay for our socio-economic programmes. And the public sector isn’t going to be sheltered from that. But, there’s a time and a place and in the teeth of a recession policies that push us further into deflation appear deeply misconceived.

Worth noting too the tide politically while not changing may see some interesting counterexamples put forward, as with the election this last week of Danish Social Democrat Helle Thorning-Schmidt who has campaigned on a platform resolutely opposed to austerity. Not for her spending cuts, indeed her government is introducing a wealth tax as well. And one small measure that makes sense as well is that she calls on all workers to work a quarter hour a day more without pay in order to raise taxes and increase productivity.

Social solidarity in every sense of the term.