The elephant in the room

[birthday]

Is the elephant in the room the fact that we have become massively uncompetitive-why is there so little recognition of this fact amongst economists and analysts? How did we ever think that we somehow could afford, over the medium to long term, to pay so many people way above the odds in comparison to our competitors within the same currency area. The 2007 remuneration for higher paid public servants commission really should have set off alram bells when politicians, judges and those at the upper echelons of the public service were awarded spectacular increases on top of already out of range salaries. Our so-called social partners and opposition parties sat back
Example Hospital consultant €250,000 Ireland Germany €100,000
University lecturer €90,000 Ireland UK €45,000
Call centres re-locating to Belfast (not Poland) where workers can be employed for half the salary of the south. Social Welfare rates way beyond UK.
The list goes on....But again and again we have left ourselves on a high tide beach way beyond our competitors. The L' óreal economy if ever there was one....
Some posters on p.ie have suggested leaving the € zone and effecting some sort of devaluation. It seems this cannot be contemplated.
As an open economy dependent on traded goods and services have we been left high and dry by the bubble illusion of the last 8 years or so.
We have significantly overpaid ourselves in so many areas of the economy. Very few want to admit this. Why?
We as taxpayers have funded a National Competitiveness Council who operate under ForFás who seem to have completely blinded themselves against this glaring reality in spite of their title. Thanks IBEC, unions and civil servants on the !!! Your smart economy nonsense came as too little too late. It was like shooting fish in a pond and you missed!
You had years to observe this but you chose to ignore the way we were going .

Are there any economists out there who can explain the theory behind my non-economists view of things. What in theory can we do? What international examples, if any, are there of an economy successfully moving out of this situation? As a non-economist I can see a long term correction taking place if we continue as we are going. This will lead to the emigration of hundreds of thousands, a two tiered society comprising a protected overpaid Public service (smaller numbers), a small number of highly profitable mulitinational high tech operations and our banks pitted against a high number of unemployed (c20%) and a low paid private sector involved in services. No smart economy will save us from our fate. How has it come to this? Did no-one shout stop? Well we know the National Competiveness Council didn't? Why nobody else? Where were the 46 anti-Nama economists?

[toughbutfair]

a massive government stimulus over the last decade and a housing bubble raised prices of everything. Market forces will bring it all back down over time (rent, wages, goods then repeat)

[Harmonica]

Prices were almost entirely feed by the state. Every service the state provided has increased every single year including 2009. The state allowed lack of supply in a variety of services to continue & drive up prices. The states job is to remove barriers to competition & police the fairness of the market which it has spectacularly failed at.

The state also drive current spending to unsustainable levels which is difficult to reduce now. If the state focused on driving down the its own costs would go a long way to help regain competitiveness.

Working in IT current pay freeze will continue for some time. If we didn't have a customer from expensive Nordic country I would not have a job. In the medium term any non-management jobs will more abroad.

[Limerick Lad]

The elephant in the room is that the difference between being on social welfare and working for the minimum wage is too small specially when all the additional benefits (medical card, etc) that come with being on social welfare are taken into consideration.
If the minimum wage is to be lowered to make Ireland's economy more competitive then there has to be a similar reduction in social welfare payments but can any political party take such a drastic step without suffering at the ballot box.

[Speedfreak]

a massive government stimulus over the last decade and a housing bubble raised prices of everything. Market forces will bring it all back down over time (rent, wages, goods then repeat)

One would hope so. However, I recall from an essay of Schumpeter's - 'The decade of the twenties', where he had this to say about opinions held during boom and bust parts of the cycle - by the economic profession in particular,

"During boom periods, ludicrously exaggerated opinions develop about the power of open market operations over business situations. On the other side, during the bust, the exact opposite opinion takes hold."

Now, NAMA seems to me as if it might easily be the antidote to open market operations. It is obvious this is the intention anyway.

Personally, I believe that those who came up with NAMA - the politicians, Michael Sodens, KPMGs, Arthur Coxes, Jones de la Salles, and assorted economists etc. may very well be able to subjugate and manipulate open market forces through the manipulation of money aggregates and associated NAMA business operations etc.

Once it is realised more that this may actually be the case, I think it will be time to get very active politically if one believes in the inherent evil in this state of affairs (as I do).

[cactusflower]

The room is full of ruddy elephants.

There have been regular stats showing our progressive fall in competitivity from the beginning of the 2000s. FF chose to ignore this.

Salaries are a relatively small part of our uncompetitivity. Energy prices were more important in driving Dell out, for example.

Salaries were pushed up to some extent by escalating house prices.

The IDA produced an FF-friendly theory that it didn't really matter that we were uncompetitive - we would find some special jobs that only really really clever Irish people could do.

[toughbutfair]

I get lots of stick here for being such a capitalist. BUT bank bailouts are not capitalism, NAMA is not capitalism.

BANKS should fail, new market started by government (with aim to be sold off in 5 or 10 years) with 50bn euro. There is nothing wrong with crashes if bad business collapse and new ones step in, think of internet cafes , not many around anymore as no longer relevant.

business fails, vacancies, rents drop, wages drop, people can afford less rent so rent drops again, food prices dropping, companies drop wages until the right level is hit. The PS wages need to be linked to private sector and minimum wage abolished until the rightt wage is reached (welfare will keep this wage up)

[real kiltubrid man]

the current economy is finding its own rates and prices, in some cases people are willing to work for below the minimum wage to survive, i agree banks should fail, at the end of the day ,every company in the country could find some law stating equality as to comply with the injections of capital into failed companies such as the banks,therefore lessening the liquidations, but this would not be atall feesable.
when the cost of living reaches 1981, i thinbk we will be at the bottom, as for mortgages they look to be on the way up cost wise