Permanent Problems and Temporary Fixes

[Dreaded_Estate]

The Irish Economy Blog Archive Permanent Problems and Temporary Fixes

There has been extensive discussion on this blog and elsewhere as to the cyclical/structural split in the Irish deficit, likely to be 14 -15% of GNP this year, and roughly the same in 2010 if the December 9 budget achieves the €4 billion adjustment to which the government is committed.

A portion of the deficit will be eliminated as the tax/GNP ratio is restored in a recovery, whenever it comes. But most commentators seem to be agreed that the structural component dominates, and will endure indefinitely at well above anything the Stability and Growth Pact, or lenders, will permit.

So permanent measures are needed to deal with this permanent component of the deficit. I don’t wish to start a debate about how big this component is - let’s pretend we all agree that it is, say, 9% of GNP. Government revenue needs to be raised, or spending reduced, by 9% of GNP over a period of years through specific, and permanent, policy actions.

This evening’s news reports suggest that a portion of the public payroll adjustment is to be achieved through a manouvre involving unpaid leave for public servants, which would achieve a cash saving in 2010. Twenty days out of c. 220, if that is the formula, would yield a big cut, perhaps most of the entire €1.3 billion being sought from this expenditure heading. But to qualify as a contribution to eliminating the 9% of GNP structural deficit, it would need to be forever. And if it is compulsory, and forever, it is a pay cut. An awkward pay cut to implement and monitor, and entailing a commensurate reduction in employee time input, to which there must be output costs.

If it is compulsory, but only for 2010, it is of no value in the context of fiscal consolidation. The government might as well place a temporary surcharge for a year on some item of tax revenue, and it all has to be done again, from scratch, the following year.

Winston Churchill remarked once:

‘It is not always enough to do our best. Sometimes we have to do what’s required.’

Love him or loathe him. I think this is a great response to the latest government fudge from Colm McCarthy.

[hammer]

"it would need to be forever"

Well it wont and the threads in October 2010 on politics.ie will be the same !!!

[birthday]

The Irish Economy Blog Archive Permanent Problems and Temporary Fixes



Love him or loathe him. I think this is a great response to the latest government fudge from Colm McCarthy.

What would the union response to the above be?

[feargach]

what is the test that is used to define a particular portion of a deficit as "structural" or "non-structural"?

This word is used with such abandon and ubiquity that I wonder if it has any objective definition at all. It would appear to mean whatever the speaker intends it to mean, which is to say, it means nothing at all.

He uses "forever" and "structural" to mean the same thing, which is to say, he expects the present to continue forever.

He is fighting a pathetic rear-guard action against the wise Keynesian view, which holds that in an unprecedented global depression, you should postpone the real cost-slashing until after the worst is over.

The state rents most of its buildings, and could probably "save" most of the €5bn tomorrow by simply cancelling planned rentals, and moving offices to recently-vacated places.

This would wipe out a huge number of businesses, and possibly bring down a bank or two.

It's good for pudgy people to go on a diet, but not when they're in intensive care after a car crash.

We can, and will, cut lots of fat from the public cost base. But because doing so in the middle of the depression would bring in the IMF (who, incidentally, are looking a bit impotent these days) we will postpone that until it can safely be done.

Sometimes the right thing to do is to keep the gun in the holster.

[Dreaded_Estate]

what is the test that is used to define a particular portion of a deficit as "structural" or "non-structural"?

This word is used with such abandon and ubiquity that I wonder if it has any objective definition at all. It would appear to mean whatever the speaker intends it to mean, which is to say, it means nothing at all.

The structural deficit is the deficit that remains when the economy returns to full growth and employment.

In Ireland that means all the economic activity that was generated by the bubble and isn't coming back when the economy recovers, not matter how much we wish it would.

[feargach]

The structural deficit is the deficit that remains when the economy returns to full growth and employment.

Well full growth and employment are not possible to predict in Euro terms.

So depending on:
- how effective we are at implementing savings after the recovery starts;
- how well-paid the new jobs are;
- how many new jobs are created;
- how good we are at raising revenue in the thousands of ways open to us,

The deficit might be massive, or it might not even exist at all.

It's a guesstimate, in short.

His guess is that in the long-term future that no-one can reliably predict, our income will be below our outgoings.

That's his guess. Why is somebody else's guess not the same or better, seeing as both are based on that which nobody possesses: knowledge of the future?

[Baron von Biffo]

Love him or loathe him. I think this is a great response to the latest government fudge from Colm McCarthy.

McCarthy, the right wing crackpot who came up with the great idea that we could fix the national finances if the government spends nothing outside the M50.

Move along folks. Nothing to see here.

[Dreaded_Estate]

Well full growth and employment are not possible to predict in Euro terms.

So depending on:
- how effective we are at implementing savings after the recovery starts;
- how well-paid the new jobs are;
- how many new jobs are created;
- how good we are at raising revenue in the thousands of ways open to us,

The deficit might be massive, or it might not even exist at all.

It's a guesstimate, in short.

His guess is that in the long-term future that no-one can reliably predict, our income will be below our outgoings.

That's his guess. Why is somebody else's guess not the same or better, seeing as both are based on that which nobody possesses: knowledge of the future?

Yes the calculation is based on estimate feargach. But you can't do economics or budgeting with forecasting.

It based on the estimate of our likely growth in the future and the amount of spending and taxes that are gone forever and based around a bubble.

You have done your own forecasts that justify no changes in spend or tax because you predict that we will be running surpluses by 2012. How can you do this without knowledge of the future?

[eyeswideopen]

what is the test that is used to define a particular portion of a deficit as "structural" or "non-structural"?

This word is used with such abandon and ubiquity that I wonder if it has any objective definition at all. It would appear to mean whatever the speaker intends it to mean, which is to say, it means nothing at all.

He uses "forever" and "structural" to mean the same thing, which is to say, he expects the present to continue forever.

He is fighting a pathetic rear-guard action against the wise Keynesian view, which holds that in an unprecedented global depression, you should postpone the real cost-slashing until after the worst is over.

The state rents most of its buildings, and could probably "save" most of the €5bn tomorrow by simply cancelling planned rentals, and moving offices to recently-vacated places.

This would wipe out a huge number of businesses, and possibly bring down a bank or two.

It's good for pudgy people to go on a diet, but not when they're in intensive care after a car crash.

We can, and will, cut lots of fat from the public cost base. But because doing so in the middle of the depression would bring in the IMF (who, incidentally, are looking a bit impotent these days) we will postpone that until it can safely be done.

Sometimes the right thing to do is to keep the gun in the holster.

You are falling into the Government thinking that an return to the boom is around the corner. Also, the money is being wasted, when there are things that desperately need money.

They have to go.

[feargach]

I don't expect any boom. But a recovery is inevitable, barring some massive international event causing a second global collapse.

Would you not consider the possibility that you're falling for permanent-bear thinking, imagining that no positive results will ever emerge?

It's normal for people to assume that the facts of the last few months will continue forever, whether they are boom or bust.