Some years ago,a survey of a very materialistic and pro-business group of people,Harvard Business School students,asked the following question: Would you be for a pay increase of 5% if everybody else got 10% in your workplace? Most students answered no. This illustrates the importance of the psychology of the pecking order,in which one's relative position in the order is more important than a substantial increase in material reward. In such psychology lies the key to resolving the Irish government's massive financial deficit.
The Irish government budget must cut spending by at least 25% to match sustainable tax revenues.Without such cuts,the national debt burden and rapidly rising interest payments would cripple the economy for a decade or more. Politically,this spending cut may be impossible however,requiring the intervention of the IMF and the ECB to dictate austerity to us.
If Ireland wants to avoid the humiliation of an IMF intervention and keep its economic independence,the government should announce across the board cuts that would leave people's position in the pecking order unchanged. For example,all public sector pay and pensions should be cut 25%,with a somewhat lesser cut in all social welfare payments of say 15%. In the private sector,cuts are occuring through grinding deflation,including bonus cuts, shortened working hours and huge numbers of redundancies. But if this doesn't satisfy the potential militants in the public sector unions who would attempt to shut down essential services in protest, the government could increase income taxes to the punitive rates that prevailed in the 1980s so that we can all be miserable together in the unchanged pecking order.