Lower Your Expectations

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Michael-Taft

From top: Enda Kenny at government buildings this morning to convene his last cabinet meeting of this government term; Michael Taft

What many won’t say:

The road ahead is bumpier than you think.

Michael Taft writes:

So the economy is back in recovery mode but under the Government projections we are not going to bounce back to pre-recession levels of living standards.

Lower your expectations, sisters and brothers, the recovery is setting in. Let’s take a historical look at two indicators of living standards.

1) Consumer spending:

Between 1970 and 1995, a period covering two slump periods punctuated with growth, real consumer spending averaged 2.7 percent annually per capita.

Between 1995 and 2000 (the good phase of the Celtic Tiger, based on investment, manufacturing and exports), real consumer spending averaged 8.5 percent annually per capita. That was a strong performance, with employment rising, increasing wages and the ongoing shift to a modern enterprise base.

Between 2000 and 2007 (the bad speculative phase) real consumer spending averaged 3.4 percent per capita. A little better than the pre-Celtic Tiger period but as we know, unsustainable.

Then the recession hit and consumer spending fell by over 10 percent. However, as always happens, the economy recovered. In the textbook alphabet, there would be a burst coming out of the recession, representing pent-up demand, and then things would settle back down to past trends.

If the Government projections come true, this will not be the case.

1

We are in the middle of a bump which should continue into this year. However, the Government estimates that it will fall off rapidly in 2017 and remain below 1 percent into the next decade.

It is worth noting that while in 2015/2016 consumer spending increases by €1,000 for every man, woman and child, by 2020/2021 consumer spending increases by less than €300.

2) Public spending:

But this might not be so bad if the Government increased its spending on public services, or government consumption. If, for instance, the Government introduced affordable childcare, reducing fees by half, then the savings to the households could be redirected to other areas of consumption; similarly with free health care.

Let’s look at Government spending on public services.

Between 1970 and 1995, real government spending on public services averaged 2.8 percent annually per capita.

Between 1995 and 2000, real government spending on public services averaged 5.0 annually per capita.

Between 2000 and 2007, it rose by 3.1 annually in real terms.

Recession time and public service spending fell by 16 percent up to 2013.

So what is the government projecting going forward?

2

In 2014, government consumption rose by 4.2 percent but this was largely a statistical fluke, factoring in productivity gains from the Lansdowne Agreement. In subsequent years there is effectively no increase at all.

Therefore, there are three principles that should guide the next government.

First, investment; driving investment increases productivity and enterprise expansion which, in turn, increases wages and employment. This is a more sustainable approach to consumption. Pumping consumer spending through tax cuts in the hope that this will increase investment (through business confidence, etc.) is misplaced – as Michael Burke shows here. Pumping consumption in a small open economy like Ireland’s is even more problematic; without stronger export growth, this can lead to reduced growth due to imports.

Second, prioritise public services over tax cuts. If the state provides free healthcare, this reduces costs for many households which can redirect the saving into other areas. It also makes this service more accessible to people who otherwise couldn’t afford costs in the private market. This makes for a more equitable approach to consumption.

Third, redistribute: if you take €100 million from higher income groups and redirect it to low income groups, consumer spending will rise as the latter spends almost everything they get. Therefore, prioritise income supports for those out of work and the low-paid.

There is rising uncertainty in European and international markets. If anything can see us through this, it is a programme that focuses on our economic infrastructure, provides services collectively (reduced cost, greater participation) and promotes income equality. This is a long-term approach.

Right-wingers, Fine Gael in particular, are proposing to reduce our tax base while starving economic and social investment.

If this short-termist, electorally-populist formulation isn’t a recipe for instability it is hard to know what is. And as a set of policies designed to enhance living standards, it is a bust. Progressives should put forward a different, more economically responsible programme.

Investment, public services and equality: how’s that for a campaign theme?

Michael Taft is Research with Unite the Union. His column will appear here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

59 thoughts on “Lower Your Expectations

  1. Kolmo

    Any chance the Finnish Government could pop down for a quick nixer to show those in power here how to run a small, very exposed economy, and they could re-organise state services using a humane, societal approach rather than the greasy club of insiders model we currently have.

    1. classter

      Why the Finns?

      The Finns do education well but not much else.

      They had a crippling recession in the 90s & are currently the worst performing Eurozone economy. Thye are implementing deep cuts to public services presently.

      As long as we have no faith in ourselves, we shall be proven correct.

        1. rotide

          I don’t know what makes me cum harder, this guy’s face or a MILLION of this guys’ face!!

          lmoa

      1. rotide

        Not sure what I’d do with this guy first, (1) talk policy to him (2) make statistics with him. Keep him coming:) LMOA

  2. ollie

    All economies grow and shrink, so called boom and bust. This has always happened and always will.
    The last collapse was in 2007, 9 years ago. We are due another one real soon; US economy shrinking, China economy shrinking, unmanageable levels of debt in Europe, all the signs point to a torrid time ahead.

    1. Joe cool

      Quick f g. media office, find something disparaging about this man….is he a sinner or something. He can’t be allowed to tell the truth

  3. edalicious

    It’s funny how, given the choice between a well-functioning, fair and stable economy and an extra couple of quid in your pay packet every month, Irish people always seem to go for the extra few quid.

    1. meadowlark

      I’d rather go without my few quid extra, really and truly, if it meant a functioning healthcare system or affordable and reliable transport. If we want a fair and equal society then we really do have to start with the bare bones. It seems so obvious, I wonder how people can’t see it.

      1. edalicious

        Yeah same here, and in general when you’re talking to people, everyone wants to have the things you mention above, but somehow we’ve never managed to elected anything but centre-right parties in this country. It would make you despair.

        1. MoyestWithExcitement

          I reckon that’s down to being dominated as a society for centuries by either Britain or the Vatican. We’ve been told for so long that we can’t make our own decisions so a lack of confidence has seeped into the national psyche.

        2. Rob_G

          I think it is down to the fact that ‘increased spending on public services’ in Ireland usually translates to ‘paying unionised public servants more money to do the same job as they are currently doing’.

      2. ethereal_myst

        I think people can see it and are crying out for a political party who would implement these policies. Here’s hoping Soc Dems gain seats and build a strong party

    2. Clampers Outside!

      I have witnesses to repeated budgets under the Fianna “Give Away Govt” Fail, where I said ‘keep the tax you are giving me and fix the bloody country’.

      And I’ll second what Meadowlark says.

  4. Disasta

    So what you’re saying is don’t buy a house until 2017/2018 when there’s been a nice slump again?

  5. donal

    Social Democrats are consistent in their call for policy and forward looking thinking along these lines. That is my reason for supporting them and my reason for hoping they manage to get all 14 candidates elected.

  6. Dav

    blushirts won’t be having any of this type of talk, they’ll ape bertie again & tell him to commit suicide.

  7. Owen C

    Isn’t this just the impact of medium to long term deleveraging? Not saying thats a ‘good’ thing, but just a reality of the pre Celtic Tiger splurge in household debt that still has some way to go before its back to historic average levels. If consumer spending wasn’t rising, AND household debt levels weren’t falling, that would be the more worrying sign.

  8. Harry Molloy

    It seems that Broadsheet has become, or always was, a medium for left-wing opinion pieces, and as a publication sits firmly to the left.

    I’m not saying that this is right or wrong, I’m just wondering if it is an official stance and, if not, why they don’t have any centrist or right-wing pieces in the name of balance? Perhaps they simply haven’t been approached…

    1. classter

      Maybe BS feels that the Irish media landscape has absolutely no shortage of slightly-right-of-centre opinions being expressed.

      If anything, the odd thoughtful far-right piece would be more interesting/illuminating

      1. Harry Molloy

        yeah, maybe, am just wondering if there is a stance.

        I’m a fan of balance – will be voting FG and SD.

        Am not a fan of politics that completely isolate or attached large sections of the population, i.e. SF, Renua, AAA/PBP

        1. MoyestWithExcitement

          Then you’ll be happy that Broadsheet provides some left wing balance to the right wing mainstream media landscape.

          1. Harry Molloy

            right-wing media landscape me hole, there’s nothing that’s right wing in this country. We have a very generous welfare system and we’re all very thankful for it – far from right wing.

            If publications show some particular parties in a negative light, i.e. AAA/PBP, SF, it doesn’t make them right wing. There’s no paper out there which doesn’t routinely criticise the current administration either, I just can’t agree that the media is largely right wing and I think it’s hyperbolic to say so.

          2. MoyestWithExcitement

            “there’s nothing that’s right wing in this country.”

            We were basically a Catholic theocracy until the late 90s but there’s nothing that’s right wing in the country? Ok.

            “We have a very generous welfare system and we’re all very thankful for it – far from right wing.”

            So if a country has a welfare system, they’re not right wing?

            “I just can’t agree that the media is largely right wing and I think it’s hyperbolic to say so.”

            You don’t have to agree. It won’t change reality.

      2. MoyestWithExcitement

        +1 Much like black people having Black Entertainment Network in the US because everywhere else is essentially part of the white entertainment network.

    2. Brendan O'

      broadsheet.ie is progressive.ie with daffodils at this time of year. Julien, Anne-Marie, Michael, Rory and Dan Boyle is a passive house version.

  9. Jake38

    “First, investment; driving investment…”, Brief question, Mr Taft. Is that real investment? Like roads, airports, public transport, broadband, etc? Or what the beardies really mean when they trot out “investment in public services”……….which is taxpayers money pissed down the drain funding pay rises for their cossetted members? Just asking.

  10. Steve

    Ill be voting FG but i agree with Taft, it’s a big mistake to be promising to get rid of USC. It should be maintained and screwed slightly more towards a heavier burden on higher earners, as he argues.

    And before I get the abuse…voting for a party doesn’t mean ye agree with everything they stand for. Like being in a big family!!

    1. LW

      It does, however, mean that you’re giving them a mandate to pursue their policies. It’s actually nothing like being in a big family

      1. Steve

        Yeah I realise you’re not going to find a politician / political party that completely matches your own view. But one that broadly lines up with what I agree with.

        And if you think FG are right – wing…..Lolz

          1. Harry Molloy

            what makes them right wing? I’m really curious to know.

            The only thing i ever here people say is how unprogressive the tax rates are, which can be disproved in miliseconds. See what a low earner pays in this country vs any other oecd country. Do likewise with a high earner,

          2. Steve

            No no no Harry you’re forgetting all those Thatcherite privatisations like the national lottery and bord Gais energy. The miners were up in arms i tell ye!!!

            Or those “screw the poor” Reagan policies like keeping social welfare rates stayed the same throughout the worst recession encountered by any OECD country in the last 70 years.

            Or those terrible right wing nut job social developments like the pregnancy during life act or the marriage referendum.

            THEY ARE ALL RIGHT WING!!

          3. MoyestWithExcitement

            “The Government must overhaul FÁS and provide a public works scheme for the unemployed. We need to restore competitiveness and support business, especially small/medium enterprises. We can do this by freezing Government charges such as rates and development levies; bringing down utility costs for electricity, gas, water and telecommunications; investing in infrastructure, in particular broadband, road and rail; cutting back red tape; reversing the hike in VAT; suspending the pay deal; consolidating labour law and abolishing anti-employment provisions such as double pay for Sunday working in the catering sector, and crucially wasting no further time in recapitalising the banks so that business, large and small, can get credit.” – Leo Varadkar 2008. Diminishing government income and lessening workers rights? And you guys are saying FG aren’t right wing? You’re either dim or in their employ.

          4. Steve

            Talk from 2008…. , opposition yap counts for nothing, e.g with FG in gov the last 5 years people still can get paid double on a Sunday

  11. Lordblessusandsaveus

    Starving spending on social and economic investment shouldn’t be in the slightest bit populist. It’s a disastrous policy. Short-sighted with long term negative consequences. Those who’ve always had money can spend on cultural and social activities but those who don’t are denied access to publicly funded cultural and social amenities. It’s a cultural apartheid which results in idleness, ignorance, crime and vandalism. Of course those who live in the leafy suburbs won’t have to witness it every day. But they’ll have voted in favour of it for others,

  12. Truth in the News

    Where has all the money raised in Taxes in the last five years, its gone bail
    out bankrupt german banks and to pay bond holders, and whats the plan for
    the next five years, give them a majority that they continue doing the same.
    Kenny has the walk of some body facing political demise, will he retire to
    Castlebar…..or Berlin.

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