# Economic stimulus packages



## Purple (9 Nov 2009)

There’s quite a bit of talk from the unions and others (both left and right of centre on economic issues) about stimulating the economy rather than cutting.

I don’t think this would work for two reasons;
A) We are an open trading economy and the money would juts dissipate into the broader international economy. What I mean by that is that we don’t have a domestic economy to stimulate; we don’t make anything that we consume.

B) We’ve been stimulating the economy like mad for the last few years and there’s nothing in reserve so cash injections are out. 

Our economy is built on making things that other consume (be they goods or services) and consuming things that others make. Our only option is to make ourselves competitive again.

What do others think?


----------



## mercman (9 Nov 2009)

Good Post Purple.

Yes we need to make ourselves more competitive - not sure by cutting the minimum wage or by making people more productive or a mix of these two. 

Fact is as a nation we became very very greedy. So much so that the end all and be all was the drug of money. Now after ten years of surplus the whole thing has gone pear shaped. But as a country and as a nation we can dig ourselves out of the manure heap. We have to start acting like other countries and treating the domicile citizens with a preference to those that are not. We do require to balance the SW system in a manner that is fair - means test people and work with the Revenue to sift out fairness.


----------



## Purple (9 Nov 2009)

I'm saying that cash stimulus won't work because we don't consume what we produce (unike the Americans). We are just too exposed internationally. That's the point of the thread.


----------



## mercman (10 Nov 2009)

Fair enough so. Maybe you are right maybe not. What is the alternative to get the entrepreneur element of the Irish nation to be released ???


----------



## Chris (10 Nov 2009)

I fully agre that a cash stimulus won't work. But it will also not work in the US. If the solution was as simple as borrowing money and just throwing it into the economy, then there would be no problem. All that a cash stimulus does is divert money into an industry or company that is in trouble because it cannot sell its product. And the reason that it cannot sell its products is because potential customers think it is too expensive. By subsidising that specific product or industry you make the product cheaper for a few customers by charging everyone else. 
Only consumers should decide, through their spending or not spending, what the most productive and competitive companies are. If they are not spedning it is because prices are too high and companies will have to find ways to reduce prices or liquidate, to the benefit of the consumer.
State stimulus cannot consider and evaluate the wants and needs of all consumers and market participants, and no matter how sincere the government intervention may be, it will always be at the cost to all of society.


----------



## Purple (10 Nov 2009)

I agree Chris but at least in the USA they consume a large proportion of what they make so consumer stimulus also stimulates demand for their products. In Ireland a consumer stimulus stimulated demand for imported goods. That's my point; a large proportion of the value of such a package will be dissipated into the wider international economy.


----------



## Purple (10 Nov 2009)

mercman said:


> Fair enough so. Maybe you are right maybe not. What is the alternative to get the entrepreneur element of the Irish nation to be released ???



Make them cost competitive by lowering costs, reduce tax on business and give more grant aid to start-ups where the product will be commercialised in Ireland.


----------



## mercman (10 Nov 2009)

Purple said:


> Make them cost competitive by lowering costs, reduce tax on business and give more grant aid to start-ups where the product will be commercialised in Ireland.



This appears to be a contradiction of your original Post.


----------



## Chris (10 Nov 2009)

Purple said:


> I agree Chris but at least in the USA they consume a large proportion of what they make so consumer stimulus also stimulates demand for their products.


I don't think this makes any difference. The point is that a stimulus will increase demand for otherwise uncompetitive products, and this is very bad for the economy regardless of whether the company benefiting is domestic or international.



Purple said:


> In Ireland a consumer stimulus stimulated demand for imported goods. That's my point; a large proportion of the value of such a package will be dissipated into the wider international economy.



The only stimulus that would work is allowing uncompetitive companies to go into liquidation, and to make it easier for new companies to be created and fill the void (if any) in the market. We are slowly (albeit at a snail's pace) starting to see the impact new businesses are having. One example is Ben Dunne's radio adds about his new gyms, which apparently cost less than a € a day (<€365 per year); I remember gym membership costing over €800 a year.
Basically, the recession is a good thing, even if it is painful in the short-term. It will force bad, uncompetetive and unproductive companies out of business. Any stimulus to end the recession will have a long-term negative effect on the economy, as productivity will be severely hampered.


----------



## Purple (10 Nov 2009)

mercman said:


> This appears to be a contradiction of your original Post.



Yes, I should have been clearer. I am only talking about the export sector. Nothing should be done to prop up prices for businesses that sell into the Irish domestic market.


----------



## ringledman (10 Nov 2009)

Government Stimulus is the biggest con going. 

How on earth does printing or borrowing money and pushing it into the economy represent good policy? Many independent commentators reckon that for every dollar spent on stimulus only 20-30cents makes its way into lifting GDP. 

Its an absolute disgrace the way the central banks are acting. 

Wealth is not created by phony printing of worthless IOUs. 

Wealth is created through the sweat and toil of entrepreneurs taking a risk in creating capital goods or in investing in infrastructure where it can produce a return (i.e. India now and not in a developed country). 

This is what leads to employment, tax revenues and wealth. Wealth CANNOT be created by the public sector or large governments.

Government's are there to provide a service - cleaning the streets, fire, police, etc. They are terrible allocators of capital. 

Government stimulus, regulation, intervention, etc is a terrible drag on economic growth the world over. 

The biggest ponzi scheme known to man is now occuring, principally in the US and UK where the governments are buying approx 50% of all bonds issued through the freshly minted confetti notes in order to pay for their dumb stimulus plans. 

This situation will not last forever. The central banks can only keep the image of bond auctions as being a 100% success for so long. Once Asian purchasers finally desert these auctions as they worry over the worth of their lending, what then? Will we buy all 100% of the bonds issued through our newly minted notes? It's a f****** disgrace. represent good economics? Print with one hand then re-buy with the other. Its so simple to see yet the governments believe this monopoly money rubbish.

Bond yields will have to rise hugely to entice 'real' foreign purchasers who will no longer want our confetti currencies. 

Once this happens and the Western economies can no longer afford the increasing debt repayments then welcome in the huge or even hyperinflation. 

The only route to wealth creation for all is- 

1) A reduction in public sector spending. Slash public budgets by 15% per annum (this worked well in Canada during their 90s crisis).

2) A lowering of taxes for corporations and individuals. The target should be to achieve a 10% flat rate tax for everyone. This should cover the cost of basic services but not a bloated public sector. The increase in consumption brought about by such tax cuts would be huge. 

3) Removal of all unneccesary red tape and regulation created by the EU and individual member states. 

4) No firm should be proped up by Government. Letting bad companies fail is the sign of a healthy economy. This allows old unproductive industries to disapear and allows new prosporous wealth creating employers to appear. We cannot allow bankers and car manufacturers to act with such moral hazard in the knowledge that they will be bailed out when they take risks or produce crap products that nobody wants.

5) Let the free market decide what the new industries should be. Governments are poor deciders in future industries. Would a government ever see the growth of search engines and Google? I think not so why do they now know what new green industries consumers will want in the future? They dont.

Wealth is created by the private sector. Leave it alone governments.


----------



## ringledman (10 Nov 2009)

Peter Schiff nailing the Government con back in 2006 - 

http://www.youtube.com/watch?v=6G3Qefbt0n4


----------



## Firefly (11 Nov 2009)

Also - a 2 year moritorium on business rates for new businesses.


----------



## DerKaiser (17 Nov 2009)

ringledman said:


> Wealth is created by the private sector.



http://ideas.repec.org/p/wpa/wuwpgt/0502068.html

What needs to be stimulated is sustainable use of the natural resources we have as best we can. 

http://en.wikipedia.org/wiki/Renewable_resource

Any stimulus which simply accelerates the consumption of non renewable resources (this probably applies to most known economic stimuli) is not creating anything

Getting back to our own situation, we have been building houses like mad for 10 years now and probably wouldn't need to build another for the next 10 years.  We stimulated the building industry and all we achieved was to build houses before they were needed.  Instead of having 200,000 people working in construction over 20 years we imported and additional 200,000 over a 10 year period, leaving 400,000 people with nothing to do except emigrate for the next 10 years.

What next?  Get everyone to buy a load of new cars and then leave no scope for sales for 5 years after that?

I think the picture is clear, we need to adjust to long term sustainable levels of consumption and not pump money and effort into schemes resulting in high temporary consumption at the expense of zero future consumption.  It's really a very very basic and simple concept to grasp


----------



## Ethan 1 (18 Nov 2009)

Monday nights FRONTLINE seems to be preparing the way for a new car scrappage scheme, the debate seemed very one side IMHO.


----------



## sunrock (18 Nov 2009)

Where is the money for a stimulus scheme going to come from?
We can`t like the U.K. print money ...thank God because our gov would find that irresistible. We need to get costs like public sector, welfare etc down. This would then result in lower rents, ESB, phone, labour etc resulting in more competitive products and services. Another thing we could do is to have projects in improved infrastructure done by our unemployed in a type of workfare...say for 6 months a year.It doesn`t make sense to have young able bodied irish and east europeans on very generous dole .....better to give them minimum wage work for 6 months and 6 months on dole.This idea of people sitting it out untill the next wave of foreign direct investment doesn`t make any sense.Wage and salary reductions across the public sector are the key....then welfare and minimum wage cuts and then the creation of jobs in a variety of infrastructural projects.If this was done in a fair way , people would accept it.It needs to start at the top with our high earning public service taking a serious pay cut.


----------



## DerKaiser (18 Nov 2009)

Ethan 1 said:


> Monday nights FRONTLINE seems to be preparing the way for a new car scrappage scheme, the debate seemed very one side IMHO.


 
A few points on that show

1) Why accept that car ownership should rise to current UK levels?  We have increased urbanisation and perhaps a longer term international trend  towards lower car ownership.  The An Taisce guy in the audience who asked 'Why not give people a €2k public transport voucher to scrap their car' gave a very good suggestion.  Many people are probably examining whether they can afford to own cars at all, it could be a good time to give public transport a boost from this opportunity.

2) Instead of the car scrappage why not give a general stimulus by reducing VAT.  Everyone can benefit from that.

3) Our main problem is keeping public _and _private money in this country.  It looks good on paper for the govt to provide a €2k stimulus to take in €5k.  Every time we do this, however, about €15k will go to Japan or Germany with no knock on benefits here.  If we gave a €2k stimulus and the entire amount of money was spent in Ireland, the beneficiary of that could go out and spend that money giving a multiplier effect.  We cannot afford stimuli where the net impact is money exiting _our_ economy at an early stage of the process.


----------



## Chris (18 Nov 2009)

sunrock said:


> It needs to start at the top with our high earning public service taking a serious pay cut.



I do not think this is a fair approach in general. There are certain services that should be provided by government and those services need to be managed by capable people that do deserve high wages. The very minimum of services are military, policing, fire and ambulance service, education and you could argue about health. As long as the high earners are performing well they deserve the high wages, problem is that some of the highest earners are failing so miserably.
In order to reduce the public wage bill we should not punish all public sector workers to keep people employed in areas that should never have come into existence or are no longer feasible or necessary. Just one example would be to get rid of all the motor tax offices bar one. There is absolutely no need to be wasting money on every county having one (in some cases two), when you can tax your car online, by post, by phone and I believe also at the post office. All the nonsense agencies and committees and support groups that were set up over the last 10 years should also be just abolished. If we really need their services then we will very quickly see consequences, but I strongly believe that getting rid of them will have no negative impact whatsoever.
Using this approach will make sure that those people we actually need most are rewarded and resourced adequately.


----------



## Purple (18 Nov 2009)

Chris said:


> I do not think this is a fair approach in general. There are certain services that should be provided by government and those services need to be managed by capable people that do deserve high wages. The very minimum of services are military, policing, fire and ambulance service, education and you could argue about health. As long as the high earners are performing well they deserve the high wages, problem is that some of the highest earners are failing so miserably.
> In order to reduce the public wage bill we should not punish all public sector workers to keep people employed in areas that should never have come into existence or are no longer feasible or necessary. Just one example would be to get rid of all the motor tax offices bar one. There is absolutely no need to be wasting money on every county having one (in some cases two), when you can tax your car online, by post, by phone and I believe also at the post office. All the nonsense agencies and committees and support groups that were set up over the last 10 years should also be just abolished. If we really need their services then we will very quickly see consequences, but I strongly believe that getting rid of them will have no negative impact whatsoever.
> Using this approach will make sure that those people we actually need most are rewarded and resourced adequately.



I agree with all of that but at the moment we are fire fighting so we don't have the time.


----------



## sunrock (18 Nov 2009)

Well, for a start our high earning public servants could have the same levels of pay as the U.K. and/or Germany. This would see a big reduction in our high earning  public servants pay and if they could do as good a job as their european counterparts...we would all be happy.First the higher up civil servants and others getting paid by the public purse like consultants etc demanded benchmarking to match the pay of Executives in the private sector. Then they just benchmarked against each other.
Of course now that we are in serious financial difficulties they resist reverse benchmarking.The pay demands of our top bankers is just crazy...and its all out of the taxpayer...personally I`d prefer 10 graduates on 50k each than one man on 500k


----------



## ringledman (18 Nov 2009)

Purple said:


> I agree with all of that but at the moment we are fire fighting so we don't have the time.


 
The problem is that real economic plans will never happen, especially in Ireland where the unions are so strong. 

Real liberatarian economics (free market, minimal regulation, extremely low taxes) which would be good in the long term are seen as creating too much problems to achieve such a destination in the short term. 

Globally politicians don't have the balls to let bad companies go under and thus allow new industry to prosper.

Rather than have a sharp quick and large downturn in order to sort out all the financial problems (i.e. by not proping up any company or industry), we are delaying the consequences. 

Japan propped up their industries and created zombie firms, ones which should not exist today. They have cost the tax payers over 25 years where they should have failed after 1 year and now they would have profitable companies to replace them. 

Governments think they Keynes is the answer. Unfortunately it is the problem. 

I honestly think that the US, UK and Ireland are in for a lost decade at least. Economic stimulus is merely delaying the real recovery until a longway down the line.


----------



## S.L.F (18 Nov 2009)

Chris said:


> Just one example would be to get rid of all the motor tax offices bar one. There is absolutely no need to be wasting money on every county having one (in some cases two), when you can tax your car online, by post, by phone and I believe also at the post office.


 
I agree with all of what you say but would like to add that when I'm getting my van (commercial) taxed the DOE cert has to be delivered with the docs by hand.


----------



## Chris (18 Nov 2009)

Purple said:


> I agree with all of that but at the moment we are fire fighting so we don't have the time.



Exactly, there is no time to be wasting on half-hearted attempts at reducing wages in general, after constant wrangling with unions. Instead of, let's say 10% reduction in public service wages, get rid of 10% of the public service staff. Yes, this would add people to the dole queues, but bottom line is that the public service is too big, and even in good times should never have been increased. 



sunrock said:


> Well, for a start our high earning public servants could have the same levels of pay as the U.K. and/or Germany. This would see a big reduction in our high earning  public servants pay and if they could do as good a job as their european counterparts...we would all be happy.First the higher up civil servants and others getting paid by the public purse like consultants etc demanded benchmarking to match the pay of Executives in the private sector. Then they just benchmarked against each other.
> Of course now that we are in serious financial difficulties they resist reverse benchmarking.The pay demands of our top bankers is just crazy...and its all out of the taxpayer...personally I`d prefer 10 graduates on 50k each than one man on 500k



Very good point. In addition to this I would suggest completely overhauling public sector employment contracts. Jobs for life and upward only benchmarking are probably the biggest disincentives to increasing productivity.


----------



## Chris (18 Nov 2009)

S.L.F said:


> I agree with all of what you say but would like to add that when I'm getting my van (commercial) taxed the DOE cert has to be delivered with the docs by hand.



I didn't know that, and it is just adding to my argument for getting rid of certain unfeasible public services. I cannot see any seriously plausible reason, other than adding bureaucracy, that you should not be able to at the very least post in the cert. This is a complete and utter nonsense process with the sole purpose of keeping people in a job at the expense of everyone else.


----------

