we got to price ourselves back into world markets
nominal wages must be cut - especially those of the public sector
fiscal balance must be restored quickly – primarily through continuing expenditure cuts and targetted tax hikes
everything else must be driven by the above or wait on the above.
Economist Philip Lane commended 'all political parties are showing a responsible approach to fiscal policy … none have espoused extreme views such as repudiation of debt' Hmmm
The overwhelming consensus and underlying assumption from the podium of 6 speakers and virtually all persons who asked questions from the floor is that 'there is no other way' than austerity and severe fiscal adjustment to right the economy over a number of years. The media lapped it up and the experts qua economists are revered as people with special knowledge and insight to whom lesser mortals look up for wisdom. John Fitzgerald suggested that we will know when the recovery has arrived when such conferences are not packed out (this one was full for about 4 weeks due to pre-booking). Irisheconomy.ie was referred to by more than one commentator in such reverential terms as to suggest a required daily meditation.
The consensus is overwhelming.
On the 'what to do' (economists unlike others are not shy about policy recommendations – but these are of course value-neutral):
move very quickly towards fiscal balance – front-load nominal pay cuts (and another sizeable pay cut in the public sector except this time a proper plain vanilla one and not one dressed up as a pension levy)
raise taxes and prioritise those on property and carbon emission (by now an ESRI favourite)
encourage more competition (move parts of state-holdings into direct competition)
adjust social welfare payments and the minimum wage (downward of course)
use supply-side measures to activate the unemployed and re-skill or up-skill the long-term unemployed.
Inequality got a mention in one paper (Brian Nolan) suggesting that inequality in household income (after tax and transfers) has been fairly static over time in Ireland but that we are towards the high end of inequality in OECD. Without any data it was alleged by more than one speaker that the recent Supplementary budget was strongly ('remarkably' was the term used by Brian Nolan) redistributive (in favour of those on low incomes or welfare).
One journalist gave John Fitzgerald a grilling on whether he supported pay cuts in the public sector to remove the '20% premium' to the latter over the private sector (where does that figure come from?). Fitzgerald said politely 'it would be nice …' Another journalist asked a question about some website ('progressive economy – ever heard of it?) claiming that Irish wages are about average. Oddly enough throughout the proceedings there was scant reference to profits and their role in driving inflation (in parts of the non-traded services sector). Karl Whelan concluded that the structural-cyclical deficit distinction is not so useful after all – a view not shared by Philip Lane.
Lane's key argument for pro-cyclical deflation now was based on the fact that our initial state is so bad (in other words so pro-cyclical during the boom times) that a fiscal stimulus is neither affordable or desirable now. In chilling tones he spoke of the 'unallocated corrections' in 2011 and beyond not to mention the harsh medicine in store this coming December (that is if an earlier budget is not forced by some new international meltdown). Along with others, Lane is very explicit: 'significant reductions' are needed in public spending this coming 2010 budget and beyond.
Colm McCarthy's (of Bord Snip fame) paper discussed the pension crises. With ageing populations, people living longer and the meltdown in private equity and Defined Benefit schemes (including the large private sector employers) McCarthy believes that the retirement age needs to be raised and more encouragement for private savings. In direct response to a question about tax relief for pensions (at the higher marginal tax rate) he said that he had problems with the line of argument that such tax concessions were 'reliefs' and he seemed to favour keeping many of these be kept in place (lets see what the Commission on Taxation says line). He said that he had 'less faith in capitalism when it came to DB schemes' than many in the Trade Unions.
Banking received attention with Patrick Honohan's paper. NAMA in its current incarnated proposal got mixed support signals. The view is that a refined version of NAMA would eventually take shape. While the risk to taxpayers was acknowledged (by Honohan) he is not for nationalisation.
All in all it was not an encouraging event – more cuts, no end in sight and a very cold and calculating 'markets must clear' as we hope for an international recovery – eventually.
Nobody was asking the question – by how much does unemployment need to increase and how much do wages need to fall to price us back into international markets?