Sunday, 2 August 2009

We deserve it

Michael Taft: Just to ensure that everyone knows why we must all share the pain coming down the line, Cathal O’Loughlin (writing in today's Sunday Business Post) reminds us: it’s because we are all responsible for the economic meltdown. Every one of us is implicated in the economic crimes of the past decade. Therefore, we must all do our appropriate ‘hard-time’. For instance, Cathal writes:

‘Willingness to pay house prices grossly out of line with Irish incomes . . . motivated developers to keep acquiring lands at inflated costs, and to keep building.’

Now we know. If only we had all said no, stayed in our parents’ house, stayed in those bedsits and one-room flats (even if we had children); it was because we wanted to live in a house that we owned (rather than pay high rents to landlords with no equity in return) – it was we who gave the wrong market signals to developers and land owners and bankers and Ministers. Serves us right.

On the way to making to making us feel guilty, Cathal makes other points about our over-indulgence. One fact he pulls out is that between 2001 and 2007 we doubled our expenditure on foreign holidays. This sounds pretty indictable until we look behind the numbers to see what it really means.

Using the CSO’s National Accounts, we find that ‘expenditure outside the state’ (which is not the same as holidays; it includes business and other purposes) increased from 4.8 percent of total consumer spending to 6.3 percent in the seven years that Cathal surveys. Okay, an increase – but 1.5 percentage points.

But, of course, there would be an increase in foreign holidays – the advent of low-fare airlines, the discovery of low-price destinations, competitive tour packages. For hundreds of thousands of people, this opened up new ‘luxuries’ that in years previous they couldn’t have availed of. But another reason for the increase is the fact that the population increased – by half a million in those six years. That’s likely to raise expenditure on all items, not just foreign holidays.

What did that increase amount to annually over six years on a per capita basis? €116 per person per year. That could not, for huge swathes of the population, be called extravagant.

However, it’s when we break down the expenditure on foreign holidays that we get an interesting picture. Though this data comes from the 2005 Household Budget Survey, the decile breakdown shows the distribution of income. Obviously, the wealthiest 10 percent spend more on foreign holidays – more than twice as much as households in the middle deciles, and nearly six times as much as those on the lowest decile.

Seventy percent of households (amounting to nearly two-thirds of all adults) spent less than the national average on foreign holidays – which shows the extent to which such expenditure is concentrated among the top earners.

This is of a piece. Take global numbers and assign a political value to them, without reference to the concentration of income, wealth or expenditure (on non-essentials, anyway). That political value then becomes a stick to beat ‘everyone’ with, even if ‘everyone’ only gets a small slice of the action.

But Cathal needn’t worry. Spending on overseas trips fell by 28 percent in the first quarter of this year. Fewer people are going abroad. Unemployment, wage freezes, fear over the future will do that. And if that spending decline disproportionately hits low and middle income groups – well, according to Cathal, we deserve it.


Brian Woods said...

Michael, you may be wasting your useful time on the likes of Cathal whathisname - drivel! But as my granny used to say, "The paper never refused the ink!"

Actually I blame Hurricane Charlie for it all!

Brian P

Slí Eile said...

Talking of blame....there are, currently, two schools of thought abroad:
A 'dem bankers are to blame. Outrageous, Reputation of Ireland Inc down the drain. WE ALL have to suffer to clean up banking'

B 'we are all to blame. Spent too much, Neglected the the loftier things of life and indulged on property in Bulgaria, SUVs and Credit Card loans' WE ALL have to suffer to get back to ordinary living'.

Both schools lead to the same conclusion - 'tighten our belts lads and normality will return some day - eventually'.

The problem with these schools is that they don't learn from the past, they provide the wrong solution now and they lay the seeds for future problems. Yes, few can escape blame entirely (after all didn't social partnership provide for tax reductions in the 1990s and many benefited from this like the rising tide just as social infrastructure fell behind relative to income and wealth …). However, the lion's share of the blame is with (i) banksters (ii) corrupt Governments and (iii) systemic failure (including regulation and corporate governance) to put people before profits and speculators. Under NAMA the crime continues.
Moral hazard rules in Ireland Inc.