Saturday, 27 August 2011

The size of fiscal stimulus vs. the length of fiscal stimulus — Marginal Revolution

The size of fiscal stimulus vs. the length of fiscal stimulus — Marginal Revolution:

'via Blog this'


Michael Burke said...

The length and size of 'stimulus' measures are both important. But more important than either is the content.

If we take to the Euro Area as a whole (where there was significant series of stimulus measures and the 'automatic stabilisiers' of higher welfare spending were allowed to work), household conumption is almost back to where it started, just 03% below its 2008 peak (OECD data).

However, investment (GFCF) is 12.8% below its 2007 peak (investment led the recession). This is €248bn below its peak, of a total lost output in the Euro Area of €178n (other components of GDP have also risen, notably government spending).

Therefore, measures to stimulate household demand have been successful. Measures to stimulate investment have not and this accounts for the continued depression (as it does in Ireland, which only had 'austerity' not stimulus).

To generate sustained recovery an increase in investment is required. The private sector has not responded to encouragement and incentive, even though there has been economic recovery. Government investment is required, in Keynesian terms, a 'somewhat more comprehensive socialisation of the investment function'.

Paul Hunt said...

Don't mind the size or the length. Recovery (and more equal and socially just outcomes) will come from increased efficiency and productivity across the board. Watch Brendan Ogle telling it as it is:

Good on ye, Brendan.

Damian said...

@ paul hunt - OK - based on your reassurance we shouldn't worry about the size and length of any stimulus - I'm immediately reassured - and efficiency and productivity will deliver socially just outcomes - funnily enough some of the most productive economies over the past 20-30 years have had the highest levels of inequality.

As for telling it as it is....have you by chance looked at remuneration practices in the corporate and banking sectors recently?
If in doubt try this:

Paul Hunt said...


Thanks for the link, but I've been following the High Pay Commission's work for some time. I realise that people on this board are keen to deflect attention from Brendan's speech in May - and I know that the Indo is keen to use his comments about ESB workers to further its agenda, but careful attention should be paid to the full speech to grasp the extent of the insights, delusion and disappointment expressed.

I fully support the right of trades unions to secure the best terms and conditions of employment for their members. I have always emphasised that the principal problems with the ESB are related to ownership, structure and financing. Staff pay is a long way down the list. Any changes in workers' t&cs is a matter for negotiation between the management and unions/workers. More importantly even major reductions in pay would have a negligible impact on final electricity prices. And, more importantly again, any efficiency gains that might be secured by changing work practices and staffing levels should be secured via incentives rather than by imposed changes and cumpolsory redundancies.

So when I say that the solution is increased productivity and efficiency across the board, I mean across the board - owners, capitalists, managers and not just workers.

And as for productive economies, the US and the UK got sucked into financial sector lunacy and credit-fuelled expansion, Germany's impressive export performance is based on a seriously imbalanced economy, on penalising workers and has led to fuelling bubbles in the EU periphery, France, Belgium and Italy have been treading water. It is probably only in the more egalitarian societies (Holland, Denmark, Sweden and Finland) that sustained economically and socially useful outcomes have been generated.

We need to strip out the inefficiencies in the public and semi-state sectors, the tax-breaks and grant-aid for those who don't need them and stamp down on monopoly profit gouging in the private sheltered sectors. The increase in disposable incomes - in particular for those on low pay - would be significant and would generate sustainable economic activity.

Paul Hunt said...


Thank you. I realise that people here are keen to deflect attention from Brendan's speech - and I know that the Indo is being selective to pursue its own agenda, but I'm well aware of the UK HPC's work and I think people should pay attention to the full speech by Brendan to grasp the extent of the insights, delusion and disappointment.

The problems with the ESB relate to ownership, structure and financing - and have very little to do with staff pay. So when I focus on productivity and efficiency across the board, I mean across the board - owners, capitalists, managers - and workers.

I suspect you are confusing raw measures of productivity biased by financial and property bubbles with genuine efficiency that leads to socially and economically useful outcomes. In Ireland, the focus should be on stripping out inefficiencies in the public and the semi-state sector (which are mainly structural, organisational, managerial and financial rather than worker-related), eliminating tax-breaks and grant-aid to those who have no need for them and stamping on monopoly profit gouging in the private sheltered sectors. These are generating the unnecessary costs that keep the cost of living in Ireland nearly 15% above the EZ average. Stripping out these costs/inefficiencies would increase disposable incomes significantly - in particular for those on low incomes - and would generate sustainable economic activity.

Damian said...

@ paul - well aware of various productivity measures (but thanks anyhow) - I was referring to your very bland assertion that productivity & efficiency gains would by themselves lead to equality of outcomes (this relationship was broken long before the current wave of financial globalisation) and that the size and length of a stimulus and its content should not matter - which was I believe the subject of this thread.

In this context I don't think highlighting pay issues in the private sector distracts in any way from the ESBs problems – but you seem rather content to gloss over the magnitude of the former.

Paul Hunt said...

I expect we'll have to agree to disagree. I favour tackling structural issues before reaching for the fiscal tap (not pouring new wine into old wineskins) - though who knows where the juice will come from. Oh yes, let's tax the rich.

I'd rather prevent them capturing economic rent. But that's just me.

Michael Burke said...

The average pay (including all layers of management and taking account of all overtime) at ESB was €62,000 in 2010(p.84 Annual Accounts).

Clearly, this is a mean average and the median would be far below this.

Since there are only 6,900 workers in total cutting their pay by 20% would yield a saving to the company of approx. €85mn. In light of a €28bn recession, this is a trivial amount.

But this is a company, not a government saving. Given that in 2010 Group profits were €858mn but only €15mn was paid in tax, the guess would have to be that not much of the €85mn 'saving' (increased profit) would be coming the Exchequer's way - a function of an ultra-low corporate tax regime.

Instead, there would be a loss of revenue arising from the lower consumption of ESB workers themselves.

In short, the idea of cutting ESB wages is an old populist trick trying to pit higher-paid workers against lower paid ones, which would leave not only those workers but the the entire economy worse off. It would be a transfer of incomes from labour to capital with the hope that ESB itself will soon be privatised.

It is possible to have a serious discussion about lowering electricity prces in Ireland and increasing efficiency.

But this is not what's being attempted here.

Paul Hunt said...

I fully agree. Cutting the pay of ESB workers just to feed the populist frenzy being whipped up by the Indo would be counter-productive in every possible respect. And it would have a negligible impact on final electricity prices.

But I would be genuinely interested in your ideas on lowering electricity prices and increasing efficiency.