Economic cycles are as old as the Bible. And we are about to go through another one. But this one will involve industrial unrest.
Just to jog your memory. Do you remember when the pharaoh awoke petrified by a dream? The pharaoh dreamed that he was standing by the Nile and that seven cows, “attractive and plump”, came and fed in the rich grass by the waters. Then he saw seven skinny, ugly cows, and they proceeded to eat the fat cows. But having eaten the healthy ones, the cows remained skinny and ugly. Then in his second dream he saw seven ears of grain, “plump and good”, growing from one stalk. Yet again, he saw seven thin, sickly ears of grain emerging and, in front of the pharaoh, these thin ears swallowed up the healthy ones.
Joseph explained to the pharaoh that the dreams represented the fact that seven years of plenty tend to be followed by seven years of famine. The cows and ears of corn represented the good times, followed by the bad times.
This is biblical economics. We have Joseph, the first-ever truly prudent finance minister, explaining a seven-year economic cycle, the type of which we are used to in the western world.
The question is whether the next taoiseach will be our pharaoh, faced with the end of one seven-year economic cycle of subdued wages and elevated profits and the beginning of one where wages rise.
It’s likely that wages are going to rise in the years ahead and this will prompt a titanic struggle between workers and employers which could easily spill over into wildcat strikes and significant industrial disputes.
CSO statistics reveal that in 2011, in the depths of recession, there were just 3,695 days lost to strike action. By last year, that figure had risen to over 32,000 days. This is likely to continue.
But this is not the result of some extreme union activity; it is nothing other than the economic cycle. In recessions, wages fall and profits rise and rise significantly. Then, as the economy improves, the split between wages and profits gradually moves towards wages as workers look for their cut of the spoils. Industrial disputes happen when either workers want too much or employers want to give back too little.
I know it may be difficult to accept the notion that Ireland has been very profitable in the past seven years of the bust, recession and then patchy recovery, but it has been.
In recessions, profits don’t fall: they actually rise! This seems counter-intuitive, but it’s true. In fact, recessions are actually prolonged by too much profit. This might seem odd, but this is how the economy works. Marx made the point that capitalism was a constant struggle between workers and capitalists. He was – and still is – right.
When something is sold, either the returns go to workers in the form of wages, or to capitalists in the form of profits. When more of the returns go to wages, people have more money in their back pockets and more work. They then spend this cash – and this is how the economy grows, purchase by purchase. If more of the economic output goes to profits, these retained profits are saved and don’t re-circulate in the economy because they are usually owned by a small percentage of the population. Therefore, when there is a surge in profits in the economy, there is too little spending and the economy shrinks. This is how recessions can be prolonged.
In contrast, when there is a boom, the rate of unemployment falls dramatically – as it did in Ireland from 2000 to 2007 – and this drove up the share of wages in GNP and drove consumer spending, pushing up the growth rate further. Ironically, the boom was the period when companies in Ireland made least profit, not most profit. This point is rarely appreciated.
The bust occurs because companies try to increase their margins by laying off workers and squeezing wages. This process drives down spending and drives up savings, thereby suppressing activity.
We are now at an inflection point where wages are possibly lowest and profits are highest relative to GDP and a small minority whose wealth is dependent on profits and capital are much richer than the rest of society. This will now change as the pendulum swings back towards wages and employment and away from profits and capital.
Does this mean that Ireland is about to experience a significant rise in wages over the course of the next few years?
Yes, I believe that will happen, not because I have any insider knowledge, but because this is how economies behave and this is how humans behave. Expect the trade unions and workers very soon to demand their share of the pie. Does that mean industrial relations issues? Why, of course.
And naturally, if a government doesn’t get to grips with costs like housing costs, workers will clearly demand more wages. Or if a government increases taxes on workers, it means their take-home pay is smaller and at the first chance they will try to get some of their share back. Obviously, the more a government or political party continues to talk about a recovery, the more it is encouraging this process. All this talk of the recovery gives workers the permission to push for more wages, because they can say, “If the economy is so strong, why don’t I get a few extra quid?”
The implication of this is that the country is facing a summer of discontent as workers agitate, peacefully at first, for higher wages. Employers will point to a rising euro against sterling and say that we are already losing competitiveness. It may also coincide with the price of oil beginning to rise, modestly, driving up costs.
The next taoiseach will have to be like the pharaoh, able to deal with this new cycle. The economic cycle is turning and industrial relations could be very messy, particularly if workers try to claw back wage increases that they believe were postponed in the recession. This is coming at a time when Irish industrial policy is under massive international tax scrutiny, and Brexit is just over the hill.
Given what we have seen from our political leaders in the past few days, how confident are you that they will have the wherewithal to deal with such a poisonous cocktail?
I agree with David’s discerning and thought provoking remark that during the recession margin profits are bigger, not smaller; and that booms increase pressure on wages. That increased pressure on wages is not a bad thing as such; what is bad (for country’s competitiveness and thus job opportunities) is when that increased pressure comes almost entirely from the unholy trinity of banks, trade unions and politicians, which results in, i.e., Dublin Bus workers getting 2.5 times more money for less hours of work than the hotel night worker who serves them, while not working near as hard as him or… Read more »
I believe the problem is that the historical cycle of 7 years has or is changing to a new dawn of cycles, maybe even economics. We cannot compare previous recessions to this one,although many commentators in the media continue to do so,using the 80s as a example. I say this is wrong because this is the first recession where we do not have Banking . Governments will do nothing regarding social housing or try to “control” building costs , not because they cant , because they wont, its all free market now. The strikes will happen as you outline David… Read more »
As a non-aligned observer of the present party manoeuvrings in the Dail I must agree with David that the outlook is not good, at least in the short term. But there is hope. I believe we are currently witnessing the final days of the long-fought Irish Civil War which only started in 1922. The present manifestation of this Civil War is that Michael Martin wants Fianna Fail to govern from the opposition benches. He believes that Fine Gael as the successors of the Free State side in the Civil War are traitors to the Irish Republican cause and hates them… Read more »
No Pat.. That’s not it all…they are just hungry for power…and power is not necessarily “being in power” They care less about history , even though M.Martin is a historian..its just a game..don’t look to deep into it , its just crap..they could less about the Countries future and even less about its citizens. The resolution is FF/FG coalition which will last about 9 months and then their will be a General Election…i stated on this blog before the election that the result would be as i just stated and we would go through a period of several Governments within… Read more »
[ Ironically, the boom was the period when companies in Ireland made least profit, not most profit. This point is rarely appreciated. ] I find that very amusing. Looking at the debt figures this is very much in evidence. In Ireland, work is taxed heavier than corporate profits. Work is not just taxed directly – but indirectly via stealth taxes, local authority rates, VAT, and a list of levies, and charges which are often totally asinine. [ classic example the RTE tax for the provision of propaganda on the institutional state]. In fact the tax system is designed to drive… Read more »
It is ridiculous.
Eirgrid is an even bigger disgrace. Unaccountable. And a monopoly who can do whatever they wish.
https://ellenbrown.com/2016/04/10/the-war-on-savings-the-panama-papers-bail-ins-and-the-push-to-go-cashless/ War on Corruption or War on Savers? What we may be witnessing here is the 1% going after the 10% of people who, according to German researcher Margrit Kennedy, do not need to borrow but are “net savers.” Today the remaining 90% are “all borrowed up.” Either they are unwilling to borrow more or the banks are unwilling to lend to them, since they are poor credit risks. Who, then, is left to feed the debt machine that feeds the 1%, and more specifically the 0.001%? The power brokers at the top seem to want it all, and today… Read more »
To simplify the issue of governance of this country.
In almost a 100 years of home rule we have had two leaders who had any kind of vision for
our country’s future.
That’s two real leaders in a 100 years.
No wonder we’re always in a mess.
So that’s the problem.
Find a solution on an ongoing basis and it’s game on.
Any ideas for a solution.
Europe Bank Crisis Spreads: Italy Calls “Last Resort” Meeting to save banks
What should our vision be tho’?
Please not the usual claptrap.
The vision must embrace and address the challenges coming down the road.
I want a visionary vision.
“All the leading bankers in the world will be in DC this week.
Something wicked this way comes and it is coming very, very soon; within days we suspect.”
Oh great! Wages will automatically rise merely as a result of the passing of 7 years! Phew! Workers can relax then; they will be looked after simply by the nature of economic cycles. How then did economic cycles not secure the 8hour day or 4weeks annual leave, or sick leave, parental leave, penalty rates…hmm odd that? Positioning the wage rates as related to the cycles of economics does make the efforts of people to oppose Gov-Corp look like un-necessary time filling though. Maybe, rather than demand wages through organised efforts people should allow an industrial tribunal to decide how much… Read more »
Ireland is too small to have a real economy – Bertie tried to be the big boy with his outlandish wage hikes and look at what happened. It’s a great idea but can Ireland inc. afford it when it depends so much on foreign earnings from countries that are not doing that well. Henry Ford was a great advocate of pushing up wages and he was perfectly right but he insisted on pushed up productivity in line with every increase – everybody gained. Jack O’Connor and his LUAS demands are off the wall – It would be interesting to see… Read more »
The plan of the Elites is to crash the system in the guise of helping to avert the crisis.
Chaos is desired and will occur.
Authoritative controls will be enhanced.
More freedoms will be obliterated.
Wars, pestilence and plagues will be encouraged.
Meanwhile world leaders meet to see what they can do next.
I wonder if the new EU tax disclosure rules will make it more likely that Britain will leave the EU. The City of London is an indispensable part of the British economy. It will be loath to lose its lucrative status as the global center for tax avoidance schemes.
“It works automatically in the private sector after all.”
Unless you’re a banker or a lawyer…
“Money makes the world go around”
Rte radio News at 1 podcast Michael O’Keefe, Consultant Opthamologist on how on how nearly 12,000 people are waiting for their eye problems to be dealt with. Michael works in both the public and private system. He tells us that half the number of staff deliver twice the amount of work, taking half the time in the private system compared to the public system. So this must mean Twice the wage packets plus golden pensions for half the work. This means that sick children must beg for charity to fund health need shortfalls. Michael tells us that the public health… Read more »
Lefties keep telling us to fire more and more money at our failed health care system.
No measurement with other countries.
$20,000 houses in America:http://bit.ly/1RatOlJ
Some say that the only solution is a revolution. But that is chaos just what the elites want in order to exercise their next part of the program
“While ending the Fed may still seem like a pipe dream, at least until the market’s next major crash at which point the population may finally turn on the culprit behind America’s serial boom-bust culture, the U.S. central bank, Levin’s proposal would get to the heart of the most insidious conflict of interest in the US: the fact that the Federal Reserve works not for the people of America, but for its owners – the banks. Which is also why, sadly, this proposal will be dead on arrival, as its passage would represent the biggest loss for Wall Street in… Read more »
http://www.safehaven.com/article/41072/moving-to-the-post-lbma-era-gold-price-reset-watch-out “If one were to describe, in a word, the singular quality of gold that gives it value both as money and a wealth preservation asset, that quality is integrity. Physical gold cannot be printed, it cannot be conjured by a central bank or government official, it cannot be credited into existence by a bank. And over a period of four thousand years, the markets have selected gold and silver as money. The replacement of gold and silver sound money with unstable debt-based fiat paper currency by banking interests and their government partners over the past century has been a… Read more »
Mike/Tony, a little late to the party but, I’m finally going to take the plunge and buy some physical Gold/Silver. Would you recommend Mike Maloney’s goldsilver.com or stick with celticgold.eu. Any advice appreciated.
Try farming for really low wages and little return on capital. We all live on the backs of farmers while the retailers make good profits and we complain about the cost of cheap food.
Thinking of KILKENOMICS, I wonder if it would be possible to invite Mr Peter Schiff (probably the most famous Austrian economics broadcaster in the world right now), and one of his Nemeses, Messrs Harry Dent or Mish Shedlock (with Mr Shedlock I doubt Peter would come; as far as Mr Dent is concerned, when they met after many years, this has happened – if you are not interested in difference between fascism, communism and democracy – for me this stuff is too obvious – skip to 9.40 to see the fireworks): https://www.youtube.com/watch?v=RsWCuHeIz1A A glaring ommission on Kilkenomics was in my… Read more »
Even OPEC is swamped by the debt. OPEC: Damaged OPEC has lost the power to influence a world broken by debt: The Telegraph reported that OPEC has lost its power to shock or influence global oil prices. It said its not just divisions on strategy, or inability to act in a unified way, that has caused OPEC to lose influence. The problem for OPEC is that oil is just not as important to determining the ups and downs of the world economy as it used to be. It noted the global economy is not spurred by falling oil prices like… Read more »
Hi Tony again, As I perceive that u do have the makings of a great part-solution to the Bankster Scam Bundle [ B.S. Bundle ] played on Irish nation, at home & abroad, with specifically the introduction of Silver Coin to the Irish economy, I am keen to fully understand what u mean, & thus have some further questions to put to u with hope of ur kind answering of them. Ref. Tony Brogan April 12, 2016 at 8:49 pm Get rid of the monopoly by removing the concept of legal tender. Allow people to use what ever money they… Read more »
To Grzegorz, Re; Interception of Mail by The Irish State What is the legal situation were the Irish State to intercept & interfere with the delivery of EMS international Courier Post private letter in sealed envelope from private citizen to a private citizen in Irish State Re ; a legal matter whereby the sender was clearly — reference the envelope — putting a question of great importance, & urgency, in respect of sender to addressee, by the Irish State instead pro-actively / executively bringing it to office of Irish State Court Service [ High Court ] in vicinity of addressee,… Read more »
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Hemen Bilgi Al?n. Yüksek Kalite ve Ekonomik Kompresör. ?ndirimi Kaç?rmay?n.