Today, this column is going to be uncharacteristically blunt. This grumpiness is because much of yesterday was spent reading the 62-page economic document that the Government unveiled as part of its new ‘Spring Economic Bulletin.’
These are hours I will never get back, so you will forgive my tetchiness when I tell you that this document purports to forecast the economy’s growth path over the coming years without telling us how or why the economy is likely to achieve these growth rates. As a result, its more a work of creative fiction than economics.
What’s more, not only does it tell us nothing about the how or the why, it’s pretty ambiguous on the what.
By the “what”, I mean, what type of growth are we talking about?
There are two types of growth. Yesterday’s voluminous Government public relations document doesn’t distinguish between “good” and “bad” growth.
Good growth is growth that is shared among the citizens in the guise of higher wages. Bad growth is growth that is recorded by all of us working harder and spending longer hours at our desks or workstations or whatever, without any increase in wages. This implies that all the fruits of this type of growth don’t go to workers but to landlords and – to use that Marxist expression – to the owners of capital.
Typically, these are the already rich.
You will know that I am no Marxist, but I am concerned about who gets what.
So standing back, you will have heard lots of coverage and spin yesterday morning in the Dáil and elsewhere, but as far as I can tell, the what, why or how questions have not been answered.
They haven’t even been asked!
The Government claims that there is going to be growth for the next few years, which is great. But what does it mean for those of us trying to plan our lives in this economy?
In order to work out what its assumptions are and why they matter, let’s go back to first principles in economics.
Question: What do you think makes an economy rich, what makes wages rise and incomes rise?
Answer: The productivity of labour added to growth in the amount of time spent working makes us rich.
Growth with productivity is good; growth without productivity is bad.
In all these big public relations reports issued yesterday as part of the ‘Spring Forecast’, the devil is in the detail. Yesterday, the Government claimed the economy is going to grow at 4pc, but if we dig a little deeper, it doesn’t explain how. Where’s the devil?
The Government doesn’t explain if this is good or bad growth. Maybe it doesn’t care? But that doesn’t mean we shouldn’t care too.
Hidden deep in the entrails of the report are a few clues. On page 9 is a small table in which some detail begins to emerge. Table 5 shows us that labour productivity growth is going to fall from 3pc this year to 1.2pc by 2017 and remain at 1.2pc until 2020.
Look at the table. We have reproduced it for you here.
This is very important because it tells us that the Government is talking about an economy that grows without productivity. Therefore, wages are to be paid without productivity. This means that wage rises either must remain low/unchanged or profits have to fall significantly.
A 4pc growth rate without large increases in productivity implies your wages may well be falling as the economy grows or, at best, your wages will be static. On the other hand, wages may rise, but if that happens then profits made by business and corporations have to fall.
Try to sell that inconsistency to IBEC!
Before we continue, let me explain this productivity conundrum.
Think about the difference between 10 men digging a ditch with spoons and one man digging the ditch with a JCB. The lads with the spoons have to toil away to dig a ditch. In contrast, the lad with the JCB just has to pull a lever or two and the job is done.
The cost of the job is €150. The lad with the JCB gets paid €100 a day and there is €50 profit for the guy who owns the JCB. The guy who owns the JCB has to pay €10 interest on the loan he took out to buy the JCB, so his profit is €40.
Now think about the lads with the spoons. They are paid €10 each a day. And the gaffer who is running the job gets €50 profit less the €10 it cost to buy the 10 spoons. If the lads want more wages but their productivity doesn’t go up, either the price of spoons has to fall or the gaffer’s profits have to fall.
For the workers, both are doing the same job, but in one case the worker earns a decent crust; in the other the workers earn subsistence wages.
The difference between the two sets of workers is capital; in this case, the JCB.
The JCB drives up the productivity of the lad who drives it. Without this productivity, he would get paid €10 a day but he doesn’t because he can do loads of jobs that day and make yet more profit for his employer.
So you see how productivity is the difference between good growth and bad growth.
If you forecast an economy to grow without productivity, then you must be implying that the growth of the economy comes from more people working at lower wages than before. Or maybe, more worryingly, the growth, if it comes without productivity, comes from more credit being injected into the economy to temporarily boost the growth rate.
This borrowing from tomorrow for today’s growth merely gives the bill for today’s good times to the taxpayers of tomorrow.
So growth without productivity – which is what the Government unveiled yesterday – means more immigration and/or more personal borrowing, taking money from your kids to finance your partying.
The Government’s shiny new ‘Spring Economic Bulletin’ looks great but reveals absolutely no thinking regarding the type of growth we want to have in this country, the way in which we might achieve this recipe and what has to be done in terms of investment and education today to attain these goals tomorrow.
The ‘Spring Economic Bulletin’ is sugar-coated storytelling, dressed up with the aid of pseudo-scientific charts and graphs as economic analysis. It is not economics. Rather, it belongs to the teenage fantasy genre of creative fiction.
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Didn’t take properly, sorry lads.
And there you have it. Which is why Big Business is keen to turn Europe into Asia – many more people applying for too few jobs, with the aim of dragging down wages. In other words – double profits, halve costs. One murky figure in the background happily engineering a lot of this is Fine Gael associate Peter Sutherland. Sutherland is a colossal pimp for Big Business, a senior figure at the blood-sucking squid that is Goldman Sachs and head of the ‘Steering Committee’ at the Bilderberg Group. In his role of at all three, he is frequently in the… Read more »
Excellent commentary by David. We were given a PR stunt by Laurel and Hardy. In Gavan Reilly’s Twitter page, you can get the “word count”. The biggest word is “government”. Followed by “growth”. Nothing has changed since the days of Bertie and Biffo. Same policies. Same vested interests. Even the same words. Everything that Laurel and Hardy give us is a PR stunt. There has been NO reform of an overleveraged, overextended institutional state. And the state itself has stepped in to make sure that there was no reform of the private sector either. We are living in an era… Read more »
Good article David. We need more straight-talking like this instead of the spin and BS that comes from governmental bureaucrats and big business. In addition to cheap migrant labour, there is also a trend towards more salaried employees where the relation between time and output (and hence productivity) is no longer valid. Nowadays, most big businesses pay salaried employees a flat rate per year (and a minimal bonus if they’re lucky), claim that the contract is under 40 hours per week (just so that “legally” they’re doing things correctly) but then exert pressure on employees to put in 45, 50,… Read more »
“The productivity of labour added to growth in the amount of time spent working makes us rich.” But the rise in productivity of labour leads directly to a fall in the amount of time spent working. How could it be otherwise? Even taking your JCB example: The guy operating the JCB is able to do the work of ten men simply by pulling a few levers and for the same price. So now the ten men with their spoons are out of a job. What do you think they are going to do? Here’s what. One of them will go… Read more »
David, you need to be uncharacteristically blunt more often. The degradation of job quality in Ireland and the emergence of the zero hour contracts on minimum wages has been a very successful exercise since the crash, I myself find that, at 50 years old I must now go and find a second job to survive. The rosy picture painted by Howlin and Noonan is just that, a picture, an aspiration, no substance, but it will trick a certain segment of the population into believing it because they want to desperately believe it, they want something better and the debt cycle… Read more »
Even if I do say so myself probably my best post ever. “Today, this column is going to be uncharacteristically blunt.” Thank god. More of this type of commentary is required. “This grumpiness is because much of yesterday was spent reading the 62-page economic document that the Government unveiled as part of its new ‘Spring Economic Bulletin.’These are hours I will never get back, so you will forgive my tetchiness” The grumpiness and tetchiness is because the Guburenmnt’s pile of shite document is conflicting with your conscience. Do you think the fat baldy cu%t of a finance minister we have… Read more »
“This implies that all the fruits of this type of growth don’t go to workers but to landlords and – to use that Marxist expression – to the owners of capital.” This is a working class rant with no validity. If the potential buyers of goods and services have no money or more likely, today, too much debt then they are unable to buy anything except low grade necessarys. So those in business find sales down but costs still fixed. Sooner or later cuts in costs must take place. People are fired, laid off or put on temp. Wage levels… Read more »
I am not a Marxist either David but, “The bourgeois has an insurmountable tendency to create a world of fancy which enslaves man, and causes the disintegration of the world of true realities. The bourgeois’most fantastic creation, the most unreal, the most uncanny and horrible in its unreality— is the kingdom of money. And this kingdom of money in which all real substance disappears, possesses a terrible power, holds a terrible sway over human life, sets up governments and overthrows them, makes wars, enslaves the labouring masses, gives rise to unemployment and destitution, renders the life of people who are… Read more »
10 out of the 10 spoonies were laid off. Five were sent to do a mandatory 16 weeks-2 days per week unemployment course, learning to write a CV. One shot himself in the face with a 12 gauge. Number seven sits on Grafton street and plays the tin whistle cursing the one who stole the 12 gauge from him. The next one was seen in Lampedusa, apparently trying to get onto a boat to Africa. He must have lost his bearings. Number nine was rumored to have joined Islamic State and number 10… well, he took the JCB and tried… Read more »
Here is an economic forecast without any sugar at all.
TV TORTURE: As if sitting for three hours on a cold metal pew in a crowded public hospital waiting room with an ill friend waiting for her first consultation after a six month wait and whilst there not being able to leave the horrid room for fear we missed her name being ‘called’ by an unseen voice at the back of an adjoining corridor, again typical Irish disregard for fellow Irish where using a simple ticket-number system and something remotely comfortable to sit is too much to expect, we had to endure the loudest tv set on full volume throughout… Read more »
Oh, one nugget I did pick up on is that there are presently 85,000 unemployed people engaged in ’employment activation programs’ who are not officially included in the unemployment figures.
Brilliant – Now that is a useful economic policy.
On second thoughts, very good article.
Productivity has not been grasped by any of the local authority councillors on Kildare Street. D2 neither.
And IBEC are far too lazy to even bother with it.
Ireland, is in a productivity trap.
[…] Sugar-Coated Storytelling Dressed Up As An Economic Forecast – David McWilliams […]
Concerning productivity and efficiency wy are they building a new children’s hospital in an area that is impossible to drive through because of traffic ?
Surely it should make more sense to have it between Naas and Baldonnel. Or as an add on to Blanchardstown ?
Any chance he knows what’s coming?
In the article there is a mention of capital as being the JCB. Also a statement that the added capital allows the operator to be more efficient and profitable for all. No mention is made of the human capital. The gaffer could buy a JCB (with what remains a mystery as so far he has no savings although it is implied he borrowed money to buy it as he paid $10 interest in the narrative) and use one of the 10 spooners to run it. There is a problem. None of the spooners can operate a JCB even though it… Read more »
http://usawatchdog.com/wnw-188-us-naval-tensions-mount-no-growth-economy-baltimore-spreading-jade-helm-joke/ “The first quarter GDP numbers are in, and they were dismal. As I have said, many times, there is no recovery. The first quarter so-called growth came in at a paltry .2% growth. This is not growth. If you factor in any sort of inflation, then you really have a contracting economy, not a growing one.” American economy is recovering according to David “Do you think Baltimore and Ferguson are really about police brutality or a stinking economy especially for the lower ranks in this country. I said this is why the President sent Al Sharpton to Ferguson, Missouri,… Read more »
The elite have always tried to subjugate the masses!!!
These days the elites are the central bankers and their controllers. however in the days of the internet we will break free of that bondage.
A thoughtful analysis of whether Britain should stay in the EEU and if it should leave, how?
https://hindesightletters.com/blog/letter-uk-electorate-mark-mahaffey/?utm_source=HindeSight+Blog+Subscribers&utm_campaign=80552eaa20-New_Blog_Letter_UK_electorate&utm_medium=email&utm_term=0_a70c6e658d-80552eaa20-299801525 This link incorporates several themes of recent articles. First off it is an economic report that is definitely not sugar coated It is written by a very successful founder of a fund who also has an Irish name. An example of the thriving diaspora!! It graphs that over 50% of the population are net beneficiaries of the state largess It graphs that the largest expenses to the government budget are welfare and the interest paid on the national debt. It graphs that the fastest growing government expense is that same interest cost even while the interest rates are below… Read more »
Eugene Sheehy lied his ass off last week at the banking inquiry creating a new version of history and now they want to do the same for the family of Comical Lenny – the proles will believe it though.
And I see Hone a Scam the little weasel has quit too. Nice pension I’m sure for being fuck all use and a bare faced liar.
In 1973 Alexander Z wrote a open letter to his Government. ….. “Throw away the dead ideology that threatens to ruin us..when you open your newspaper or turn on your television do you yourselves really believe all those speeches you find there…? You all stopped believing in them long ago..if you have not..THEN YOU ARE TOTALLY CUT OFF FROM THE PEOPLE , AND THE REAL LIVES OF THIS COUNTRY”….!!!! I cannot spell the writers second name , but it was written as a open letter to the Soviet Authority’s in 1973. Leon Breschnev the Soviet General Secretary. .had him arrested… Read more »
That about sums it up. Nobody who values their future or prosperity could possibly believe the garbage that comes out of their collective mouths. It has the same value as assigned to the vice presidency of the United States. It ain’t worth a bucket of warm spit.
Well said.. D.B
That’s very good….!!