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Do your duty – holiday in Ireland!
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Even before my good employer cast me mercilessly onto the dole cue last September, I had already decided that if God were to spare me, I would spend my summer holiday in Ireland in 2009. The reason for this was not patriotism, but economic. Bean Thomaltaigh had given up work to return to college (little did we know that I would lose my job within weeks of that). So after a nice stay in the Vendée last summer we decided that we’d spend 2009 at home.
But then today I was thinking about the number of trips abroad the Irish make and the amount they spend. In 2007 for the first time the Irish made more trips abroad than visitors came to the Emerald Isle. And the Irish spent more abroad than tourists spent here. In fact, we spent 4 billion abroad in 2007 on holiday trips (according to the CSO). This excludes business trips which was in the region of 400 million. So the Irish spent over 2% of GDP abroad that year.
Without question overall spending on holidays this year will be down dramatically. Yet a huge chunk of the population will take to the skies this year for foreign lands. Even if spending fell by 50%, it would represent well over 1% of GDP.
That would be in the region of say 2 billion euro. If Irish residents were to turn patriotic and spend this at home, it would be a huge injection into an economy where every billion counts. There will be a massive battle very soon to narrow the gap in the public finances by 2 billion this year. So an extra 1 billion in the overall economy would certainly mean a great deal.
But in the end of course this is purely a mental exercise. If people are cutting the heels of one another to get across the border to hand their taxes to he Crown, they are hardly going to forgo their tans for the sake of the greater good.
The notion I have outlined would have some practical issues, but in theory it is possible. But on reading it, you just wince at its naivety. And the reason of course is that you know that in reality people are willing to sacrifice precious little even if they knew it would make a difference to the overall state of the country. In short, people are governed by very powerful self interest, and there is no doubt we will see that in its rawest form very soon when various groups start screaming about why they are special and shouldn’t have to make sacrifices for the greater good. It will be terribly interesting – though I predict unsightly – to watch how this plays out over the coming months and years and how it will reflect on what solidarity means in this country.
Tomaltach, a chara
Its a good idea. Thing is economic theory is is all about decisions made rationally isn’t it. Thats why people travel to the north of the island to excercise the full value of the earnings.
if Irish citizens were not going north then as they would be irrational and their would be total chaos.
Jeremy,
Thing is, economic decisions are no more elementally rational than any other decisions, so the theory is bunkum. If we made our economic decisions rationally then bubbles and busts would never arise, yet they are a recurrent feature of the financial history of the world in every civilisation that ever evolved even the rudiments of a monetary trading system. Impelled by greed, booms rapidly turn to bust when the even more powerful emotion of fear takes over. Arguably the credit crunch in international banking would have played itself out by now if those running the system were thinking purely rationally. They’re not; they’re still paralysed by fear.
As for the notion that we are all bound by the cage of our own narrow self-interest, I used to go along with that theory for years – the selfish gene imperative and all that – and its probably largely accurate as a description of the human condition. Except that more recently I’ve become more aware of the equally powerful basic impulse that counter balances self-interest, which is empathy; without which none of our lives would have any worth or much meaning at all.
There will be no long foreign summer holiday, or probably any other summer holiday, in my family this year either; mainly for financial reasons. But I don’t blame people for needing to get away from everything for a couple of weeks and chill out and recharge their mental batteries in a totally different environment. In many cases it’s cheaper than holidaying at home e.g. the cost of hiring out a house in South West France for two weeks is a lot less than what one would pay for similar sized accommodation in West Cork and the weather tends to be a better bet too. But I think the main benefit is always psychological. That said, by June 2009 we may indeed be all cutting the heels off each other to get the hell out of here for a couple of weeks, if only to get some reprieve from the belly-aching of vested interest groups, as Tomaltach says, screaming about how special they are and how they shouldn’t be called up on to make any sacrifices in the common good.
I would agree that people do not always act in a rational way. And in recent years there has been a lot of work done in economic theory which examines the fundamental premise of classical economcis that we are rational self interested beings. Behavioural economics in particular has been successful in, if not debunking the rational theory, at least modifying it. Dan Ariely’s book “Predictably Irrational” is an empirical text which certainly demonstrates that in certain circumstances people aren’t nearly as irrational as we think.
If we think about the individual who chooses to shop in Northern Ireland. Let’s assume they are not on the breadline and are just doing it so that they can buy more with their money. Well, even if they were rational the problem is that it is relatively easy for them to calculate the net benefit to themselves. They just compare the price of the basket of goods and ponder what utility they can make of the saved difference. If they realize that this will hurt the public finances in Ireland, it is still an impossible calculation to know by how much _THEIR_ own choice to shop up north will feed into the depth of the Irish economic difficulty and surely impossible for them to calculate by how much _THEIR_ choice will affect their prosperity in the medium term as a result of possible damage to the Irish finances. So they calculate a benefit but find the cost side impossibly vague but assume (probably correctly) that their individual choice to shop in the North will have a minimal impact. (In some ways this is a parallel to other issues such as the rational voter theory – voters know that the chances that their individual vote will sway a result is infinitesimal and therefore cannot affect their welfare so it is not worth figuring through the details of whether FF or FG or Labour policy on Health might make a difference).
On the other hand there is the notion of solidarity. That even if we cannot make a huge difference, we should at least make some effort to put our shoulder to the wheel of community and push forward together. This is the idea I was thinking of. I think that the level of solidarity (if it’s possible to measure!) will be a significant determinant in our ability as a society and nation to construct strategies to both cope with a severe downturn and to work out a way to return to prosperity.
And that is why I think it will be interesting to see to what degree bare faced self interest will boil to the surface when, via our elected representatives, we as a community, decide to apportion the financial burden of getting things straight.
For instance I heard a Garda spokesperson get very angry on the radio saying that it was revolting to think that members of the Gardaí should take a pay cut. His justification was that his people provide our security and put often put themselves in harms way. But of course this is bull manure. The salaries across the public service are already set according to what we think they ought to be paid for a fair days work in their respective roles. Now that overall there is less money, why should the Guards be special? Won’t the doctors and nurses argue that they are doing the most valuable service possible, caring and saving lives? And teachers, looking after the welfare of the next generation, well surely they cannot make a sacrifice.
Tomaltach,
Thanks for the tip on the book! I’m off to Amazon to get a copy.
What we’re really talking about here is how to bring public expenditure under control AND restore competitiveness to the Irish economy. In the old days, governments could simply devalue the national currency as a means of bringing down public expenditure costs. (Curiously, historically we had as little control over this mechanism as we now have as part of the euro zone, since we were tied to sterling and soemtimes the British government did not even inform their Irish counterpart of imminent devlauations.)So the only other option to restore competitiveness is to have an across the board cut in public sector pay.
As I understand the argument it runs along the lines that we know the size of the problem that has to be dealt with in the public sector because all the figures are published. It’s often more difficult in private sector employment because workers have no clear idea of the true state of a company’s finances and usually, less reason to place trust in whatever information they’re being given. So the lead on a general wages recutions needs to come from the public sector in their first instance.
Politically, the difficulty in the public sector arises with who should bear the brunt of the cuts since there is quite a disparity between rates of pay for professional public servants and also as one progresses up the grades of the civil service between those at the higher levels and lowly clerks. I agree that no special pleading from guards, nurses, doctors etc. should be entertained at this particular juncture; the situation is far too serious.
I also believe that, unlike what has happened in the past, this time the lead has to very definitely come from the top if it is to be acceptable in the borader community. There will have to be very real cuts in politicians’ remuneration packages if politically there is any chance of avoiding strikes about pay cuts throughout the public sector further down the road and/or a prolonged malingering in the Irish economy because we haven’t dealt with the competitiveness issue in any meaningful way.
A 20% cut in pay for TDs and Senators, and members of the government, immediate abolition of the ‘salary’ payment to Councillors; and abolition of most of the expenses and allowances payable to Oireachtas members; halving of allowances or their total abolition for Oireachtas members who serve on Committees etc.; no further expenses payable to public representatives in relation to any trips abroad, and further pay reductions at the level of Government itself plus culling of the numbers of junior Ministers – this is the minimum required to send the right signal and secure acceptance for severe austerity measures throughout the public services that are an absolute necessity in our own best interests.
Then the Government can seek at least 10 – 20% cuts in pay for public servants, plus freezing of increments etc. I think there is strong force to the argument that public sevants’ pay cuts should be frontloaded even if they’re savage, but with the commitment that as and when recovery sets in that payments and pay increases will be restored as rapidly as possible, especially for those currently on the lwest wage rates. Unless there is strong political leadership though in repect of politicians’ own salaries and perks, then it will be hard to achieve anything that will have the desirable impact on our current problems both short term and as a means of laying the basis for recovery in the medium term.
And then, of course, we have the antics of the opposition to look forward to…they don’t seem to be in the business of any kind of constructive critique, which is what we really need from them. They’re still mreo interested in assigning blame or scaremongering or both, or even calling for general elections; which is the very last thing the country needs. It’s sadly abundantly clear already that narrow party politicial interests take precedence over any notion of solidarity or doing what’s in the best interests of our country and our community. What a pity for us all.
Coming from Kerry I have always loved my native land. But I am finding it harder and harder to holiday in Ireland. Enjoying the view through housing estates and “Southforks” in the West of Ireland and the “natives” not speaking my native language somehow does not appeal to me.
It’s not fair to try to define each economic decision as either being rational (and necessarily correct) or irrational (and necessarily idiotic) or being on a simple linear line between those too. Plenty of stupid strategies are quite rational.
Consider these two rules:
“If in doubt, do nothing and deleverage”
and
“If in doubt, do what seems to work for your neighbour”
Both are rational, but the latter is the stupid strategy that causes everybody to do the same thing at the same time to an extreme degree (a boom). The former is safer for everyone, as people stick by and large to what they are good at. But for somebody young and stupid, the latter can be defended by seemingly intelligent people using calm argument.
So if we just replace rationality with some sort of memetics then economics can be more realistic. We ‘inherit’ economic plans from the people around us, copying plans that seem to work and sometimes just copying plans without any thought. These economic ideas then operate like the selfish gene in evolution, copying itself through our minds for its own benefit. (I’ve come to the conclusion that many important issues in the universe, and even parochial matters like the world economy, cannot be understood without a full appreciation of the astounding powers of evolution by selection. It’s all about information and data, not matter.)
Even if we wanted to be rational, we wouldn’t have the time. We make so many decisions that it is quicker and easier to just copy our neighbours for most small decisions. We simply need to encourage people to identify the issues that have the biggest worst case scenarios (death, homelessness, bankruptcy, et cetera) and avoid the worst-case-scenarios. Average people overestimate their ability to predict, allowing them to forget that the worst-case-scenarios are more likely than they think.