Michael Burke: what a berk

Europe has seen the sharpest contraction in output since the end of the second world war. This is accounted for by an investment strike by the private sector. In the EU the fall in gross fixed capital formation (investment) was €565bn of a total loss in output of €611bn.

Yet everywhere the cry has gone up that Europe is uncompetitive and that there is only one solution to this new-found cause of the crisis: cutting wages. Employers\’ organisations are having their own Marie Antoinette moment and ignoring their own refusal to invest. Instead, they argue, wages must be cut and pension entitlements axed, while corporate taxes must be lowered.

Err, yes?

You\’ll invest when you think you can make a profit by doing so.

If wages (or compensation) is too high, in your opinion, for you to be able to invest profitably, then you\’ll not invest. And call for wages to be lowered so that profitable investment may be done.

After all, the glowing poster child for how to run an economy is currently Germany. Which has just had a decade of deliberately lowering the workers\’ wages.

QED.

 

10 thoughts on “Michael Burke: what a berk”

  1. Cutting wages in pointless in a country with its own currency because the same effect can be achieved by devaluation. As to Germany (which does not issue its own currency) supressing its wages will make it more competitive RELATIVE TO other Eurozone countries, and relative to the rest of the world. But making Germany more competitive relative to other Eurozone countries is exactly what the Eurozone does not need right now. It needs PIGS to become more competitive.

    So Burke the berk is right, but for the wrong reasons. He trots out the sort of reasoning you expect in a Guardian article: wicked capitalists exploiting the downtrodden workers . . . let’s storm the Winter Palace . . etc etc yawn yawn.

  2. From the comments:

    Sod the investment, if private capital won’t invest then the public sector should. We should be encouraging and funding workers co-opreatives and nationatised production. There is a falicy that only privae sector should invest, I think in reatlity publicly owned and worker led industry would outperform private compaines everytime.

    We should also drop out of the EU which has sort to prevent public ownership and constrain government investment in industry.

  3. Ralph, devaluation is favoured by politicians because it is politically easier to do. This is usually a good clue that it is the wrong choice.
    * OT1H, if the people of the country in question clearly recognise that devaluation is the same (sort of) as cutting wages, and if the effect of devaluation on their living standards is the same, then why not go for the more straightforward and honest approach of cutting wages?
    * OTOH, if the people are deceived by the devaluation, they will not recognise the need to be more competitive. This may be a success for the politician in the short term but is a failure for the country in the long run. If markets exist to provide information and inform peoples’ decisions, we don’t want to hide or distort that feedback mechanism.

    Also, devaluation is a blunt tool that affects everyone, whereas it may just be particular sectors of the economy are uncompetitive and need to change.

    The PIGS need to reform. They need to address the structural problems they have. The attitudes and expectations of the people need to change. (So do we BTW). Devaluation is too often sold as an easy, quick fix to the country’s problems, precisely so that the real problems do not have to be addressed. It won’t work.

  4. “Cutting wages in pointless in a country with its own currency because the same effect can be achieved by devaluation.”

    It also robs savers – the people who provide the capital for the investment, and who never leave it for long in the country after getting burned by devaluation.

  5. Yet everywhere the cry has gone up that Europe is uncompetitive and that there is only one solution to this new-found cause of the crisis: cutting wages.

    I’m pretty sure that there is more to Europe than the Rep. Ireland and UK.

  6. I think it is far less to do with cutting wages than cutting state parasitism, from those corporate taxes through the EU refulations admitted to be destroying 5.5% of GNP to the anti-nuclear “era of cheap energy is over” frauds.

    Without all this parasitism GNP would be doubled and the share of it spent by us nearly doubled again and then we could start seeing what 10% growth is like.

    Nor do I see that it has been claimed there us “only one solution” involving only lowering wages except among government parasites (including the BBC ).

  7. More than cutting wages, the important thing is to cut taxes, and massive dregulation.

    Ideally GB would leave the EU as well but since realsitically this is not going to happen for several years, somehow, CMD has to grow a pair and deregulate and proactively start taking back powers from brussels.

    The fact is they are not going to invade us, so we can pretty well do as we please, unfortunately I suspect that Call-Me-Sam seems to have a monopoly on the contents of CMD’s underpants so this is also highly unlikely.

    We’re fucked.

  8. I recall some loon or other proposing that to combat disinflation (when there was a month or two of it) the state should steal money from people’s savings accounts to encourage them to spend it.

  9. The PIIGS can’t devalue, so they’re going to suffer massive fiscal contraction. The issue is whether this falls on the productive sectors of the economy or the tax leeches. Guess which one my money’s on?

  10. Of course German house prices are much the same as they were in the 1970’s.It does n’t matter if the workers’ wages go up in the UK, because successive generations will be pauperised by house /land prices going up even faster .
    Henry George, who’s he?

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