129th Barrington Medal, 2018/2019

The Barrington Medal is awarded annually by the Council of the Statistical and Social Inquiry Society of Ireland under the auspices of the Barrington Trust (founded in 1836 by the bequest of John Barrington). The award is intended to recognise a promising new researcher in the economic and social sciences in Ireland. The award is a silver medal and €1,000. This will be the 170th anniversary of the lecture series and the recipient will be the one 129th Barrington Lecturer.

The lecture should be based on a paper of not more than 7,500 words addressing a topic of relevance to economic or social policy and of current interest in Ireland. In treating the issue of economic or social policy,
the paper may either report the findings of a statistical research study dealing with some aspect of the problem or deal with the underlying theoretical considerations involved, or preferably combine these two
approaches. It should be written in a manner that makes it accessible to non-specialists in the area. More technical material may be included in an appendix.

The paper is published in the Journal of the Society, so it should not have been published before (nor should it be published subsequently without the prior consent of the Council of the Statistical and Social Inquiry Society of Ireland). Candidates, who at the time of their submission must be not more than 35 years of age, should at least submit a detailed abstract of approximately 1,000 words on the proposed lecture, with preference being
given to full papers. A short CV and the name of a proposer who is familiar with their work should also be submitted.

The call for entries closes on September 8th.  More information, including a list of past winners of the Medal since 1992, is available here and from secretary@ssisi.ie.

New Central Bank Quarterly Bulletin

The Bank released its third quarterly bulletin of the year this week (Quarterly Bulletin (QB3 – July 2018). The outlook for growth remains favourable despite significant downside risks.  The economy is expected to grow (in GDP terms) by 4.5 per cent this year and by 4.2 per cent in 2019. Most of the impetus to growth is likely to continue coming from domestic sources with the unemployment rate averaging 4.8 per cent next year on the back of solid and sustained gains in employment.

A number of significant downside risks remain. These predominantly relate to the vulnerability of the economy to external shocks, namely Brexit, further increases in protectionist trade policies and any changes to international tax regimes (that could affect FDI flows). Domestically, while inflationary pressures remain contained, the gradual erosion of spare capacity increases the prospects of overheating. In particular, in the labour market, unemployment is fast approaching levels that in the past have triggered an acceleration in wage inflation.

Aside from the normal outlook for the economy, the Bulletin contains a number of Boxes on a diverse range of topics. These include pieces on the National Accounts, a new economic indicator, trade, inflation, credit and debit card returns and mortgage arrears. The Bulletin also has a signed article that looks at Irish Government investment, financing and the capital stock.

Boxes

  • International economic outlook (Box A – page 13)
  • Revisions to the CSO National Accounts (Box B – page 15)
  • A new monthly indicator of economic activity (Box C – page 21)
  • Irish exports and world demand (Box D – page 29)
  • Consumer prices in Ireland (Box E – page 38)

On the financing side of the economy, there are pieces on:

  • Credit and Debit Card Return (Box A – page 51)
  • Mortgage Arrears Statistics (Box B – page 59).

Signed Articles

The Bulletin includes a signed article by Hickey, Lozej and Smyth (2018), on “Irish Government Investment, Financing and the Public Capital Stock

Negotiations and trust

I am reading Hugo Young’s wonderful This Blessed Plot (is it really possible that it is out of print? How could that possibly be?). He agrees that de Gaulle behaved “monstrously” in vetoing the UK application to join the EEC in 1963, but also makes a good case that Macmillan deserves a share of the blame too. Macmillan’s approach to the negotiations was “conditional and tentative, creeping in a state of high suspicion towards this moment of historic destiny”; the UK made it clear that it wanted to “unpick” the Treaty of Rome in certain ways and wasn’t “necessarily willing to accept the acquis communautaire” — although it was offering nothing in compensation for this. Macmillan went out of his way to emphasize the fact that the Commonwealth and the UK’s relationship with the US were central concerns for him, strengthening de Gaulle’s view that the UK did not really belong in the EEC. Nor did the UK show any great enthusiasm for joining that organisation, in case this might weaken its bargaining hand. All of this merely served to strengthen European suspicions about the UK, and not only in France, and made it much easier for de Gaulle to eventually veto the UK application (just as UK diplomatic ineptness had made it easier for him to veto Plan G some years previously).

The story is not irrelevant today. Imagine that the UK had said, in June or July 2016, that given the closeness of the vote it would seek the closest possible relationship with the EU. Imagine that it had said that avoiding a hard border in Ireland was a major priority, but that it also wanted to avoid the emergence of trade barriers within the UK. Imagine that it had said that, therefore, it would be seeking to remain within a UK-EU customs union, and that it would unilaterally commit to remaining fully aligned with all EU regulations regarding goods. Imagine that it had said that, self-evidently, this would require it to abide by all relevant ECJ rulings, and that it would naturally be willing to make a contribution to the EU budget (but nowhere near as big a one as at present, of course). And imagine that it had said that it would also be willing to sign up to a broader set of guarantees ensuring that it would not try to steal a competitive march on the rest of Europe by undermining labour and regulatory standards more generally.

It might have been quite difficult for the EU to reject such an offer outright, and there might even have been reasons for it to welcome it. The EU could have made it clear that under these circumstances there would not be free access to the EU market for services, and that this might have very negative implications for various manufacturers based in the UK for whom the provision of services to their clients is an important part of their business. It could have added that these difficulties might be surmountable if the UK accepted all four freedoms of the Single Market and paid more into the EU budget. The UK might have objected to these objections. But at least there might have been a basis for negotiation.

It seems as though the UK government may finally be inching towards a situation in which it finds itself proposing something very like the hypothetical offer outlined above. There are still mad aspects to what is supposedly being suggested, notably the proposal that the UK collect customs duties on behalf of a customs union of which it is not a member, and that goods destined for the internal UK market should potentially be allowed to face an entirely different set of tariffs. And yet, the UK is apparently proposing to remain harmonized with EU regulations for goods. We are slowly getting there.

But only very slowly, and only in the face of enormous domestic political resistance. The UK did not proactively propose the solution suggested above – it is being dragged there, kicking and screaming, since it is finally coming to realize that there is no sensible alternative (other than accepting not only a customs union but all four Single Market freedoms, or not leaving the EU at all). Its government has worked, not to build up trust, but to destroy it. Its ministers have made no secret of their disdain for the EU. The UK government has made it clear that it really does want to do free trade deals around the world, and that it really does want the freedom to regulate – or deregulate – as it chooses. Even if Her Majesty’s Government is forced by circumstances to sign up to something that precludes this, we know that this would be only reluctantly: it is quite obvious that the UK does not want this solution. And we also know from experience that its government is capable of signing a document one day, and denying that it means what it says the next.

And what this means is that there is no trust on the other side of the table; nor should there be. And that implies that even if this British government eventually comes to accept that it needs to sign up to full customs union membership, as well as full compliance with EU regulations as regards goods, an offer along those lines may not be acceptable to the EU. Indeed, it seems almost certain that it will not be.

But it is still worth asking what would have happened if clear minds and strategic thinking had prevailed in London in June and July 2016, and such an offer had immediately been proposed without any strings being attached. There would still have been those who, like de Gaulle in 1963, would have wanted to reject it, and they might still have gotten their way. (They might even have been right: I am not implicitly comparing them to de Gaulle, who clearly behaved badly.) But I am willing to bet that it would have been more difficult for them.

 

 

Economic and Social Review, Summer 2018

The latest edition of the Economic and Social Review (Volume 49, No.2) is now available, containing the following research and policy articles:

Articles

The Socioeconomic Determinants of Crime in Ireland from 2003-2012 by Stephen Brosnan

Householder Preferences for the Design of an Energy Efficiency Retrofit Subsidy in Ireland by Matthew Collins, Seraphim Dempsey and John Curtis

Decomposing the Drivers of Changes in Inequality during the Great Recession in Ireland using the Fields Approach by Cathal O’Donoghue, Jason Loughrey and Denisa M. Sologon

Policy papers

The Impact of Free GP Care on GP Utilisation in Ireland by Paul K. Gorecki

Lifting the Lid: the Private Financing of Motorway PPPs in Ireland by Dónal Palcic, Eoin Reeves and Anne Stafford

If the retired are not poor, is it right for them to keep all-day free bus passes?

There has been a considerable fuss over a suggestion for a modest scaling-back of the benefits to the retired. It was proposed that ‘free bus travel’ be available only at off-peak travel times. At all other times, free bus travel would continue to apply.

The fuss has been strikingly one-side: the proposal was denounced by politicians, interest groups and journalists. Otherwise, silence; including on this blog.

The case for this change is easily stated – rush hour is busy because of workers travelling to/from work at times they don’t control. So it is a more efficient use of the bus system that people with more discretion over when to travel, notably the retired, would use (free) buses only at other times.  (Of course they could travel as paying passengers at any time.) Nearly one-tenth of passengers on the buses at rush hour use free bus passes. So either we expand the bus system or we move bus-pass holders to (free) travel at another time and release a lot of bus space.

Available information suggests this change would also improve fairness. There is considerable evidence that the retired are not poor, either in income or in wealth terms. Removing a small fraction of the bus subsidy would seem to be fair, especially if it also made the bus service work better.

The CSO’s 2013 Household Finance and Consumption Survey (Table 12) indicates that in households where the head of household was under 35, median net wealth was €4,000. For households headed by a person 65 or older, median net wealth was €348,000. It seems legitimate to conclude that the retired are not poor in terms of their net wealth. (This is hardly surprising; they have had decades more than twenty-somethings in which to save. Grey and wrinkled has a few compensations.)

For incomes, the CSO Survey on Income and Living Conditions (Table 1e) reported that in 2016 median net disposable income (adjusting for household size) was €21,387 for those aged 18-64 and not a very great deal less, €17,956, for those over 65. So for every €100 of net disposable equivalised income of the median member of the first group, the median retired person has an income of €84. The costs of the retired are surely lower than those working (mortgage, children’s education costs)? In any case, according to the report (Table 2) those aged over 65, have a lower risk of poverty (10.2% v. 16.6%) and also a lower rate of deprivation (13.1% v. 20.9%) compared to those of working age.

Given the similarity of incomes, there seems a solid basis to say the over 65s are not poor in income terms either, compared to the working age population.

Yet the older generation have various non-means-tested benefits including free bus passes. They were also essentially exempted from the post-2008 income and benefit reductions. I will leave the inter-generational aspects of the planning laws for another occasion.

Subsidies for the retired was recently raised in the UK which “continue[s] to treat pensioners as though they need free travel, winter fuel allowances and the like, despite the fact they are on average now the best-off demographic group in the country.” In a comment pertinent to the Irish case, the writer argued that amongst the UK groups needing more public funds are children and the mentally ill. If money goes to the over-65s, it will be harder or impossible to finance the other programmes.

The broader setting for this discussion is whether our prevailing redistributive and other policies in fact discriminate against younger rather than older generations. Many of the retired and soon-to-be-retired, benefitted from lower costs of going to college, drastically lower house prices, and much more generous pension schemes that today’s twenty- than thirty-somethings will have. On top of this there are pensions, free bus travel and other benefits; some of this money may have more deserving uses, not excluding healthier public finances.

From this perspective, do we redistribute income on the basis of means or, say, voting propensity? Regarding the latter, a rough calculation (exit poll age data, total turnout, and population less non-nationals) suggests that in the 2016 general election turnout was 41% for voters under 24, and 61% for those over 65. 

How, then, was the bus-policy reform proposal responded to? It did not go down well! Its author was personally vilified and the proposal was drowned in ridiculous hyperbole, while more important aspects of the speaker’s policy recommendations at the conference passed unremarked. One Minister remarked that the civil servant’s suggestion was unprecedented. It’s not hard to see why.

There was the usual claim by a journalist that “free bus pass holders have contributed to the economy for decades” On that principle, shouldn’t everyone have everything free forever? (Where are our free newspapers?)

Senator Buttimer of Fine Gael demanded that the civil servant be fired. The Independent Alliance judged that this change would cause “severe hardship” and could jeopardise the ability of the retired to get to hospital. (Severe hardship? Really? No pensions, no cars, no taxis, no offspring, in Independent Alliance constituencies?)

Even the elusive Minister Ross took to the battlements to declare that the change would happen only over his dead body, although some think the Minister’s body has been alarmingly immobile since he took office. (Missing Minister.)  The Minister added that this modest change was no less than “an extraordinary assault on the rights of older people.” (An extraordinary assault?)

As for the temerity of the civil servant, I believe the department he works for is called Public Expenditure and Reform. His remarks were made at a conference where the OECD recommended that Ireland needs to focus more on evaluation of the impact of public policies. The responses amounted to saying: our supporters like this policy, we are not interested in any evaluation.

This sorry episode is reminiscent of the ‘anti-expert’ commentary of members of the Bertie Ahern governments. Minister Martin Cullen in the mid-2000s dismissed warnings of economic overheating contained in an ESRI mid-term review of the public investment programme, as merely the views of ESRI ‘sandal wearers’. He insisted that the government would press ahead in the face of the advice it had itself commissioned. Ten years on, some current Ministers seem to believe much the same thing.

The retired in the population used to be poor. That’s not been true for a long time. Policy has to catch up. The Government should seek to improve the efficiency of the transport system particularly when it can be achieved at no loss of fairness. In any event, they should give a civil hearing to policy suggestions.

Complete inflexibility from the retired may leave them with few sympathisers should the large deficits in the public pension scheme require real fiscal surgery in the future.

41st DEW Annual Conference – September 14/15, Clayton Whites (Wexford)

The 41st Annual DEW Economic Policy Conference, supported by Dublin Chamber, takes place in Whites of Wexford on Friday 14th and Saturday 15th September, 2018.

The conference opens on Friday afternoon with the Cantillon Lecture delivered by Minister for Finance, Paschal Donohoe. The two other sessions on Friday deal with the all-island economy, including Aidan Gough (Intertrade Ireland) and Tom Healy (NERI), and “Ten Years Since the Crisis“, where the expert panel includes Sharon Donnery (Central Bank) and Ann Nolan (ex-Department of Finance).

Saturday morning starts with a session on Housing Supply, featuring among others Orla Hegarty (UCD) and Colette Bennett (Social Justice Ireland). Next up is an expert panel on Higher Education, with Michael Horgan (Chair, Higher Education Authority), Brigid McManus (ex-Department of Education) and Linda Doyle (Vice-Dean for Research, Trinity College Dublin).

After lunch, there are parallel sessions on the application of behavioural economics to policy and on public finances. The conference concludes with an expert panel on Ireland 2040, chaired by Robert Watt (Department of Public Expenditure and Reform), and the William Petty lecture, by another government minister.

For more on the conference, including how to book, please visit the DEW’s website: http://dublineconomics.com.

Latest Assessment Report from IFAC

The Irish Fiscal Advisory Council has published its latest Fiscal Assessment Report.  The report and some additional resources are available here.

Accompanying the report is a working paper that looks at how a counter-cyclical “rainy day fund” could be incorporated in the framework of the Stability and Growth Pack.  Last week, IFAC published its assessment of compliance with the Domestic Budgetary Rule in 2017 as well as an update of its Standstill Scenario which estimates of the cost of maintaining today’s level of public services and benefits in real terms over the medium term.

A bullet-point summary of the latest FAR:

  • A rapid cyclical recovery has taken place since at least 2014 and this is continuing at a strong pace.
  • Ireland’s debt burden is still among the highest in the OECD.
  • Negative shocks will inevitably occur in future years and there are clear downside risks over the medium term, namely those associated with Brexit, US trade policy and the international tax environment.
  • Improvements on the budgetary front have stalled since 2015 despite the strong cyclical recovery taking place – one that is reinforced by a number of favourable tailwinds.
  • Any unexpected increases in tax revenues or lower interest costs should not be used to fund budgetary measures.
  • The Council welcomes the Department’s publication of alternative estimates of the output gap.
  • The Medium Term Objective (MTO) of a structural deficit of no less than 0.5 per cent of GDP was reached in 2017.
  • The Council sees the fiscal rules as a minimum standard for sustainability and continues to recommend that the Government commit to adhering to the Expenditure Benchmark even after the MTO is achieved.

And on Budget 2019 in particular:

  • The Government should at least stick to existing budget plans for 2019 as there is no case for additional fiscal stimulus beyond existing plans as set out in the 2018 Stability Programme Update.
  • Estimates of the medium-term potential growth rate of the economy and expectations of economy-wide inflation for next year imply an upper limit for increasing the adjusted measure of government expenditure of 4.5%.
  • In nominal terms this translates into spending increases or tax cuts of up to €3½ billion (“gross fiscal space”) as the starting point for Budget 2019.
  • Previously announced measures – including sharp increases in public investment – mean that the Government’s scope for new initiatives in Budget 2019 will be limited.
  • If additional priorities are to be addressed, these should be funded by additional tax increases or through re-allocations of existing spending.
  • Improving the budget balance by more than planned would be desirable, especially given current favourable times, possible overheating in the near-term and visible downside risks over the medium term.