US intervention on state-aid cases ratchets up

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February 13th, 2016

The US Treasury were obviously unimpressed with the response to Asst. Treasury Secretary Robert Stack’s recent visit to Brussels with Competition Commissioner Margrethe Vestager responding that “it is the same argument as we have heard before”.

The US clearly feels it is an argument worth making and now Treasury Secretary Jacob Lew has written a letter to Commission President Jean-Claude Juncker.  It is largely a repetition of the arguments heard before but there are some interesting elements.

On the State Aid case against Ireland in relation to Apple, Lew is pretty clear:

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Broad tax bases are desirable

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February 13th, 2016

I notice that there is no election thread, which makes sense given that we were probably all fed up with the campaign before it even began. And I’ve nothing original to say on the subject either. But there probably should be an election thread, and if there is to be one, someone has to kick it off by saying something. So, in that spirit: do we all agree that (a) the Irish economy is now recovering, and doesn’t need further stimulus right now; (b) that the Irish economy has proved itself over previous decades to be unusually volatile; (c) that the international outlook right now suggests that there are risks on the horizon; (d) that the Eurozone is a very dangerous place to be anyway, if you are a small country; (e) that broad tax bases are preferable to narrow tax bases; and (f) that given all of the above, arguing for the abolition of the USC or water charges (water charges, as opposed to Irish Water) is grossly irresponsible, and should suffice to disqualify a party from being taken seriously as a “safe pair of hands”?

Global crisis special issue of Economic Policy

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February 12th, 2016

A virtual issue of Economic Policy, bringing together a selection of articles dealing with the global financial, and eurozone, crises, is described here and is available here.

The Cheque Republic

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February 11th, 2016

Via Warwick’s Prof. Michael McMahon, the Bank of England’s Underground blog features a nice comparison of Ireland in the 1970s and Greece in 2015. Check it out here.

2 research assistantships at the Nevin economic research institute (NERI)

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February 4th, 2016

The Nevin Economic Research Institute is recruiting two Research Assistants for its offices in Dublin and Belfast. The posts will provide the successful applicant with an opportunity to contribute to a dynamic research programme covering a range of economic themes. The work will include analysis of data and preparation of working papers and reports as well as presentations at conferences and seminars.

The candidates must have completed or is expected to complete, in 2016, a post-graduate degree in a discipline relevant to the work of the NERI. Strong quantitative skills are essential.

Applications including full CV should be submitted by email to recruit@NERInstitute.net

Closing date for receipt of applications is 5pm FRIDAY 19TH FEBRUARY 2016.

Full details and job description are available at www.NERInstitute.net/recruitment

 

Banking Inquiry Report

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January 27th, 2016

Has been published, volumes 1 and 2 are available here.

A Brief Reminder: Macroprudential Conference this Friday, January 29th

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January 25th, 2016

Details of the macroprudential bank regulation conference this Friday are here. The conference begins at 10 am with an interactive poster session and a chance to meet other attendees.

Government Finance Statistics Quarterly Results

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January 24th, 2016

The 2015 Q3 data are available here. Dan O’Brien comments on the figures here.

Upsetting the applecart

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January 22nd, 2016

The Apple story rumbles on meaning that almost anyone saying the X multiplied by .125 equals Y can make front-page news (provided Y is a big number of course).  In very rough terms there are three possible outcomes to the investigation:

  1. No adverse finding is made,
  2. The 1991 advance pricing agreement, as revised in 2007, is found to be ‘wrong’ and different parameters are used to allocate profit to Apple’s operations in Ireland, or
  3. Some portion, or all, of Apple’s profits (outside of the Americas) are deemed to be taxable in Ireland.

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How costless was the 1970 Irish bank strike?

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January 21st, 2016

Here.

IMF Post-Program Monitoring Report on Ireland notes the unusual risk profile of the Irish banking sector

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January 20th, 2016

The IMF has released its latest post-program monitoring report for Ireland. What is notable in the report is how it highlights the still very-high-risk profile of the Irish banking sector, and the policy quandary regarding encouraging housing construction without endangering another Irish banking sector crash over the medium term. Despite a strong, three-year-long domestic economic expansion, Irish mortgage loans remain an unusually risky asset class.

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Tom Kettle, 1880 – 1916

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January 17th, 2016

In 1909 Tom Kettle was appointed the first Professor of the National Economics of Ireland at University College, Dublin.
He was in Belgium running arms for the National Volunteers when the war broke out in 1914. What he perceived as the barbaric Prussian assault on European civilization prompted him to apply for a commission with the Royal Dublin Fusiliers, which he was awarded in 1916.
He was killed in action at Ginchy (Picardy) during the Battle of the Somme on 9th September 1916.
In the spring of 2006 the late Gerry Barry, the RTÉ broadcaster, organized a public meeting (in the former House of Lords chamber at College Green) to mark the 90th anniversary of Kettle’s death. He asked me to contribute a piece on Kettle’s work as an economist.
Ten years on, and a century after Kettle’s death, I thought readers might be interested in the brief essay I wrote for the occasion.

More details of his life are available in the excellent Wikipedia article on him:https://en.wikipedia.org/wiki/Tom_Kettle.

Noel Whelan: election campaign should focus on micro, not macro

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January 15th, 2016

Here.

The latest Eurostat industrial production figures

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January 14th, 2016

Available here.

Conference on macroprudential regulation

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January 13th, 2016

A conference with the theme Macroprudential regulation: policy dynamics and limitations will be held on Friday January 29th, 2016, at the Institute of Banking, North Wall Quay, Dublin, organized by the Financial Mathematics and Computation Cluster, the Department of Economics, Finance & Accounting at Maynooth University and the UCD School of Business at University College Dublin. The conference schedule appears below.

There are no attendance fees for the conference, but attendees need to register. We are grateful to the Science Foundation of Ireland and the Irish Institute of Banking for their generous support of this conference. The Financial Mathematics Computation Cluster is a collaboration between University College Dublin, Maynooth University, Dublin City University and industry partners, with support from the Science Foundation of Ireland.

10:00 – 10:30  Registration and poster session

10:30 – 10:35  Welcome and introduction

Theme 1: Measuring Macroprudential Policy Needs and Policy Effectiveness

10:35 – 10:55  Marcelo Fernandes (Queen Mary University), “Response to supervisory stress tests”

10:55 – 11:15  John Fell (European Central Bank), “Credit flow restrictions: Implementation and coordination issues”

11:15 – 11:25  Coffee break

11:25– 11:45  Scott Frame (US Federal Reserve), “The failure of supervisory stress testing: Fannie Mae, Freddie Mac, and OFHEO”

11:45 – 12:05  Eugenio Cerruti (International Monetary Fund), “The Use and effectiveness of macroprudential policies: New evidence”

12:05 – 12:25  Panel discussion

12:25 – 13:25  Buffet lunch and poster session

Theme 2: Housing Markets and Macroprudential Policy

13:25 – 13:45  Gabriel Brunneau (Bank of Canada), “Housing market dynamics and macroprudential policy”

13:45 – 14:05  Kieran McQuinn (Economic and Social Research Institute), “Macroprudential policy in a recovering market: Too much too soon”

14:05 – 14:15  Coffee break

14:15 – 14:35  Christoph Basten (Swiss Financial Supervisory Authority), “Countercyclical capital buffers in Switzerland”

14:35 – 14:55  Angus Foulis (Bank of England), “The role of credit in the US housing boom: Insights from tiered housing data”

14:55 – 15:15  Panel discussion

15:15 – 15:20  Closing remarks

Philip Lane interview

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January 8th, 2016

Today’s Irish Times carries a wide-ranging interview with Central Bank of Ireland governor Philip Lane here.

Lecturer, Below the Bar, Economics (Natural Resource Economics and Policy)

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December 18th, 2015

The J.E. Cairnes School of Business and Economics at NUI Galway wishes to appoint a person to the post of Lecturer Below the Bar, Economics (Natural Resource Economics and Policy), Contract Type B. The position will commence on 1 September 2016. Candidates should normally hold a PhD in economics or equivalent and demonstrate a record of publishing in peer reviewed journals, the capacity to secure research funding, and the ability to teach and supervise at undergraduate and postgraduate levels. Whilst not limited to these areas, we particularly encourage applications from those with interests in agriculture and agri-food, environmental economics, marine economics, and sustainable energy and development.

The J.E. Cairnes School is home to the Whitaker Institute. The successful candidate will contribute to already successful research clusters within the Whitaker Institute, notably the Socioeconomic Marine Research Unit (SEMRU) and the Centre for Environment, Sustainability and Development (CEDS). Through these clusters, the School already has strong links with Teagasc, the Marine Institute, and the Department of Agriculture, Food and the Marine. The successful candidate will be expected to strengthen these relationships and enhance the School’s existing comparative advantage in the area of economic evaluation. The School is already a leader in the economics of evaluation in both the natural resource/environment and health/ageing areas.

Closing date for receipt of applications is 17:00 (GMT) on Thursday, 21st January 2016.  It will not be possible to consider applications received after the closing date.

For more information and Application Form please see website:  http://www.nuigalway.ie/about-us/jobs/ Applications should be submitted online.

Latest edition of Economic and Social Review now available online

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December 18th, 2015

Here is the list of contents of the latest edition of the Economic and Social Review:

Vol 46, No 4, Winter (2015)

Table of Contents

Articles

The Demand for League of Ireland Football
Barry Reilly 485–509

The Relative Age Effect and Under-21 Irish Association Football: A
Natural Experiment and Policy Recommendations, David Butler, Robert
Butler  511–519

Housing Bubbles and Monetary Policy: A Reassessment
Graeme O’Meara 521–565

To Weight or Not To Weight? A Statistical Analysis of How Weights
Affect the Reliability of the Quarterly National Household Survey for
Immigration Research in Ireland
Nancy Duong Nguyen, Patrick Murphy 567–603

Book Review

EOIN O’LEARY, Irish Economic Development: High-Performing EU State or
Serial Underachiever. London: Routledge; 232 pages; March 2015
Frank Barry  605-611.

All papers can be accessed at www.esr.ie

Critical Quarterly columns

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December 15th, 2015

I’m writing an economics column in Critical Quarterly, a humanities journal, which is a bit of fun. They are supposedly free to view for 12 months after publication. I already posted a link to the first, on the European democratic deficit, but neglected to link to the second, on migration. The third, on secular stagnation, is available here.

Redistribution in the Age of Austerity

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December 14th, 2015

Readers of this blog might be interested in this working paper we’ve just put up on the Levy working paper series. The abstract is below.

We examine the relationship between changes in a country’s public sector fiscal position and inequality at the top and bottom of the income distribution during the age of austerity (2006–13). We use a parametric Lorenz curve model and Gini-like indices of inequality as our measures to assess distributional changes. Based on the EU’s Statistics on Income and Living Conditions SLIC and International Monetary Fund data for 12 European countries, we find that more severe adjustments to the cyclically adjusted primary balance (i.e., more austerity) are associated with a more unequal distribution of income driven by rising inequality at the top. The data also weakly suggest a decrease in inequality at the bottom. The distributional impact of austerity measures reflects the reliance on regressive policies, and likely produces increased incentives for rent seeking while reducing incentives for workers to increase productivity.

Emigrants, tax rates, and debt

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December 13th, 2015

Paul Krugman has an interesting piece here, and I can’t resist posting a link to something similar I wrote back in 2010.

PK’s piece also gives me an excuse to post a link to this piece by Oxford Economic & Social History graduate Christopher Kissane on incentivising emigrants to come home, which makes several good points IMO.

New research on households in long term arrears

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December 11th, 2015

Great work by Robert Kelly and Fergal McCann, pdf here, abstract below:

The resolution of the long-term mortgage arrears (those in arrears greater than one year; LTMA) crisis represents one of the key policy challenges in Ireland today. In this Letter we highlight the range of economic and demographic characteristics associated with the experience of LTMA in Ireland. Our analysis suggests that unemployment shocks, changes in mortgage affordability, the accumulation of non-mortgage debt, higher originating loan-to-value ratios and weak housing equity positions all have an important explanatory role. We also outline repayment patterns among households at differing levels of mortgage arrears. It is shown that in 2014, over three quarters of those in LTMA had continued increases in their arrears balances. This contrasts with those in the early stages of arrears, where less than half of all borrowers had arrears increases.

Updates from the CSO

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December 10th, 2015

Recent Reports

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December 10th, 2015

Oireachtas Joint Committee on Jobs, Enterprise and Innovation
- Report on Low Pay, Decent Work, and a Living Wage

Think Tank for Action on Social Change
- The Distribution of Wealth in Ireland

OECD Economics Department Working Paper
- Taxes, income and economic mobility in Ireland

Slow train wreck

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December 7th, 2015

Why is anyone shocked at the political news from France this morning? Everyone is saying that the FN got a boost from the November 13 atrocities, and perhaps they did, but there are far longer run forces at play here.

One is the corruption and sleaze that characterises Parisian politics. But there are also economic factors that are having a predictable impact on attitudes (and if they are predictable, then economists don’t have the right to ignore them). Globalisation creates losers as well as winners, for example, and if no-one really cares about the losers, and we just pay lip service to the problem, then it is predictable that there will be a backlash. The Euro has not only locked in a set of distorted real exchange rates, but a macroeconomic policy mix with a pronounced deflationary bias. If times remain tough enough for long enough, and politicians hear your pain but don’t actually do anything about it, some people will eventually respond by voting for candidates who reject existing constraints on policy making. “Europe” is increasingly experienced as a set of constraints preventing governments from doing what their people want them to do, rather than as a means of empowering governments to collectively solve problems.

So why would anyone be surprised that Mme Le Pen has done so well; and is it not likely at this stage (though 2017 is a long way away) that absent major policy shifts she will come first in the first round of the Presidential election? And let there be no mistake: if she actually won the second round, either then or in 2022, this would mean the end of the EU as we currently know it.

What is so frustrating about all this is that it has been so predictable. Here are some links dating back to 2010, a year that risks being viewed by future historians as a fateful one:

Adam Posen

And me, with apologies for the self-indulgence, writing for Eurointelligence.

I am pretty sure Martin Wolf was saying similar things back then, and that many others were too.

The good news is that, as recent Irish experience shows, the populist vote stops rising when the economy recovers. (The decline in the independent vote share is quite striking, and SF have clearly stopped rising. And no, I’m not saying that anyone is like the French National Front, but support for these parties is the closest Irish equivalent to the French anti-establishment protest vote that is benefiting the FN so much.) And 2017, and even more so 2022, are a long way away. But Eurozone monetary and fiscal policy, and social policy too I would think, need to start taking into account the fact that the entire European project, the good bits as well as the harmful bits, is now facing an existential threat.

Update: Paul Krugman weighs in here.

Thoughts on Flat Taxes

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December 7th, 2015

Written for the RENUA flat taxes event today.

When all the little economists are in short pants, we learn the principles of public finance. Governments have to tax households and firms in order to provide services the market won’t, like libraries, street lighting, and national defense, as well as redistributing income from the rich to the poor as an aid to social solidarity. Taxes are a necessary evil. All taxes induce distortions to people’s behaviour. Some distortions, like the plastic bag tax, are clearly good. They make almost no one worse off and make lots of people better off. Recurrent taxes on property are in fact the least distortive to long run GDP per capita we have. While a site value tax would have been perfect, the LPT does a similar if suboptimal job.

Some taxes are highly distortionary, such as a very low corporation tax rate, or a very high income tax rate. These make lots of people better (and worse) off and damage important incentives. An efficient tax structure would deliver the funds to power public services with the minimum of distortions to individual and collective incentives. The theory of public finance has come around to the view that marginal taxes are not the most important thing to worry about, in information-opaque systems, the average tax rate should be relied on most heavily. The all-in tax rate for personal income tax & employee social security contributions is 52% here, relative to 46% on average across the OECD.

Perhaps more importantly, the ability to balance the average tax rate with a corruption-resistant tax structure through which taxes are collected and disbursed is a major asset of any public finance structure.  Important results have now been established showing the spread of corruption is quite badly affected by the ease with which the variables which determine the tax base can be manipulated by those in power. If we worry about the Noonan-end of the tax gathering element first, then, two principles which therefore make sense are simplicity and certainty with respect to the tax system.

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November Exchequer Returns

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December 2nd, 2015

Available here.

The Euro Debate and the Abuse of Language

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November 30th, 2015

Defenders of the Eurozone’s initial design, subsequent management and purported reform invariably refer to the system as a ‘monetary union’. So do academic commentators including the authors of the recent Vox piece on the origins of the crisis. Whether intended or unconscious, this is an abuse of language.

Monetary unions do not experience selective bank closures, the re-introduction of exchange controls or the numerous other manifestations of financial fragmentation that have occurred before and after the Eurozone ‘reforms’. Germany is a monetary union. In 1974 the Herstatt Bank collapsed in Cologne and several banks based in Dusseldorf went down in the recent crisis. Both cities are in Nordrhein Westfalen, but there was no closure of bank branches in the state nor were exchange controls introduced by the state authorities on either occasion. Interest rates in Nordrhein Westfalen did not detach from rates elsewhere in Germany nor did bank deposits flee the state.

When the Continental Illinois Bank went under in 1984, at the time the largest-ever US bank failure, the state of Illinois was not expected to handle the fall-out. In the recent crisis the state of Delaware, home to lehmans, and the state of North Carolina, home to Wachovia, were similarly spared. The USA is also a monetary union and there is federal responsibility for bank supervision, bank resolution and the protection of bank creditors.

The Eurozone in contrast was established in 1999 as no more than a common currency area, with a ‘central bank’ responsible only for monetary policy in the aggregate, in pursuit of an inflation target. To describe it as a ‘monetary union’ is to deny that there is any distinction between a common currency area and a monetary union. If the Eurozone really was a monetary union in 2008 the history of the crisis would have been very different.

Language matters. In his 1946 essay (Politics and the English Language) George Orwell put it like this:

‘The great enemy of clear language is insincerity. When there is a gap between one’s real and one’s declared aims, one turns as it were instinctively to long words and exhausted idioms, like a cuttlefish spurting out ink. In our age there is no such thing as “keeping out of politics.” All issues are political issues, and politics itself is a mass of lies, evasions, folly, hatred, and schizophrenia. When the general atmosphere is bad, language must suffer.’

The danger is that relentless description of the Eurozone as a monetary union deflects attention from the awkward truth that it is not, and from the political unwillingness to make it so.

It has finally happened

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November 29th, 2015

It was way back in April 2009 that Barry Eichengreen and I first compared the world industrial output collapses of 1929 and 2008. The situation looked pretty alarming at that stage, but it turned out that we were a good leading indicator of recovery: the world economy started turning around almost immediately afterwards, thanks to a coordinated reflationary macroeconomic policy response. Then 2010 happened, reflation turned to austerity in Europe, and the global recovery slowed, to the point where at times it seemed to be petering out almost altogether.

And in August of this year, the inevitable happened: measured in terms of industrial output, our current recovery was overtaken by that of the interwar period. Pretty dismal stuff. Let’s hope that we can at least avoid the famous 1937-38 double dip, visible at the end of the interwar series.

 

 

Exchange rates

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November 28th, 2015

Paul Krugman suggests that exchange rates might matter for economic performance here.

On Ireland and exchange rates, one could add that, because of our large trade exposure to non-Eurozone markets, we  benefitted from an unusually large nominal depreciation in 2014-15 (which translated into a substantial real depreciation) (slides 8 and 9 here). I doubt this is unrelated to the employment boom we have enjoyed since then.