Three questions arise. Why would any non-European country be willing to accept another European IMF head? Would it not be better for the Europeans themselves if a non-European IMF head provided us with an “adult in the room” at times of crisis? And why would any European be happy living in a monetary union in which a politicized central bank cannot be relied upon to act as a lender of last resort, and in which their guns could be turned on any (sufficiently small) member state in a time of crisis?
By Alan AhearneJuly 4th, 2015
Today’s Irish Times carries my views on the immense damage that the Syriza-led government has done to the Greek economy in a short space of time. Link is here.
Impact of the economic recession and subsequent austerity on suicide and self-harm in Ireland: An interrupted time series analysis
By Philip LaneJuly 3rd, 2015
New article by Paul Corcoran, Eve Griffin, Ella Arensman, Anthony P Fitzgerald and Ivan J Perry - here.
By Philip LaneJuly 3rd, 2015
The Bank of Lithuania is hosting a conference on this topic today – materials here (including a presentation by Mark Cassidy of Central Bank of Ireland).
By Philip LaneJuly 3rd, 2015
|Network Social Capital and Labour Market Outcomes: Evidence For Ireland|
|Spillover in Euro Area Sovereign Bond Markets|
|Thomas Conefrey, David Cronin||197–231|
|A Formal Investigation of Inequalities in Health Behaviours After Age 50 on the Island of Ireland|
|Eibhlín Hudson, David Madden, Irene Mosca||233–265|
|Is Fuel Poverty in Ireland a Distinct Type of Deprivation?|
|Dorothy Watson, Bertrand Maitre||267–291|
Policy Section Articles
|Deciphering Ireland’s Macroeconomic Imbalance Indicators: Statistical Considerations|
|Policy and Economic Change in the Agri-Food Sector in Ireland|
|Cathal O’Donoghue, Thia Hennessy||315–337|
By Philip LaneJuly 3rd, 2015
By Ronan LyonsJuly 2nd, 2015
Yesterday, former Minister for Finance Charlie McCreevy appeared before the Oireachtas banking enquiry. His refusal to answer whether or not he believed Ireland suffered a property bubble that burst in 2007 was not only great TV, it also brings up some important issues. For example, the Irish Independent reports:
The conflict arose when Mr Doherty asked the former minister if he believed there had been a property bubble in the previous 15 years before the financial crisis. Mr McCreevy insisted he would only answer for his time in office and there had been no property bubble during that time… [after legal advice] Mr McCreevy said from 2003 to 2007 house prices grew at an extraordinary rate. He supposed that was a bubble. But he said: “I don’t believe the policies I pursued helped to create that bubble.”
The clear implication is that Mr McCreevy believes that, if there was any housing bubble at all, its roots do not lie in decisions made in the period 1997-2004, and that in reality there was no bubble at all. Given the title of my doctorate at Oxford was called “The Economics of Ireland’s Housing Market Bubble”, you might not be surprised to learn that I disagree.
First, I think it is important to note that there are two ways of diagnosing bubbles. They can be thought of as statistical bubbles and economic bubbles. A statistical bubble is one where the growth rate in the price of an asset, such as housing, grows at a rate that is unsustainable for any reasonable period of time. Between 1995 and 2007, house prices in Dublin increased by 300% in real terms (i.e. stripping out inflation), or 12.2% a year. Between 1997 and 2004, McCreevy’s term in office, the increase was 136%, or 13.1% a year. (Nationwide figures are comparable, although slightly lower for the period as a whole, although not necessarily in every year.) Thus, by any statisticians metric, it was a bubble – put another way, if 12% growth had continued for 25 years, a house costing €100,000 in 1995 would have cost €1.7m by 2020.
Yesterday, the First of July, was Canada Day.
Discussing the crisis in the Eurozone with some visiting Canadian relatives led to the question How stable is the Canadian currency union?
At first sight it seems to be much more stable than its European counterpart. The Canadian banking system is renowned for its solidness. It is dominated by five national banks that operate coast to coast, supervised by the much-admired Bank of Canada. There is a large national budget that includes important elements of inter-provincial fiscal equalization. Internal labour mobility is relatively high.
But on the other hand the provincial governments are not constrained in their borrowing, there are enormous differences between the economic structures of the provinces, and there is always the Quebec question.
In fact, to a surprising extent, the stability of the Canadian union appears to depend on the fact that, as the author of this article puts it,”there are no Greeces here”. He draws attention to flaws in the design of the Canadian currency union that could come home to roost some day.
If an extend-and-pretend deal is done it will be the third Greek ‘rescue’. Without debt relief it will also be the third to break the IMF rule, adopted after the Argentina failure in 2001, to avoid financing countries with unsustainable debts.
In early 2010 the debt/GDP ratio in Greece was predicted at 115% (it turned out to be 130%), the deficit in double digits and GDP sinking fast. The Fund rewrote its rule-book to get involved in the Troika despite the unwillingness of IMF staff to sign off on debt sustainability. See the account from the CIGI think-tank
The 2012 deal repeated the procedure, this time with haircuts of private creditors.
The Greek economy is again contracting, the budget headed back into serious deficit, the debt ratio headed for 180%. Even with low interest rates and long duration of official debts, no sustainability analysis is likely to look healthy. The bond market, to which Greece must return, agrees.
The IMF cannot credibly repeat the routine of 2010 and 2012 – it does have non-European members after all, and its exposure to Europe is already unacceptable to them. Lagarde, as French Finance minister, opposed Greek debt restructuring in 2010 but there is no guarantee that the IMF board will participate again without haircuts, this time for its European ex-partners. The week could see no deal with Grexit, or Trexit, the end of the Troika.
By Frank BarryJune 26th, 2015
Adele Bergin of the ESRI and I made a presentation to a mini-symposium on Austerity: the Irish Experience at UCD last week. Our analysis points out how wrongheaded it is to suggest, as some have done over the last few days, that if only the Greeks would take their medicine the way we did they might be able to expect an equivalent recovery. This ignores the huge structural differences between the two economies.
Faced with evaporation of the tax base, jittery markets and a need for concessionary funding, our current government and the previous one did what was required on the fiscal side. In the language of economics textbooks however, consolidation was necessary but not sufficient for the timing and pace of the recovery.
The first structural difference is the vastly greater openness of the Irish economy. This cushions the domestic economy to an extent, since imports bear some of the brunt of consolidation.
Irish exports, though they took a hit in the early days of the international crisis, nevertheless propped up the economy in a way that the Greek export sector cannot do, because of the share of exports in the Irish economy, the sectoral pattern of our exports and our portfolio of export destinations.
The fact that Ireland was hugely specialised in goods and services for which international demand remained buoyant massively bolstered the economy. Pharmaceuticals dominate Irish merchandise exports: pharma increased as a share of total US, UK and eurozone imports from 2000 to date (as shown by Stephen Byrne and Martin O’Brien in the Central Bank of Ireland Quarterly Bulletin, 02, April 2015). Computer and information services dominate Irish services exports: these increased as a share of total US, UK and eurozone imports from 2000 to date. Agriculture and food dominate indigenous exports: these increased as a share of total US, UK and eurozone imports from 2000 to date.
Services comprise an unusually high share of Irish exports. Since transmission is almost costless, these are less geographically constrained and substantially less dependent on EU and North American markets than is the case for merchandise exports. In the case of the latter, the MNCs can shift export destinations much more easily than indigenous enterprises can, as reflected in an increased US share as the US recovered earlier from the global crisis. And Ireland of course benefitted much more than other eurozone economies from the weakening of the euro against the dollar and sterling over recent years.
Jobs in export production began to recover rapidly from 2009, driven by labour-intensive indigenous manufacturing exports and by the growth of both indigenous and foreign-affiliate services exports. Ireland’s export-led recovery then fed into domestic demand.
It would be impossible for Greece to replicate this pattern.
And by way of footnote: Even though it’s true that most Irish exports are produced by the foreign-owned multinational (MNC) sector, and that any €1 million of these exports creates less domestic value-added than €1 million of indigenous exports, a different perspective emerges when you look at backward linkages per job. These are particularly impressive in the case of the rapidly growing MNC-services sector.
By Philip LaneJune 22nd, 2015
A serious question we do need to answer: are bank runs, or the potential for bank runs, becoming the ultimate backstop in a currency union comprised of creditor and debtor nations?
In the end the Oireachtas banking inquiry is unearthing the powerful narrative threat of the ‘ATMs running dry’ as driving much of the decision to deliver the 2008 guarantee, Cyprus had a bank run precipitate its crisis, at least partially. Iceland had the same experience, and we all know what is happening to Greek deposits right now, ELA or not.
Dr William Behan, co-author of “Does Eliminating Fees at Point of Access Affect Irish General Practice Attendance Rates in the Under 6 Years Old Population? A Cross Sectional Study at Six General Practices”
Most of the state sponsored; CSO or university department generated statistics on general practice utilisation since 2001 have been based on surveys employing 1 year recollection. Dr. Denny uses Growing Up in Ireland (GUI) the largest database available for the purpose of determining the marginal effect of granting private under 6s patients medical cards. Intuitively this makes sense……or does it when the potential biases of that particular survey data are explored?
We really have to examine biases in statistics collection to determine what is more likely.
(This is a guest post by Dr Kevin Denny of the School of Economics & Geary Institute, UCD).
The extension of free GP care to under 6’s has raised the issue of what the effect will be on GPs’ practices. Understandably they are concerned about the increased demand on a sector that appears to be under strain. I am not aware of any specific research for this age group (mea culpa if I have missed it).
There are several studies for the general populations (various convex combinations of Anne Nolan, Brian Nolan & David Madden). I heard a very interesting recent interview on TodayFM with a GP Ciara Kelly. In the course of this, she said that children with medical cards visit a doctor 6 times a year while those without visited twice. From this she inferred that the new scheme would triple the demand of those currently without free care.A GP that I was once on a radio panel with said something very similar. I don’t know the origins of these numbers. However the average difference between the two groups is not relevant here: you need to know the marginal effect. Children currently without medical cards are different from those with: on average they are, inter alia, healthier and wealthier.
Estimates from other countries are not informative. I searched in vain for a government document that discussed this. We now have very good data in the form of the Growing Up in Ireland study. Here I report some estimates of what the effect of the reform might be. I use the second wave of the infant cohort – the three year olds who should be reasonably representative of the 0-5 age range. As dependent variable I use the question on “Number of times seen or talked with a general practitioner in the last 12 months”. This is top-coded at 20 but there are very few in that category. The variable of interest is whether they are covered by a medical card. I combine GP-only and the full medical card for simplicity.
I have a long list of controls which covers the usual suspects. They include health of the child and mother, income, education and other demographics. I also have a variable that indicated whether their GP visits are covered by private health insurance. Changes to the controls do not make much difference.
There are numerous ways of estimating such models and I used three. For the cognoscenti these are poisson & neg-bin2 regressions and a finite mixture of poissons. The marginal effects are very similar as is often the case. Before we consider those, what is the average difference in the data? In the GUI the population weighted mean of doctor visits for children covered and not-covered by medical cards is: 3.13 and 2.18 respectively. This is very different from the 6 and 2 mentioned above, the source of which I don’t know.
The marginal effects for the different models vary between 0.632 and 0.713, less than the average difference (as you would expect) and a lot less than the difference of 4 mentioned above. For simplicity I will take 0.68 as a ballpark value. So giving free GP care for under 6’s should increase the number of GP visits per child by less than one per annum. We are assuming homogenous effects: you could generalize this to allow the effects differ in various ways. The marginal effect of having private insurance is about 0.34. Since these are probably the better-off of non-medical card holders, this suggests that 0.68 is on the high side i.e. the effect on the kids of the rich of free GP care is probably lower, if anything.
I also estimated the model using the child cohort (the 9 year olds) for whom the marginal effect is about 0.33 incidentally. Estimates for adults tend to be in the 1-2 visits per annum range. So what might this mean in practice? The maximum number of children who could be covered by the present reform is about 270,000. Multiply by 0.68 & this suggests an extra ~183,600 GP visits a year. There are around 2,500 GPs in Ireland so this is about 73.5 visits a year each. If they work on average 47 weeks a year this would mean about 1.56 extra visits a week from the under-6’s for a GP. It would be interesting to know how much of a GP’s time this is likely to require.
The mean is not the only parameter in town. For doctors whose patients are already covered there will be little or no difference. Doctors in more affluent areas will likely bear the brunt. Doubtless there are additional complications.
For example, not all GP’s will sign up. I am ignoring general equilibrium effects, such as any ensuing change in the number of GPs. Perhaps the main known unknown is the labour supply responses of GPs to a switch from a per-visit fee to a capitation grant which encourages them to take on patients but spend as little time as possible with them. Extrapolation is difficult, especially about the unknown.
I don’t mean to suggest that my estimates are best, I can’t explore every possibility in a blog post. I think they are credible though. Readers may have better knowledge of some of these parameters.
A file with the full results is available at http://tinyurl.com/p9cu8ax
The Demographic Transition, which started in Europe in the late 18th century, had a huge positive impact on average human welfare. Population levels and growth rates became dependent upon societal preferences rather than upon famine and disease. The demographic transition has now spread around the world to all continents, except Africa. Surprisingly, Africa has not made the switch. Rather than seeing population growth easing and then stopping, in a typical post-demographic transition pattern, African population growth rates have stayed at a very high rate for many decades. Even in recent years, while many demographers expected a slowdown finally to take hold, African population levels have rocketed up. So for example, from the National Geographic: Read the rest of this entry »
By Frank BarryJune 9th, 2015
In a week when the Irish Times carried reports complaining about the dumbing down of Leaving Cert maths the paper itself provided us with some beauties. An article yesterday by a former head of the School of Education at UCD informs us that “nine per cent of academics at professor level were male and 2 per cent were female”. What about the other 89 (or 77 or 61 or whatever it is)?
Last Saturday’s paper carried a report on ESRI work on overqualified workers. The author revealed himself to hold a masters degree from UCD. The piece (clearly not quoting directly from the ESRI) tells us that “adults whose highest educational attainment is the Leaving Cert earn 31 per cent less on average than those with a higher certificate or ordinary degree, and 100 per cent less than graduates with an honours degree”. I’m sure we all sympathise with how tough it must be to make ends meet on the latter salary.
Even some of their commentators on economics seem to think that a 200 per cent increase means that the thing has doubled. But it could be worse: imagine a 200 per cent decrease.
By Ronan LyonsJune 9th, 2015
Something perhaps of interest to the site’s readership…
This weekend, the Zurich Dalkey Book Festival takes place. This has become something of a sister event to Kilkenomics, which has in recent years hosted leading academic economists such as Deirdre McCloskey and Jeffrey Sachs as well as prominent economic commentators such as Diane Coyle, Simon Kuper and Philippe LeGrain.
This Saturday in Dalkey, I’ll be chairing an event called “Economists: What Are They Good For?“. The three-person panel comprises Dan Ariely, one of the world’s top behavioural economists, and Mark Blyth, author of Austerity – The History of A Dangerous Idea, as well as “the world’s most-quoted living man” PJ O’Rourke.
FIFA, the governing body of world football, has been a byword for corruption for decades, stretching back to the presidency of Sepp Blatter’s predecessor, the Brazilian Joao Havelange, when Blatter was number two in the organisation. Under the Havelange presidency millions of dollars went walkabout in murky transactions between FIFA and a company which marketed its TV rights. More recently the World Cup of 2022 was awarded to oil-rich Qatar, to be played in high Summer in temperatures of 40 degrees Centigrade. The Sunday Times has documented wholesale vote-buying on behalf of Qatar. US Attorney General Loretta Lynch has made it clear that the FBI investigations, which have yielded criminal indictments against FIFA officials, cover offences stretching back to 1991.
Sepp Blatter has been a senior FIFA official for forty years and president since 1998. How can his serial re-elections be explained, the most recent two weeks ago after the announcement of FBI action? FIFA is a most unusual organisation and its governance and economic structures make corruption almost inevitable.
Governance: Every national association, in even the tiniest country, has one vote in FIFA elections. Some tiny palm-fringed idyll in the South Pacific, where soccer was unheard of until recently, can form a football association and expect instant recognition from FIFA. It will then have one vote at FIFA congresses, same as Germany and Brazil, the regular world champions. FIFA has 209 members. There are not 209 countries in the world (the United Nations has just 193 members, for example). ‘Countries’ such as Andorra, San Marino, the Faroe Islands and numerous others are FIFA members. The smallest member in population terms is Montserrat, home to 5000 souls. These ‘countries’ are not regarded as eligible for membership in any serious international organisation, since they are not fully-fledged states but remnants of the Dutch, British and French empires. FIFA member Liechtenstein is a remnant of the Holy Roman Empire. It is not difficult, or costly in the overall scheme of things, to re-distribute rents to these minnows to ensure their loyalty. This is the first part of the explanation for Blatter’s repeated majorities.
Economics: The second part is the simple fact that FIFA has had, for the last four decades, quite a lot of rents to dish out. Without economic rent there is no pot of graft. The rent source is a monopoly, the World Cup: it has become, through TV rights and sponsorship, a huge money-spinner. The players, who tend to take the lion’s share of the earnings available in all other major sports, get paid very little for national team appearances. If they wish to play international football at all, they have little bargaining power. Once committed to a national team, usually the country of their birth, they cannot threaten to desert to someone who pays better. If they could, Saudi Arabia would win the World Cup. Most professional football clubs do not make profits: the players, and their industrious agents, make sure that most of the revenues flow through to the performers, which is what happens in every other branch of the entertainment business. In football the World Cup revenues flow to FIFA, an opaque and unaccountable organisation whose leadership is free to perpetuate itself through buying the small national associations around the world. These national bodies in turn have weak, or no, corporate governance. With one brave bound, the money is free.
It is the combination of equal votes for all with billions of unearned revenue dished out behind the curtain which has created the FIFA monster. This is corruption by design.
The June 2015 Fiscal Assessment Report from IFAC is here.
Some commentators wrongly claim there is little value in the long and (moderately) expensive banking inquiry. There is much to learn from the inquiry. One important message can be gleaned from the testimony of Central Bank and Financial Regulator executives this past two weeks: the coalition needs to appoint a first-rate economist (like Honohan) as his successor as central bank governor. The coalition should scour the globe and not compromise on analytical firepower.
Brian Lenihan pushed through the appointment of Honohan against the tradition of promoting someone from the senior ranks of the civil service. If the tradition had been followed, the Irish economy might still be wallowing in financial instability. A central bank governor without first-rate economic expertise could have made a total hash of the financial restructuring and recovery programme of the last five years. For example, a former senior civil servant would not have made the phone call to RTE Morning Ireland in November, 2010, getting the Troika programme quickly started. Other painful actions taken in recent years, such as the PCAR and PLAR exercises, and the time-consuming and expensive improvements to the financial sector database, might have never started or been botched. The job requires a highly-competent, well-trained and experienced economist. Read the rest of this entry »
In his testimony this morning, Patrick Neary explained that the mandated bank lending sectoral concentration limits, which were seriously breached by the Irish banks during the credit bubble, could not actually be enforced since they were guidelines rather than rules. This distinction between guidelines and rules has eerie similarities to a classic scene in The Pirates of the Caribbean, where pirate captain Hector Barbossa (Geoffrey Rush) explains to Elizabeth Swann (Keira Knightley) the flexibility of The Pirates Code.
By Philip LaneMay 19th, 2015
Speech by Lars Frisell here.
By Liam DelaneyMay 14th, 2015
Queen’s University Belfast have just launched a new blog at http://qpol.qub.ac.uk/ (via Muiris MacCarthaigh).
QPol is the ‘front door’ for public policy engagement at Queen’s University Belfast, supporting academics and policymakers in sharing evidence-based research and ideas on the major social, cultural and economic challenges facing us regionally, nationally and beyond.
Our over-arching vision is to share the University’s independent expertise with policymakers so they can make informed decisions about the most effective and sustainable ways to tackle these challenges, now and in the future.
Our mission is to:
Facilitate the provision of independent evidence-based advice, guidance and information to policymakers, ensuring that policy formulation and law-making are informed by world-class research emerging from the University
Ensure Queen’s as it the heart of the public policy discourse, shaping and driving the debate on emerging challenges, helping policymakers to think ‘longer term’ and more strategically about the challenges facing us today
Cultivate and encourage engagement between the academic and the policymaker through effective methods of communication and mutually understandable language
Accelerate the socio-economic impact of research relating to public policy issues at Queen’s and raise awareness of the influence of the University’s research on government policy and legislation
We want to inspire intelligent debate between democratic institutions, academia and wider society in a vast array of policy areas including the economy, public health, social justice and more.
By Philip LaneMay 13th, 2015
By Ronan LyonsMay 13th, 2015
The topic of mortgage arrears remains close to the top of the political agenda, with the Government set to announce measures today on the issue. Next week, we are very fortunate to have in Dublin one of the world’s leading experts on housing markets, arrears and foreclosure, Fernando Ferreira of Wharton Business School at the University of Pennsylvania.
The Policy Institute, based at Trinity College Dublin, has organised a mini-conference on mortgage arrears for the morning (9am to 11.30am), next Monday 18th May in Trinity College Dublin (JM Synge Theatre, Room 2039, Arts Building). The mini-conference centres on factors influencing mortgage arrears and repossession and focuses in particular on the US and Irish experiences. Speakers include Fernando Ferreira (Wharton & NBER) and Yvonne McCarthy (Central Bank of Ireland). There will also be a panel discussion and time for questions/comments from participants.
All welcome with no need to register.
It is Dark Forces, after all.
Jean-Claude Juncker, the European Commission president, has finally terminated the endless speculation as to the source of the Eurozone’s travails. In a speech yesterday he has fingered the likely source of any threats to the survival of the common currency subsequent to a Greek exit.
Speaking to an audience at the Catholic University of Leuven in Belgium, Jean-Claude Juncker said a “Grexit” would leave the euro prey to forces who “would do everything to try to decompose” what remained of the monetary union.
“Grexit is not an option,” said Mr Juncker.
“If we were to accept, if Greece were to accept, if others were to accept that Greece could leave the area of solidarity and prosperity that is the Eurozone, we would put ourselves at risk because some, notably in the Anglo Saxon world, would try everything to deconstruct the euro area piece by piece, little by little.”
His spokeswoman clarified that the reference to the Anglo Saxon world was not aimed at Britain but was to be construed as a reference to ‘markets and speculators’.
It should be a great relief to all, especially Greeks, to learn that the Eurozone is an ‘area of solidarity and prosperity’. The news that the dystopia of ‘markets and speculators’ is confined to the Anglo Saxon world is a further comfort.
Most importantly if the Great Experiment ends in tears there will be no need for an inquest. It was the Anglo Saxons!
Anyone remember Harold Wilson and the Gnomes of Zurich?
By Philip LaneMay 5th, 2015
The Economic and Social review has been working over the last number of years to make the full archive of published ESR papers freely available to the public. The archive is hosted by the TARA digital repository at TCD and all papers published in the ESR beginning with the first paper by R.C. Geary in 1969 up to and including forthcoming papers are freely available for download. We believe the archive is an important resource for Irish economists.
The archive can be found here.
Patrick Honohan will formally launch the new archive at a short event immediately following the ESR lecture which will be held on May 7th at the Irish Economics Association conference in the Institute of Bankers in Dublin
The ESR lecture will begin at 3.30 and will be given by the distinguished development economist Professor Christopher Udry from Yale. The launch will be at 5pm.
We hope all those attending the conference can join us for for both the lecture and the launch.
By Liam DelaneyMay 3rd, 2015
The literature on behavioural economics has set off a very interesting debate on the extent to which policy-makers should intervene to improve outcomes in cases where individuals are potentially harming themselves but not others.
A paper by Camerer et al in 2003 put forward the case for asymmetric paternalism whereby policy could potentially help individuals who are not making rational decisions, while not infringing on others. An example is pension auto-enrolment whereby individuals procrastinating on pensions decisions are helped in the process of saving while those who genuinely do not want to take out a pension are not forced to.
Sunstein and Thaler added the idea of Libertarian Paternalism to the literature whereby policy-makers strive to improve outcomes (paternalism) while also placing a high weight on freedom to choose (libertarianism). The now-famous book Nudge is an expression of this philosophy and has had a dramatic impact on policy-makers in the US, UK and to some extent Australia and is being discussed at least in the Irish policy environment.
A big debate is ensuing around Nudge with some claiming the philosophy is too interventionist (see Sunstein’s Storr lectures for a list of these critiques and also his responses – see also a reading list I put together here).
Another line of argument is that Nudge artificially restricts the application of behavioural economics to non-mandated policy interventions. A recent Harvard Law Review piece by Bubb and Pildes examines three areas of policy (financial regulation, fuel pollution and consumer credit regulation) and makes the case that the behavioural evidence does not support soft-paternalist policies but rather a more interventionist approach. In particular they argue that there is a large tension between the evidence provided by behavioural economics and the political position being advocated by many of its adherents. In their view, the bounded rationality displayed by citizens leaves them far more open to exploitation and also far less likely to respond to soft-policies to improve their welfare. They cite an extremely interesting article by Lauren Willis in the University of Chicago Law Review, who argues that Nudges are insufficient in cases where large corporations have incentives to counteract them and she gives a detailed case-study from US financial regulation where financial companies quite easily ran around various default options embedded in consumer protection regulation. She argues that mandates and generally more active regulation is needed in many cases due to the degree of control that the regulated firms have over how to implement “nudges”.
Sunstein’s response to this is available here where he argues that it is important to respect people’s freedom of choice and that it is unclear yet that nudges are ineffective in the face of counteracting moves by vested interests. He argues that, while in some cases mandates may turn out to be neccesary and more effective, this should at least partly be an empirical question and should not ignore the importance of autonomy.
This debate is important in the Irish context. There are many areas of policy where policy objectives lead to tensions between implementation of effective policies and the autonomy of individuals to choose. In cases where individual actions lead to costs to others then traditional economics and regulation is on more solid ground. But when there is active debate about how to reduce health-damaging diet and consumption patterns, promote greater pension coverage and other policies effectively aimed at improving individual welfare through changing their behaviour then this debate is very important and interesting. It also hits against the idea that behavioural economics is an attempt to individualise wider social and economic problems. In this debate, there is a clearly interesting tussle between the interests of large companies, the decisions of boundedly rational households and the political factors that lead to the mandates of regulators. It provides an interesting and realistic way of debating policy and regulation.