Here is a picture, taken from a paper by Ben Bernanke, which anyone resisting wage cuts in the Irish context today needs to take seriously. These are countries which (mistakenly) stuck to gold until the bitter end. Like ourselves, therefore, they did not have the option of devaluing. (No, I am not saying we should leave EMU.) The more wages fell, the less output declined. (And yes, the result comes through in regressions which control for other stuff.) The question today is, do we want to end up looking more like Belgium, the Netherlands or Poland, or like France and Switzerland?
Month: January 2009
This is interesting.
The Irish Times has a new series on this topic, with articles commissioned from ‘leading’ (always that word) economists. Today, it is John Fitzgerald: you can read his views here.
A series with a similar theme but a very different set of contributors ran back in August. Here is a partial list:
Sean Quinn (August 11 2008): here.
Derek Quinlan (August 12 2008): here.
Philip Lynch (August 13 2008): here.
Denis O’Brien (August 14 2008): here.
Michael O’Sullivan (August 20 2008): here.
Mark Fitzgerald (August 21 2008): here.
An indication of the pressures on Ireland’s competitiveness is provided by the Harmonised Competitiveness Index, the December figure for which has recently been released on the Central Bank website. While the real HCI had been falling gradually since the early part of the last year (a rise in the indicator implies a disimprovement in competitiveness, while a fall in the indicator indicates an improvement), the December figure jumped upwards by 4.0% over the previous month, largely due to the appreciation of the euro particularly against sterling. The Dec 2008 value of 126 puts us back where we were at the beginning of last year.