Colm McCarthy on the Fiscal Position

Colm McCarthy’s presentation to the Green Party conference this weekend is available here.
McCarthy Green Conference March 7th 2009

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7 replies on “Colm McCarthy on the Fiscal Position”

Lets hope the govt listens to this reasoning. Am I right in assuming that the airport metro madness is gone now? I’ve heard a €5bn figure doing the rounds – seems utterly insane. You could charge €25 a return ticket and still need 200m people to use it to get to the airport before it pays itself off (I’m aware that this is oversimplified, but still…)

Alas this will prove to have been a waste of time and energy by Colm, I suspect.
@Marcus : this simplification of course doesnt take into account the second order benefits. I heard the same arguments being trotted out again the Dart and against most town center bypasses in the 80’s.

Colm, very interesting presentation. I have doubts about the particular just-in-time argument you make for deferment, however. I am not convinced that the slowdown leads to the optimal deferment of projects that are deemed to have positive net benefits. To do so would be to add to the procyclicality of fiscal policy. An alternatiive arugment, which may be partly what you have in mind, is to emphasise the uncertainty of net benefits in an environment where cycle and trend are very hard to distinguish. Standard “option value of waiting” arguments could then support raising the hurdle rate on projects, effectively leading to deferment until more positive information on their net benefits is available.

John, just-in-time and your option-value-of-waiting will give the same answer in many cases I suspect. Some lumpy-investment cases are simple: an airport runway will handle x flights per hour, a road y vehicles. You either need it or you don’t, and the slowdown says you need it later. Cases like R & D investment are less obvious, but the stream of returns surely looks less certain. On cycle versus trend, the source of the reduction in prospective volume is irrelevant for the just-in-time argument. Cycle and trend are not always hard to distinguish – we can be pretty sure that the bubble-related activity is not coming back and it can be roughly quantified (in construction, for example).

If current voted exchequer as a % of GNP is further broken down between transfer payments and actual consumption of resources, what are the trends?

Antoin, the Revised Estimates volume, giving final out-turn for 08 and latest forecasts for 09, will be out in a couple of weeks. It will likely show that the % transfers is rising in 09.

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