The Irish Economy

I’m almost reluctant to write about this topic because of the level of hysteria that it provokes. Still, we cannot deny that a national public sector strike is an important topic worthy of debate on this blog.

My overall reaction is that the debate about public sector pay is descending, perhaps predictably, into a damaging battle between vested interests. There is much to dislike on both sides of the debate.

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The Climate Research Unit (CRU) of the University of East Anglia is a leading research centre on climate change. They are known for the data that they provide, particularly their estimate of the annual, global mean surface air temperature since 1850 or so. One of their servers was hacked and some 1000 emails and 3000 documents were stolen, most of them 10 years old. These emails were posted on the web, and are now being scrutinised by every one who has a grudge against climate change or climate policy, and against people who harbour such grudges.

What has emerged? There is a lot of chit-chat, and bitching about colleagues (with perhaps ground for a defamation suit or two). There are attempts at blocking other people’s careers, but no signs of success. There are hints of data manipulation. None of this surprised me. There are also indications of a systematic obstruction of freedom of information requests.

What does this mean? Not much really, although some people may end up in jail for stealing data and others may lose their jobs for breaking legal and academic rules on transparency.

Doubt has been cast over the CRU data. Insiders never really trusted their data, and it is actually little used as an input to other climate research. The global mean temperature record is used for communication rather than research. Most of the temperature graphs you have seen in the newspaper are from the CRU, but independent research has corroborated their main findings. Statistical analyses similarly have used alternative data series, and the results are broadly the same.

Some people have portrayed the climate debate as noble scientists versus savage businessmen. That image is now shattered, but it was pretty naive anyway. There are bad apples on both sides of the debate.

So? Objectively, nothing has changed. Climate change is still real, and still a real problem. A carbon tax is still the right policy. Subjectively, things are different. It is harder to argue that wise scientists of impeccable standing recommend action. Proponents of climate policy have to make a real case. I do that here.

UPDATE (26 Nov)

This story keeps growing. The latest person to get entangled is John Holdren, the science and technology advisor of President Obama. While Holdren’s email contains nothing untoward (in fact, he’s remarkably patient and polite), it does demonstrate a closeness between Holdren and people who are tainted.

Another new development: One of the CRU emails has language that may be read as financial irregularity.

UPDATE (30 Nov)

CRU has belatedly agreed to open its data bases.

It appears that it deleted duplicate records. While that is fine for archiving reasons, combined with the poor documentation of CRU’s algorithms, it does imply that the CRU’s homogenized data cannot be reconstructed.

UPDATE (2 Dec)

Penn State U had already announced an internal inquiry into the conduct of Michael Mann, citing the results of an earlier inquiry (but omitting the results of another) in its press release.

U East Anglia has now also announced an internal investigation, and Phil Jones (whose mailbox was hacked) has temporarily stepped down as director.

My prediction that the mainstream media of Ireland will soon report on this matter, is unfounded.

The government caps the pay of bank Chief Executives but not of their more junior colleagues, leading to AIB’s creation of a new post of “Managing Director”, presumably in an attempt to exploit the loophole.  The comedy of errors continues.

Patrick Honohan warns that banks need to be able to offer competitive remuneration packages.  But don’t Irish banks need to return to the much more staid banking practices of decades ago, and will have the regulators looking over their shoulders to ensure they do so?  It is not clear to me that these institutions will require Goldman Sachs-type globetrotters as CEOs; I suspect there must be many people capable of performing these functions, whose opportunity costs would be well below the level of the cap.

On a tangentially related point, I see from yesterday’s Sunday Tribune that Maurice Manning, as President of the Irish Human Rights Commission, earns a higher salary than the Taoiseach.  Much less responsibility, and this salary has to be well above Manning’s opportunity cost (as a former middle-ranking academic and senator).   No global competition arguments apply to such political appointments.  Definitely something wrong here.

Bruegel has published a new briefing note on the role for policy in encouraging ‘green’ innovation: you can read it here.

William Easterly reports on a plan to help a small but symbolically important part of the Irish economy. I particularly liked the fourth suggestion.

Here is an uplifting story from the Bundesliga, of all places. First the Germans play attractive football in 2006, and now this. It is all very unsettling.

Right, back to the Cup Final.

When addressing the issue of raising income taxes, two objections tend to come up. The first is that the combined marginal tax rate (including PRSI and levies) is already up to 54%  (see page 161 of the Commission on Taxation Report) and this marginal tax rate kicks in at fairly low incomes. Further increases in this marginal tax rate are likely to trigger increased tax avoidance and can also have negative side effects in terms of work incentives.

The second objection is that we don’t want to raise taxes on low earners because they already don’t make much money and we have to be careful about not creating poverty traps in which people are better off earning unemployment benefit than working (Suzanne Kelly’s Irish Times article on this presented some interesting calculations.)

One way to address these objections is to introduce a flax tax with a large exemption limit. This would keep the lower paid out of the tax net and keep marginal tax rates from reaching dangerously high levels. But this approach could raise additional revenue, essentially because it would abolish the 20% tax band.

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I’ve written about the Green New Deal before. Here’s my main points in a nutshell:

1. Stimulating renewable energy creates jobs in the renewable energy sector.
2. Stimulating renewable energy destroys jobs in the non-renewable energy sector.
3. Renewable energy is more expensive than non-renewable energy. Stimulating renewable energy therefore reduces competitiveness. This slows down economic growth and job creation.
4. 2+3>1, so stimulating renewable energy destroys more jobs than it creates.
5. The jobs created depend on subsidies and other forms of government protection.
6. There is little chance that Ireland will ever become a net exporter of energy at a significant scale. Anything we can do with wave and wind, the Scots can do too, and they will always be closer to the market.
7. There is little change that Ireland will ever become a net exporter of intellectual property on the renewable energy generation. Our current strenghts in R&D do not match the required skills, and countries that do have the required skills already are developing new energy technologies as well.

Why does this bear repeating? Well, Labour just promised 80,000 jobs while Commins et al. just reconfirmed the negative impact of energy taxes on employment.

Previous posts on the Green New Deal are here and here.

Minister Gormley just released a 1232 page review of waste policy. The press release is short and vague, but it does announce an increase of the landfill levy to €75 per tonne in 2012. It’s €15/t now, so that’s a 400% increase. The average price at the landfill gate is about €140/t. This will go up to €200/t, a 43% increase. Curtis et al. show that the effect on the volume of waste is small.

The press release also announces an incineration levy of €20-38/t. I do not know the details of the contract between Dublin City Council and Coventa/Dong, so I do not know whether its Dublin taxpayers or C/D shareholders who will be paying the annual €12-24 mln.

The summary report has a number of recommendations:

1. More waste separation at source (7 bins for you), and improved collection of recyclables from homes
2. Nonlinear waste charges applied at the county level (i.e., you will pay if your neighbours have too much waste)
3. Stringent targets for recycling (we won’t be soccer champions, but we’ll beat the world on this)
4. A ban on inter-county waste trade (this complies with WTO rules)

And this will of course cut emissions, create jobs, and save money.

A more detailed assessment will follow shortly.

Question for the readership:  has Thierry Henry provided a boost to the Irish economy, by ensuring that the Irish football team (and the travelling band of supporters) will not be in South Africa next summer?