More Human Economics

I wrote previously on the potential relevance of behavioural economics to policy. The programme for the AEA conference this year reveals the extent to which academic economics is attempting to augment traditional models with insights from psychology. Recent popular books such as Nudge by Thaler and Sunstein, Animal Spirits by Shiller and Akerlof and Basic Instincts by the ESRI’s Peter Lunn have served to bring these ideas into the public sphere. Another upcoming book by Akerlof and Kranton attempts to bring the literature they have developed on Economics and Identity more squarely into economic debate (see George Akerlof’s IDEAS page for many of the papers the book is based on). The drive to make economics a more human discipline is discussed briefly here as a positive development by Angus Deaton. Deaton primarily addresses the issue of cognitive biases and there is a growing consensus that information processing limitations should be worked into economic models. However, the challenges posed by integrating constructs from areas such as neuroscience and identity theory are theoretically more fundamental and practically more difficult as they involve languages that most economists simply have never used or considered relevant to their domain. My point in posting this brief post is to encourage people interested in how economics relates to policy to begin to consider these academic influences and what they may imply in Ireland. The economic response to the current recession in Ireland relies in no way at all on any of these new literatures and our approach to training economists and finance professionals has largely remained unaltered by them. A good debate about how seriously we should take these literatures for policy is timely.

2009 Trade Statistics

The Irish Exporters’ Association has just published its end year review for 2009. It has some useful tables showing the sectoral and destination breakdown of both merchandise and services exports – the latter are now 44% of the total. The overall picture is well known, but some of the details are revealing. While overall exports (merchandise + services) fell by just 1%, the declines were 9% for the indigenous sector, 14% for food and 21% for drink. The IEA itself concludes that when the Life Sciences sector is excluded, exports fell by €6.1 billion making it one of the worst years on record for traditional Irish manufacturers selling on export markets. It foresees 2% growth in exports next year, with most of this coming from the services sector.

Green Strategy

Michael Casey has an interesting piece in today’s Irish Times.

Two comments: Don’t believe everything that Bjorn Lomborg says about me.

Casey is a bit too pessimistic about Ireland’s potential for research. Ireland does not have the scale to revolutionise global energy supply; and Irish politicians are betting on technologies that are either a very long shot (wave power) or more likely to succeed elsewhere (electric vehicles). But research in Ireland can make some small but useful contributions. Integration of renewables or advanced biofuels are two examples.

Seminar Enviromental Policy for Ireland

Seminar on Environmental Policy for Ireland

Venue: Economic and Social Research Institute, Whitaker Square, Sir John Rogerson’s Quay, Dublin 2, Ireland

Date: 14:15-17:30, February 18, 2010

Programme

14:15-14:20 Welcome

Michael Lehane

14:20-14:30 The ISus project

Richard Tol

14:30-15:00 What should replace MoneyPoint?

Laura Malaguzzi Valeri

15:00-15:30 Waste policy

Paul Gorecki and Sean Lyons

15:30-16:00 Break

16:00-16:30 Tax reform, scrappage, and electric vehicles: The future of Irish cars

Hugh Hennessey and Richard Tol

16:30-17:00 Corporate expenditure on environmental protection

Liam Murphy and Richard Tol

17:00-17:30 Hedonic value of green space

David Duffy, Sean Lyons, Karen Mayor and Richard Tol

Entrance is free. All are welcome. For planning purposes, please register if you intend to attend this seminar.

Tax Breaks and Tax Rates for Top Earners

There has been a lot of discussion in recent months about the scale of tax reliefs in Ireland and I’ve been planning to write a couple of posts on this topic. In relation to this issue, an opinion that is commonly expressed by leading figures in the Irish media is that the very richest in Ireland pay very little in tax because of these reliefs.

Continue reading “Tax Breaks and Tax Rates for Top Earners”

Nuclear power in Ireland

John Gibbons calls for nuclear power in Ireland in today’s Irish Times.

There are all sorts of issues with nuclear power. In the medium term, nuclear power cannot expand much because of constraints on manufacturing capacity (particularly of vessels) and on the number of nuclear engineers. More generally, the big issue with nuclear power is neither waste nor security (both of which are largely under control if you employ qualified people), but proliferation. As there are more nuclear power stations and more nuclear engineers, chances rise that nasty people will get their hands on a dirty bomb or worse.

Nuclear power is irrelevant for Ireland. Nuclear power provides baseload. The current baseload power station, MoneyPoint, will retire before 2025. You cannot plan, permit and build a nuclear power station in less than 15 years. The next opportunity for nuclear in Ireland is when MoneyPoint’s successor will retire, around 2065.

Besides, nuclear and wind power do not mix well, because the amount of wind that Ireland is committed to requires a power plant that is more flexible than nuclear can be.

NTMA Review of 2009

The NTMA has released its review of its 2009 activities. Link here.

In relation to the coming year, the report says that “The NTMA plans to raise up to €20 billion in the bond markets in 2010. This requirement is significantly less than in 2009 because of a smaller projected Exchequer deficit of €18.7 billion and a lower refinancing requirement of €1.2 billion.”

These figures do not include any allowance for any borrowing that may be triggered by bank recapitalisation requirements. That said, the National Pension Reserve Fund had a good year thanks to the rise in international stock markets and its value now stands at €22.3 billion. Excluding the €7 billion held in preference shares in AIB and BOI, this leaves €15 billion that could, potentially, be used to recapitalise the banks without borrowing.

Cool Dublin

Last year I posted an entry calling attention to the weak evidence of an upward trend in the temperature data for Dublin. As we learned from the debates about climate data before the Copenhagen Climate Change Conference, it is important for scientists to explore data that do not neatly fit their models. So I thought it would be worth adding another year to the material I posted last year. All but the most recent data are taken from the CSO database. For recent months I have used the Met Éireann data.

In 2009 the average temperature recorded at Dublin Airport was 9.5 degrees C, the same as that reported for 1958, the first year in the CSO’s database. The average for the thirty-year period 1961-1990 – used by Met Éireann to represent the long-run – was 9.6 degrees C.  The year 2009 was the second in a row when the average temperature was at or below the long run average.

There was no very warm weather in Dublin during the last two years. The highest temperatures recorded in both years were in June – only 22.3 degrees in 2008 and a somewhat better 24.8 in 2009.  Back in August 1990 a torrid 28.7 was recorded.

The warmest month in both 2008 and 2009 was August, with the same average temperature of 15.3 in both years. These values are low compared with July 1989, the warmest month since 1958, when the average was 17.9 degrees.

Last winter (December 2008, January and February 2009) was cold in Dublin, with an average temperature of 4.6 compared to the long-run average of 5.9. As we are well aware, December 2009 was very cold, with an average of 3.9, but the month was not as exceptionally cold in Dublin as in other parts of Ireland. A lower monthly temperature (3.7) was recorded in Dublin as recently as February 1996. However, record lows were recorded around Christmas and the New Year and into January 2010, so if things don’t warm up soon this winter (December 2009, January and February 2010) is set to break the record lows for Dublin too.

In December 2009 many newspapers carried headlines to the effect that the first decade of the twenty-first century was the warmest on record in many countries. Not so in Dublin, where the 1990s were fractionally warmer than 2000s. However, the variation between decades is very small – the standard deviation for the averages of the five decades since 1960 is only 0.21 degrees, compared with 0.42 for the fifty years of this period. The 1960s were relatively cold – average temperature of 9.4 – but since then the decade averages have only varied between 9.7 in the 1970s and 10.0 in the 1990s. The relatively low temperatures recorded in the 1960s prompted a lot of discussion of global cooling.

As shown in my previous post, the evidence of an upward trend in Dublin’s temperature is weak. The graph below shows the annual averages over the 52-year period 1958-2009. As noted above, the series actually ends up in 2009 where it starts in 1958, at 9.5. In most statistical analyses it would be hard to maintain the existence of a significant trend if over fifty years the series reverted back to where it started from!

In fact, for the whole 52-year period there is weak evidence of a statistically significant positive trend:

TEMP = 0.0097 (YEAR-1958) + 9.5163 R² = 0.1189

However, the relationship is unstable between sample sub-periods. This is illustrated simply by splitting the 52-year period into two halves. The result for the first sub-period (1958-1983) is

TEMP = 0.0144 (YEAR – 1958) + 9.4553 R² = 0.0796

The result for the second sub=period (1984-2009) is:

TEMP = 0.0062 (YEAR-1958) + 9.8118 R² = 0.0121

which is not significant at any of the usual levels.

There seems to have been a shift in emphasis from temperature to rainfall statistics in commentaries on Irish weather patterns. This is natural given the wet summers of 2008 and 2009 and the flooding during last November. But the rainfall at Dublin Airport last year was only 25% above the long-run average and well below the levels recorded in 2002, 1966, 1960, and 1958. There has been no significant trend in yearlt rainfall over the past fifty-two years.

Observations for fifty two years at one weather station may not have much significance for global weather/climate trends, but the lack of evidence for warming in Dublin surely merits more attention than it receives in Irish discussions of climate change.

CSO Seminar on the Use of Administrative Data

Administrative Data Seminar – 22nd February 2010

– An added dimension to Official Statistics

Seminar Programme is now available.

Venue: Dublin Castle, Erin Room, Dublin 2
Time: 13.30
Date: February 22, 2010
To Register: Email: corporate.support@cso.ie
or
Contact: Sabrina Bowen @ 021-453 5495

The Central Statistics Office has for many years now been using administrative data to broaden the range, scope and depth of analysis that it can provide to support evidence based policy making. The seminar will highlight some of the achievements to date in this domain and hopefully provide a focus for further developments. The recently published NSB strategy highlighted the need to focus on the development of administrative data holdings and to accelerate the development of a coherent “whole-system” approach to official statistics that links CSO generated statistics with administrative data holdings.

The broad objectives of the seminar are

  • To promote enhanced engagement from stakeholders in the Irish Statistical System by providing concrete examples of the benefits that exploitation of administrative data and matching/linking of sources can provide;
  • To inform stakeholders of current activities and the potential benefits to them (e.g. greater range of statistics, more in-depth analysis, reduced respondent burden, more timely statistics ) from these activities;
  • To highlight what can be achieved when the necessary statistical infrastructure (unique identifiers, postal codes etc.) is in place right across the system.

Continue reading “CSO Seminar on the Use of Administrative Data”

2009 Exchequer Deficit

The December Exchequer returns have now been published. The Exchequer deficit for 2009 was €24.6 billion, almost twice the level recorded in 2008. That said, the figures came in a bit better than most people expected a number of months ago, which is good news.

As an aside, I’d note that this outcome clearly falls somewhat short of the “close to €30 billion” deficit mentioned in the letter signed by the 46 economists in August. As I noted at the time, I think this was pretty reasonable in the context of what was known then. Of course, this figure was not an important part of the letter. The substance of the letter related to NAMA and the only point of the deficit references, as I understood it, was to put the risk of NAMA losses in a context.

I have little doubt now that the comments section here will soon contain denunciations of the famed “46” declaring them to be all sorts of evil. But then flame-throwing trolls are an unfortunate part of any blog that allows comments.

Iceland’s President refuses to sign Icesave deal

Iceland’s president refuses to sign the Icesave deal, which would pave the way to reimburse Britain and the Netherlands for nearly €4bn lost in a failed Icelandic bank. According to the FT he took this decision as it was “in the interests of democracy to put the legislation to a referendum, given the importance of the issue to Iceland’s future”.  NAMA would seem to be similarly important to Ireland’s future?

Low Quality of Irish Universities Confirmed

I’ve been patiently waiting for a response to, or even a report in Ireland of, the  publication of the 2009 Shanghai  Jiao Tong Academic Ranking of World Universities.  See http://www.arwu.org/indexs.jsp.  Could this possibly be a case of socioanalytic denial? 

This is by far the most widely used ranking in the world for three reasons.  It is almost impossible to ‘game’. It is used as an information tool by internationally mobile students.   It is designed to honestly assess the evolution of the relative position of Chinese Universities: we know it’s honest because they don’t score well.  

There have been enthusiastic references in the Irish media and in this blog to other university rankings.  This is because some Irish universities appear to be important in these.  But you should be suspicious: they also rank many British universities well above obviously superior US institutions.  The apparent success of some Irish Universities is a by-product of this ludicrous outcome.

Go on:  check it out.  Has the Portarlington Institute for Science and Society got the recognition it deserves?

Insider Stories from Iceland

The literature on the Icelandic crisis is growing.  While the report of the ‘Truth Commission’  is eagerly awaited, it is also very interesting to read insider accounts of the crisis.

I found Why Iceland?: How One of the World’s Smallest Countries Became the Meltdown’s Biggest Casualty by Asgeir Jonsson to be an excellent read.  Jonsson was the Chief Economist at Kaupthing Bank.

A new release is Frozen Assets: How I Lived Iceland’s Boom and Bust, which is written by Armann Thorvaldsson, a former CEO at Kaupthing in the UK.

While it is illuminating to read such insider accounts,  it is also important to recognise the inherent trade off:  such individuals have access to non-public information and can provide a unique perspective; however, by the same token, the interpretations offered in such books are not necessarily fully balanced.

Still, it would be very helpful if senior figures in the Irish banks provided such insider accounts of the boom and bust in the Irish banking system.

Sovereignty and climate change

John Bruton has a peculiar piece in the Irish Times of last Saturday. He argues that there are so many externalities between nation states that countries should grant their sovereignty to a “new system for global decision making”. Bruton puts climate change forward as his main argument.

Bruton makes two factual mistakes: “The failure of world leaders to come up with a meaningful and binding agreement on climate change at the long-planned meeting in Copenhagen means that the binding, if incompletely applied, agreement in the Kyoto protocol will now expire and will not be replaced in time, if ever.” The targets in the Kyoto Protocol will expire in 2012, and the rest of the Kyoto Protocol has no sunset clause. There are three more major international meetings scheduled before the Kyoto Protocol expires, in 2010 (Mexico City), 2011 (Johannesburg) and 2012 (location to be decided).

He also write that “many in the US Senate are still wedded to the idea that international rules should not bind the United States and should never override US law.” Once ratified, an international treaty is binding in US law, and it is exactly because of this that the US is so reluctant to ratify international treaties. EU countries happily sign up because rules will be ignored if inconvenient — the “growth and stability pact” of the monetary union being a prominent example.

The main flaw in Bruton’s analysis, however, is the apparent assumption that, if the USA and China were to give up their sovereignty over their energy, transport, industrial and agricultural policies, they would follow the European aspirations for a low carbon economy.

If the “new system for global decision making” would be in any way democratic, chances are that Europe would be forced to abandon its visionary climate policy and focus on things that matter now to the majority of the world population, such as clean water, enough to eat, and freedom from infectious disease.

It is our sovereignty that allows our pretensions as planetary saviours.