There is a strand in what passes for policy discussion which goes like this:
(i) There is an acknowledged problem in some sector or policy area;
(ii) the Government could do something to ameliorate this problem;
(iii) QED the Government should do something, not always specified.
The result of this line of attack is policies like the Car Scrappage Scheme, of which more anon.
Examples in this morning’s media concern the excess supply of hotels, and the threat of global warming. The Government is being urged to take measures
– to reduce the hotel stock, and
– to support the hydro storage/windpower project called Spirit of Ireland.
Hotel Stock: Hotels are a pure private good. Due to policy-induced capacity expansion, there are now too many. Some are bust, and face receivership/liquidation/NAMA. Room prices are falling. This is the natural market response. Where is the market failure?
It is true that some long-established hotels have seen their business undermined by State-subsidised competition, but this is a routine business risk in an interventionist political culture. Many of these long-established hotels enjoyed State grants for conference/leisure centres when the going was good. The industry is lobbying for some State-run scheme to take out capacity. Doing nothing will cost less and the industry will adjust. Intervening, yet again, will distort adjustment.
Spirit of Ireland: The externality of carbon emissions is addressed by putting a price on carbon, at which point the State can safely adopt a position of technology neutrality. Power generation, once externalities are dealt with, is a pure private good too. Whether these schemes make sense is a matter for the capital market, not for the Government.
Car Scrappage: Car sales have collapsed and some car dealers have gone out of business. The same has happened with €1,000 handbags, and some handbag retailers are struggling. Ireland manufactures neither cars nor handbags. The Car Scrappage Scheme will spend taxpayer money to sustain, temporarily, the retail distribution network for an imported consumer durable. Why not a Handbag Scrappage Scheme? This scheme is plain daft for Ireland. It is not even clear that it makes any sense for car-producing countries – the German scheme appears to have sucked in imports of smaller cars, which Germany does not produce.
These ‘Something Must be Done’ schemes provide harmless entertainment for economists, fodder for the 24-hour news cycle and a playpen for lobbyists. But they contribute nothing to sustainable employment, cost the Exchequer money and hinder the necessary post-Bubble adjustment.
In contrast, the Economics of Doing Nothing is that this is often the best policy, and the cheapest.
92 replies on “The Economics of ‘Something Must be Done’”
@Colm – fully agree.
The construction industry are also still looking to get some kind of stimulus. This sort of approach has been tried elsewhere e.g. Japan has maintained its construction sector by all sorts of construction schemes like building literally 1000s of dams along their small number of major rivers. The dams are now old so they need replacement.
You know my approach to all of this – where is the market failure?
How can we convince the Govt to ‘do nothing’?
Is there a commission that can be set up?
Seriously though, you clearly identify another symptom of the parish and national pump. We didnt vote for politicans to do nothing!
When is the last time a minister stood up and said “We will do nothing”
Would you consider forming a political party??
Theres a seat there in South Dublin…
We need a journalist who can put a positive spin on a photo of a politician caught asleep in the Dail.
reminds me of something that Danny McCoy said when he was doing the ESRI Quarterly Bulletin in respect to one of McCreevy?s budgets “dont just do something, stand there”…
the problem with hotels for example is that several dozen iterations of “doing something”, usually for the best of intended reasons, have left a godawful mess. Part of the “doing nothing” re hotels would involve for instance doing nothing with the banks (thereby forcing them to mark to book the hotel loans).
It was interesting this morning to hear Dr Bacon on the need to foreclose on insolvent institutions, to not allow the government to prop up “zombie” institutions, to allow the market to solve the overcapacity and overproduction of goods and the need to protect the taxpayer. He spoke of course of hotels, not banks…..
There is a clear argument for measures that prevent state interventions distorting markets without justification. Article 106(1) TFEU contains a provision along those lines and is often used to prevent the state favouring its own monopolies at the expense of private sector competitors.
For decades the construction sector and property developers have had many extremely generous tax schemes which were applied without any apparent economic justification or analysis.
At the very least the Competition Authority should be given a role in evaluating the economic impact of these incentive schemes and should be given powers to declare state interventions in markets to be anti-competitive and contrary to law.
I might also add that Article 106(2) TFEU deals with the cases of market failure and allows Member States to define so-called Services of General Economic Interest and entrust such services to undertakings. Common examples are public service obligations and universal service obligations. But given that it is an exception to competition law there are strict criteria which must be met in order to qualify.
One has to wonder if this filter were to be applied to many of the tax schemes over the past, just how many would pass.
Is there a danger that the hotels that survive will be the state subsidised ones. Effectively at the moment your business has a better chance of survival if it was up to its neck in debt at the start of the credit crunch. No Nama reliant bank is going to foreclose. (The foreign banks are making all the running – e.g. ACC and Ulster)
On the other hand if you managed your business well with minimum debt and now find in the downturn you need funds to carry you through the banks won’t lend to you.
The good thing about the motor trade is 70 dealers (some very big) went out of business in 2009 so those that survived would have picked up market share even if there was no growth it would have meant higher sales per dealer.
The banks in the past have effectively been the method by which poor businesses are weeded out by sending in receivers. They’re not doing it this time so it may be the better businesses go to the wall for lack of funds.
Doesn’t allowing companies to sell goods and services at below cost put more viable operations out of business, thereby reducing overall capacity when the loss making businesses are eventually wound up?
The question I would like answered is whether the hotels being run by banks are profitable if you remove the cost of loan repayments. If so then the bank can make a profit running the business. In that case the bank is entitled to profit from the buildings which it paid to construct.
The problem for the other hotels is either (i) that they are paying rent and/or loan repayments putting them at a disadvantage, or (ii) that they are too small to compete with larger hotels which achieve greater economies of scale and which only have to pay staff a minimum wage (as opposed to paying a working owner a decent wage).
If all borrowers had got their banks to sign up to a non-compete clause as part of the loan facility then they would not have this problem. I don’t think the banks would have agreed to it though!
When talking about the merits of “the economics of doing nothing” we should caveat that its success is not measured in terms of ameliorating misery, stress, despair and illness for individuals or in terms of preserving social and political stability and cohesion for the state. Sometimes doing nothing is better for one particular area. However, when nothing is done in one area, one should be able to point to something which is more effective which is being done in another area. We must choose our battles, not abandon the war.
@Zhou – I think with regard to hotels the fear is not so much that there will not be enough hotels once the industry shrinks, but that the wrong ones (less productive) will be left. In the interim it would be in the interest of the banks not to give credit to hotels competing with the ones they ‘run’.
If the banks can save money by keeping the hotels open then surely it will make sense for them to lease or licence the hotels on very attractive terms to private operators in the future thereby preserving their physical asset and minimising their losses. In that scenario, won’t the subsidised hotels ultimately be more productive and viable?
The Car Scrappage Scheme struck me as being something of an “Irish solution to an Irish problem”. I find it hard to imagine that there are very many people driving 10+ year old cars in good working order (must have a valid or recently-valid NCT) who will be prepared to replace them with a *new* car, even at a modest discount, under current circumstances. The person concerned must have owned the scrapped car for at least 18 months. In my experience, at least, those who end up driving cars of this sort of vintage tend to replace them with second hand vehicles.
My guess is that we have ended up with a scheme that keeps the motor industry lobby more or less happy, without costing the rest of us too much, giving us most of the benefits of inaction while protecting the Government from its political costs.
@Zhou – “If” – a big if. Secondly, we know nothing about the other hotels. If they could survive so far they might be more productive than the ones that can’t, ceteris paribus.
However, there is actually ‘the something must be done’ school could do, namely the McCarthy Report. Surely if the recommended expenditure reductions are to be achieved in 2011, the government should be now busy implementing the recommendations so that come budget day the cuts will ready to go.
Surely if this doesn’t happen we’re looking at a sovereign debt crisis.
What is it our government proposing to do for the remainder of 2010? Other than dealing with the banking mess, I can’t think of much.
It was funny last week to hear Bill Cullen berating the young unemployed for looking for handouts when he practically begged for the car scrappage scheme.
‘…….the Economics of Doing Nothing is that this is often the best policy, and the cheapest’
You are of correct, in strict economic terms, but the suffering in the hotel and related sectors is real. Investors, managers and staff see others getting relief, so doing nothing may be very politically costly. After all, governments have been intervening in the economy for centuries. The only issues are when to intervene and how to intervene.
Government actions are not driven directly by economic considerations, even where there is broad agreement on the economic facts. It is the political perception of economic choices, as constructed by the media and other vested interests, which counts. Some steps are represented, and ultimately accepted, as ‘economically necessary’ and therefore obligatory, in the ‘national’ interest’.
A bit of arm twisting, or worse, usually comes into it. Our own goverment process is rather small and incestuous, so fomal lobbying is not that necessary. As is shown in Shane Ross’s recent book, the ‘insider’ system is alive and well. I guess the big stuff is still decided by phone call. All too often, committes are hand picked to give a ‘result’. That’s the way of the Church but it ought not to be the way of our state.
The 30 year deregulation process has resulted in the installation of monopoly private interest at the seat of US, and other, govermental power. Plutocracy is not a new phenomenon, and less government has led naturally to less democracy. Busines is not about freedom, or choice, it is about making money.
We are living out the consequences of implementing Hayek’s doctrine. The necessary antidote for the former communist world has been thoroughly toxic for western democracy. Assymetric information, regulatory arbitrage and capital barriers are manifestly incompatible with a free market. We have a global system of cartels, reminiscent of 19th century imperialism. Anti trust is bust.
It is very difficult for tiny fish to buck the global trend, but our position will remain hopeless while we continue to swallow the myth of ‘free market forces’ uncritically. Freedom begins in the mind, and Polanyi’s 1944 classic The Great Transformation is a useful therapy.
@ Colm McCarthy,
I was going to blog this later, but here is the draft. Pat Rabbite, Labour TD on the radio lately, lost his cool. The one good thing about deputy Rabbite, is you know when he loses it, it must be for some useful purpose. He corrected RTE radio broadcaster Rachel Engllish on a mis-perception, or meme that has being doing the rounds. That our political system is the root cause of all our woes. That meme gained a lot of circulation following the George Lee resignation, and I admit, I probably did encourage it myself. But of course, deputy Rabbite is correct, when he says, the political system is not what has failed. What has failed in Ireland, during the period 2002-2007, was government. Government failed. Which is an entirely different matter. I think it was deputy Rabbite’s 20+ no. year(s) in the chamber, and hear-ing the misperception aired on national radio, which sparked him off.
A member of the ESRI, Francis Ruane, spoke at the Dublin innovation week last year. She used an example of the program to encourage more Phd level education. She mentions the fact, we are good in Ireland at starting off these programs, but there is a need to re-visit them at intervals – 5 years, 10 years and so on. The re-visit-ing part, is where we fall down unfortunately. On the same radio program as deputy Rabbite, was Green deputy Ciaran Cuffe. Deputy Cuffe, was delighted at the progress he has made as a Green TD, while in government. He referred to the fact, he has made more progress in the last 2 no. years than the 25 no. years subsequently. In my opinion, it is selfish on all our parts, therefore, not to allow the Green party, at least some slack, for wanting to continue to be in government.
However, here is the crucial point. I don’t care how many ‘new’ things that deputy Cuffe can get through during his time in office. There is a much greater problem facing this country, from a Green perspective (I count myself as a Green party voter btw). This is where professor Ruane’s point on the Phd programs is crucial to bear in mind. What we have staring us in the face at the moment, is a nuclear bomb, in the form of the DDDA. Which I constructed a ‘forensic’ blog of, to describe, North Wall Quay Time Line. If the Green party can achieve anything useful with their last remaining hours in government, it is this. To drive home the point established by professor Ruane of the ESRI. The DDDA was established in May 1997, by a group of individuals brought together initially by former Taoiseach Charles J. Haughey. Since that time, it has run off the rails.
But here is the twist, in it, from a ‘Green’ point of view. We want organisation(s) such as the DDDA to be healthy, vibrant and progressive. We need long term asset management agencies for all kinds of stuff, from clean energy to spatial planning. But there is absolutely no point in the universe, in deputy Cuffe establish-ing brand new programs, while in government. If he will not submit to the points raised by both professor Ruane and deputy Rabbite. That is why I feel so incredibly disappointed, by the lack of vision in the Green party coalition partners, at the moment. They are not addressing the real problem, they are rather fire-fighting. BOH.
Your well-aimed hits on the economics of “Something Must be Done” lead you to conclude, quite logically, that the economics of “Doing Nothing” is often the better policy, but it allows you to glide over two fundamental questions: why does the economics of “Something Must be Done” seem to dominate the policy discourse – such as it is? And what is required to ensure the primacy of the economics of “Doing Something Sensible” – even if, on occasion, this means “Doing Nothing”?
And I think the power generation issue is a little more complex than you assert – the price of carbon just adds another layer, though you do recognise the role of the capital market. The progressive roll-out of retail competition not just in Ireland, but in the UK and throughout the EU is destroying the ability to convert the long term commitment of final consumers to pay for secure and reliable supply of electricity on demand into bankable long term contractual commitments to finance the provision of generation, bulk supply and network services. These assets are specific and long-lived. Investment in these assets must be underpinned by long term commitments to ensure full recovery. Competing retailers focusing on short-term market share and customer churn are neither willing nor able, on their own, to enter into these commitments. They have no ability to lock-in the customer base whose revenue is required over the long term to enter into these commitments. Therefore, irrespective of the short-term prices in the wholesale market or the capacity payments awarded annually, investors are reluctant to commit the necessary long-term finance – unless some policy and regulatory guarantees are provided.
As a result, power generation is no longer purely private – and this chicken is coming home to roost in Britain – the most private sector-based industry in the EU – and increasingly in other member-states. It may seem like heresy for an economist to contend that competition at the retail level is the problem and not the solution, but short term wholesale markets in which retailers participate- that are often illiquid – provide neither the price signals nor the assurance of investment recovery required.
In terms of curtailing the incumbent’s generation market share, of developing the all-island market and of financing network investment, Ireland has moved out onto a limb – and consumers increasingly are being burdened by the resulting excessive costs. And bigger burdens are on their way to meet the Green Party’s decarbonisation agenda.
We need to go back to some very basic economics to disentangle this mess.
A big “If” indeed. If the hotels are being run by the banks at a loss with a view to preserving asset value for balance sheet reasons then it is a different matter.
One wonders how burdened the other hotels are burdened with bubble debts and expenditure through high rents and/or extensions and refurbishments carried out at bubble prices for construction, materials, land and salaries. If the difference in operating costs/the “subsidy” is accounted for by these bubble debts then the unsubsidised hotels are costing more to run than they should cost.
@Paul Quigley – Colm is writing about the “Economics of ‘Something Must be Done'”, not the politics.
From anecdote (ok, my cousin) in the hotel industry the problem is as described above – smaller hotels that chose to continue as high end/niche players with small LTV ratios are being hammered as there is an asset that can be asset stripped and run at a profit (to the bank, in essence). Larger bubble hotels are with LTV>1 and thus are kept afloat by zombie banks (with your money and mine) to prevent the losses impacting on the banks balance sheet.
Doing nothing may work – if we are consistent. If we intervene in one areathen the law of unintended consequences starts to kick in.
One interesting thing about what is happening in the hotel sector is that the number of bed nights being sold to domestic customers is holding up pretty well despite the recession. There was very little change between 2007 and 2009 (at least based on the first 3 quarters of data), despite the severe problems in the wider economy. I think this is mainly a consequence of steep price reductions and discounting.
While it’s painful for the industry, I think that on balance it is a net positive. It contributes to bringing down nominal prices in the economy, and improving Ireland’s wider cost competitiveness. It probably boosts employment by a bit, even if hotels are stripping out labour in response to lower prices. Lower prices are probably also moderating the fall-off in overseas visitor numbers to some extent, and these visitors spend in other sectors of the economy too.
If we think there’s a real problem with distorted competition, the Competition Authority should be asked to look into it. Otherwise, we should leave it alone.
There was a report on the Sunday Business Post which said the Competition Authority cannot act against the hotel situation since it does not fall within the definitions of anti-competitive behaviour (i.e. an anti-competitive arrangement or an abuse of dominant position).
See my comments above about the lack of regulation of state intervention in the domestic market in comparison for the situation covered by the EU.
Even if the Competition Authority cannot act, I’m sure they would be prepared to undertake an analysis of this industry and advise on the policy implications of their findings, if asked to do so by relevant Ministers. This is a normal part of what they do.
Yes that is true, but time consuming and with no tangible outcome guaranteed. I think it is fairly obvious what is happening etc. so it is not clear what else the CA could achieve.
This Pavlovian response of panic struck politicians was neatly summed up recently on a BBC Radio4 programme as;
“Something must be done, ‘THIS’ is something, let us do ‘THIS’…..”.
What it shows is that the politicians did not understand what they were doing in the first place and went along with it because it got them relected. They don’t undestand the new policy either but latch on to it because it gives them the illusion of ‘looking busy’.
[…] to say it generates more tax revenue. The name of that academic economist? Colm McCarthy. The Irish Economy Blog Archive The Economics of ‘Something Must be Done’ __________________ Romanes eunt […]
The claim is that there is a competition issue that falls short of breaching competition law. When this becomes an issue in other sectors, it frequently happens that the Competition Authority is asked to research the issue, and provide advice. What happens next varies, but at least it is informed by a professional analysis of the issues. Competition policy is complex enough that it’s better to think before acting.
@ Brian Lucey/Colm McCarthy
It’s Danny McCoy is the one who is now in a state of chassis or impotence straddling the interests of big firms, small firms, public enterprises and public agencies.
We had a classic example overnight of an appeal from a vested interest for government attention/action but not anything that would upset the conservative establishment.
IBEC reported on a business survey on the €16bn public procurement system.
The majority of respondents were not happy with a Victorian system that is a conspiracy against the public interest.
The insiders of course favour big firms and small investments in legal bribery such tickets to high profile sports events pay big dividends.
So IBEC pleads for baby steps and despite the economic crash, runs a mile from radical reform such as transparency on all public contracts.
One of the reasons for the traction of the ‘something must be done’ line can have is that there is a big market for bs and the media often fall for fairytales.
Last May, Ray Kinsella, not the Kevin Costner character in the film, Field of Dreams, but a professor at the Smurfit School of Business, wrote in The Irish Times on the Spirit of Ireland power project: “Nothing like this has been conceived before. The logo “Spirit of Ireland” does less than justice to what is envisaged – which is reimagining how our economy and society could be. It is eminently clear from the critical mass of research, drawing on both Irish and international expertise, that this can be done, starting, more or less, now. The economics of the initiative are compelling.”
Maybe or maybe not.
There is a constant flow of “calls” for this and that from the government; professional services institutes demand tax breaks, incentives to improve competitiveness etc. but we could put a cross on the mantelpiece if they provided an input to end the cartel-type charging at this time of peril.
@ Ciaran Daly
There is no capitalist who would refuse a bailout.
Ideology is like religion and insurance.
Ahhh one of my favourite clips
We must do something! … immediately! … immediately!
I didnt get a harumph out of that guy!
Give the governer a harumph!
You watch your ass!
Totally agree. I wrote before about the arbitrariness of teh government scrappage scheme. Why “save” that industry above others?
Perhaps there needs to be a greater articulation of the joys of negative government?
It also shows about the immaturity of the political class that any of them dont have the confidence to stand up and say something like:
“It is wiser to do nothing”
Wouldn’t it be an interesting notion to amend the constitution to require that every act of government had to declare its goals, to describe why these goals were good, to clarify why these goals could ONLY be reached by government action, to require that the government action be the minimum possible, etc.
Laws could be challenged in court if their goals were not good, if their goals could be reached by non-government activity, if their goals could be reached in a less invasive way, if their goals were inadequately described, etc.
One might even add a requirement that every act of government be signed by each minister to accept that if the act had reasonably foreseeable negative consequences then they would take personal responsibility.
After all, CEOs in most jurisdictions are held to higher legal standards than government ministers. SOX in the USA is perhaps a bit OTT, but the point remains that CEOs have to sign, and to take responsibility.
Any of the above suggestions would make doing nothing a whole lot more politically acceptable than doing a random “something”. You’d have to defend and explain the “something”.
Perhaps impractical, but a nice thought experiment nonetheless.
Indeed and the courts could have the power to amend the detail of the legislation on the fly if a loophole was found that was against the spirit of the law. It would kill off the escape by loophole instantly…
Government cannot artificially create situations with Tax breaks and then tell the investors/managers/staff that life is tough and we are going to let a whole labour intensive industry go down the swanee. If the Banks are playing footsy with their own pet Hotel cases well then they must be required by changes in the law if necessary to appoint Receivers or convert the loans to equity and move on. It is never wiser to do nothing. Doing something does not necessarily involve a cost to the State as implied here.
While I agree in principal particularly in the case of the car scrappage scheme and carbon emmissions now is hardly the time to adjust policy in the Hotel industry which will undoubtedly cause major job losses in the short-run and could possiblly be more harmful than if enacted in more favourable economic times.
Oh for a politician, any politician, to stumble on the phrase “benign neglect”.
Hotels are banking/NAMA related so what will happen could well defy any economic rationale.
I suspect that whatever money the government has to spare for exciting new projects will go to Green investment. If not Dan Boyle will be the next Deirdre DeBurca. So the only question is which valleys do we flood?
Couldn’t agree more. The culture of intervention in Ireland really needs to be scaled back. I think it is a culture coming from a people who too readily look to their government when something goes wrong. People don’t learn lessons if you don’t force them too. We are still a market economy right???
You may chose to believe that we are still a market economy if you wish.
However, given what’s been going on in most countries you may want to consider whether the free market is nowadays only permitted to occasionally perturb the taxation and regulation system.
Let’s look at the two cases in question.
The hotel industry has been enormously distorted by bizarre government incentives to build hotels, and this distortion is being maintained by bizarre government intervention in the banking system. It’s almost certainly just tough luck if you invested in the hotel business (which did need investment) before all these bizarre things started happening.
The car “industry” has historically been distorted by a bizarre taxation system and is now being (temporarily) distorted by a bizarre amendment to this bizarre taxation system. Again, tough luck if your car sales business failed because of the previous high taxes, or if you invested in an alternative transport technology, or if you don’t feel you have the money to buy a new car this month.
If there’s a market economy out there it’s getting hard to find.
Meantime, our bunch of elected loons is sitting in an expensive building on expensive salaries deciding which bizarre and destructive thing they can do next.
Market? Pah – who needs it?
I’ve came to the realization that the powers that be reacted with the bank guarantee and NAMA because events dispelled them of their illusion they had the property market here under control.
They had lost actual control years before but weren’t aware of it. They kept making money. so they had to be right, and on top of things?
When the losing streak became prolonged and it became clear they had lost control, they got scared… Others, less connected, had spotted they were out of control and were warning about it…………. Even before the insiders running the show had any idea… Thats what has rattled them.
The political classes and social partners here do not trust the market. Never have, never will. Unless it can be rigged its too unpredictable, too dangerous. Its all right for the kids with the computers but not for me thanks!
So now, they are back in their comfort zone, the economy may be in the dumps but control and order has been restored. The inside track may not be as flush with cash as it used to be but the relative advantage over those on the outside has been restored.
Or so they think.
“In contrast, the Economics of Doing Nothing is that this is often the best policy, and the cheapest.”
Yes, I agree that the scrappage scheme is short term nonsense designed to rescue Bill Cullen from having to sell more penny apples or having to give any more of those dreary ‘motivation’ seminars. They “work for free” gems of wisdom and other such truths that he comes out with for the young people. The other leader suggests that “they have the right to emigrate and enjoy themselves”. You could not make it up!
Hoteliers should not have to fund the interest on NAMA even as it is used as a blunt weapon to bludgeon them out of business. There is absolutely no excuse for state intervention of this sort. These are among the ssues that the EU competition DG needs to examine.
Cowen has tried this policy of doing nothing for nearly 18 months now, doing nothing does not work. We need leadership, granted doing nothing seems infinitely better than the government policies we have had. According to yourself your original report on public sector reform is under lock and key and may even be protected by the official secrets act. The second report is latent and now our leader thinks it might need the establishment of a “junior minister for public sector reform” That sound like a ringing endorsement of a do nothing strategy. Fine, if the junior minister was Mick O’Leary.
Lehihan has made disastrous mistakes guaranteeing every financial institution and every bond holder in every bank in the state, including the madness of Anglo. Now, “the only game in town” mantra has given way to “the best finance minister in the EU” a man who is even willing to fly to Greece in the morning to give their profligate government a few tips. If the country was not heading towards insolvency or alternatively a zombie existence for 10 to 15 years where the old and middle aged sit around wondering will their pensions hold up, and will the youth ever come back, I would just laugh out loud. But it is to serious for that.
They should do something they should get rid of the 1000 quango’s and if there’s any too important they can integrate them back into the puplic sector and semi state sectors which spawned them in the first place. The sectors which you have alluded to in the past that have been “hollowed out.” Get rid of all junior ministers. Change the constitution and have one TD per county scrap the senate altogether. Shortly we will have a NPRF which is totally invested in Irish banks, this was never, ever intended. In fact, it is the opposite to what was ever intended according to Philip Lane and Patrick Honohan. It was not supposed to be touched until 2025 and not invested in the monotheistic belief system of Irish banking. Just because it was not ring fenced boom, bang wallop it’s gone!.
One question Colm where does the money come from now to pay the 108bn contingent liability for pensions identified in the CAG 2008 report, going forward, as they like to say. When in fact it is going backwards is what is meant.
Padraic Reidy says:
“Couldn’t agree more. The culture of intervention in Ireland really needs to be scaled back. I think it is a culture coming from a people who too readily look to their government when something goes wrong. People don’t learn lessons if you don’t force them too. We are still a market economy right???”
It depens on how you want to define ‘intervention’. That meaning really needs to be nailed down first. Former Taoiseach Ahern definitely ‘inter-ven-ed’ in all kinds of ways – be it the DDDA or in BUPA Ireland, which in turn link-s all the ways back to Anglo, and accounts for loads and loads of funds, siphoned off. I won’t get into that.
But maybe it is because, like Ciaran Cuffe, I come from the architecture and urban planning background, that I can see this so clearly. Every time, on radio, there is mis-allocation of resources in some way, the joe soap gets on the late late show, the Front line, the joe duffy show, or whatever it is, and says: The plann-ing in this country is atrocious. We need green-er, more sustainable lifestyle(s) and energy production etc. We need water. We need roads, we need, we need, we need. But when we set up something like Sustainable Energy Ireland, like the Dublin Airport Authority, like FAS, like the Dublin Docklands Authority, we have one big announcement at the start, to proclaim – look, we are doing the right thing – and then 10 years later it all blows up in our faces. But then, someone like minister Mary Hanafin, comes on radio and says – we can’t be looking back at things that happened 4 no. year(s) ago – it is like Taoiseach Mr. Cowen says, it is about going forward. In other words, we waste a fortune setting up agencies for better ‘everything’, they are raped and pillaged and abused wholesale, for 2 no. consecutive terms of (fail-ed) FF government by inside-r(s). At then we talk about the need for the country to go forward. This evening on RTE Drive Time national radio, I listened to broadcaster Mary Wilson hold a minister to account, on where he intends to find €50 million to sort out the mental health facilities on the island. Having had several paper launches of the same, over the past decade according to Fergus Finlay from Bernardos. I mean, I will quote you John McManus’s sorry line from the Irish Times, December 30th 2009.
“It’s a measure of how conditioned we’ve become to failure and incompetence in public life that the revelation by the Dublin Docklands Development Authority (DDDA) that it has blown €213 million of taxpayers’ money is met in the most part by weary shrugs and eye-rolling.”
Note, by other estimation(s) to date, the loss the Irish taxpayer has to stomach on the Irish Glass Bottle site alone, before a brick is laid, is between €500 and €600 million. It is like something out of a Dick Turpin novel. We are waiting for the AG to ‘review’ it? And yet, Drive Time radio has to wonder about €50 million for mental health? ? ? I am so glad that minister Harney is behind the effort btw, oh, I am so ——- relieved. The sad part is, we have all grown to accept this as usual. BOH.
One question Colm where does the money come from now to pay the 108bn contingent liability for pensions identified in the CAG 2008 report, going forward, as they like to say.
Quite simply it comes from those who will be beneficiaries. If they can’t or won’t pay for them, then they don’t get them. Starting now! Retrospectively!! Why should Mary Robinson for example draw down a “pension” of c. €150k for the last dozen years and she has not yet reached 60. It’s not as though she is not capable of earning a high (tax free) salary all this time. Why do nearly one million workers in the private sector have no pension provision at all. This is because they are paying for the pensions of the (higher paid) public sector through taxes leaving them with just enough to live on.
Edgar Morgenroth said:
“The construction industry are also still looking to get some kind of stimulus. This sort of approach has been tried elsewhere e.g. Japan has maintained its construction sector by all sorts of construction schemes like building literally 1000s of dams along their small number of major rivers. The dams are now old so they need replacement.”
Why don’t we use the stimulus money to build mental health hospitals? Or are more eary shrugs and eye-rolling (Taoiseach Cowen is the ultimate master in that department) the order of the day? Back in October 2006:
Minutes of DDDA Board meetings released to Fine Gael show an astonishing haste by the then Minister for Finance in approving millions for the DDDA. Any loan extension for the DDDA must be approved by the Ministers for Environment and Finance. The DDDA Board minutes of October 3rd 2006 show that such a request was made to both Ministers for purchase of the Irish Glass Bottle Site. By October 24th, Brian Cowen had already approved the request.
I mean, if so much finance was available for glass bottles, why are people under 15 years of age . . . . ? BOH.
I mean, the only reason that former Taoiseach Ahern inter-vened in October 2006, was to prevent Liam Carroll from gaining control over the 25 acres at Ringsend, in addition to the 15 acres he already owned. The government had to release a stimulus package to combat Liam Carroll – that mattered more than anything. I mean, honestly, what would be so bad, if Carroll acquired 40 acres at Ringsend? Apart from the bruised egos of a control of mega-build-er(s)? But I guess Taoiseach Ahern felt, he couldn’t sit idly by, and watch the Dunn-er’s feel-ings get hurt. They might get depress-ed, couldn’t have that at all. So on October 24th 2006, Fianna Fail minister for the Environment, Dick Roche dress-ed over the inter-vent-ion by announcing:
“This joint-venture arrangement will ensure that the [DDDA] has a major input into the planning and architectural elements of the development and will be in a better position to pursue their social, community and amenity objectives in Poolbeg.”
I am sorry, I won’t mess up Mr. McCarthy’s thread any more. But I only wanted to put the Drive Time mental issue into some context for all. BOH.
Excellent piece. In relation to the spirit of Ireland, the problem is that if left this type of project would not go ahead due to the capital cost required for the development of the hydro storage component of the offshore wind farms. That is why the talk is of government intervention. The promoters know they need state funding to develop the project.
The implication of Colm’s post is that policies are being determined by the politics rather than the economics. How could it be otherwise? However the politics of policy making is generally understood to be more complicated than a simple mirroring of particular interests in policy outomes. Understanding why policies are adopted at particular times is a part of the concerns of the sub-branches of political science which are concerned with public policy and public management. Garbage can theories, rather than rational decision making models, dominate the understanding of public policy processes. Problems and solutions are thrown into garbage cans, with a degree of chaos involved in the processes through which some matching up may occur. Schematically, the problem, the politics, and the policy solutions are conceived of as flowing in separate streams and policies crystallise at the places where the streams are coupled (sometimes referred to as policy windows). A key aspect of such processes is understanding how agendas are set. Succesful policy entrepreneurship is not necessarily about having the best solutions, but rather about building the appropriate alliances to take advantage of a policy window opening up.
In Colm’s examples the challenge is to understand, perhaps, why something rather than nothing was done. No doubt there are plenty of instances where nothing is the response to a problem. People complain about nothing being done too.
@ Colin Scott,
Excellent contribution, thanks for that. Can I leave something for your consideration? I was thinking about Colm McCarthy’s questions today, and I came up with a 3-part response to the issue. (No. 01) Many of Ireland’s successful businesses over the past number of decades, prey upon the old crumbling legacy economy in Ireland, that survived from the time of Sean Lemass. I wrote about it in my Designcomment blog site entry, Ryanair to Fail. Companies are created or incentive-ised by government, and later on destroyed by the same government. Ryanair obviously had gone international by the stage of development, when lack of Irish government support could damage it. (No. 02) The way to change the previous point, is for government to support development of better models for bank-ing, build-ing, and so on. I wrote about it in my blog entry, The Shoe Box King. (No. 03) Why do we need over 400 no. state owned, non-funded, long term asset management agencies? I wrote about that in my blog entry, Liar’s Poker. BOH.
@ Colin Scott,
It may interest you – I have observed at close hand myself, what goes on in terms of the Green policies creation process, because I am a very pro-green policy kind of guy myself. I wrote about it, on IE before, in relation to Colm McCarthy’s IT article about the Comhar report. Here is the link to my post:
The key point is, green policy makers work as very low paid, or voluntary consultants, who have to write and develop policy for everything under the sun, in order to qualify for as many of the miserable funding streams available, as they can. Minister Gormley’s accusations of the ESRI, in relation to the Poolbeg incinerator, Waste Wars, was a very public example of what I mean. BOH.
In contrast, the Economics of Doing Nothing is that this is often the best policy, and the cheapest.
One is reminded of reading somewhere – either Fisk, The Irish Sword or in An Cosantóir Review – about the (very serious) Dept. of Finance memo during WW2 stating that the most economically sensible course of action in the event of invasion would be immediate surrender.
How times (and economists) change. Not.
‘They’ have already invaded
Just rifle through your pocket.
And pray they dont leave!!!
Why do nearly one million workers in the private sector have no pension provision at all.
Maybe someone could ask the paragons of virtue that are the Irish boss – sorry, entrepeneurial – class, that very question, and not fellow PAYE workers.
‘They’ have already invaded
Just rifle through your pocket.
And pray they dont leave!!!
The Jerries, the Tommies or the Yanks? (or all three!)
@ edgar morgenroth
There is a myth which is even more pernicious than the myth of ‘free markets’. It is the notion that economic issues can somehow be separated from their political and historical context.
Economic thinking which is sensibly critical of business is no more ‘political’ than any other sort of economics. It is merely critical.
On your point about the government apparently doing nothing, and how bad that is.
Perhaps the point about doing nothing rather than something needs to be more carefully explained. I’ll try, but it may be awkward.
It might be better for the government to actually start doing nothing rather than to continue to do something (usually a bad something) because they don’t have the wit to take the action required for them to stop doing it and to start to do nothing.
So far they’re doing nothing much to stop doing the wrong things that they’ve been doing for a while.
Like I said, awkward to express.
I have a cunning plan to sort out the oversupply of hotel rooms that I will be posting on ‘your country your call’ when I get some spare time.
Hmmmm – I don’t suppose there’s any chance of a laptop PC scrappage scheme any time soon is there?
Anyway, if we keep voting for neddies, we will always get policies that are made on the hoof.
“Understanding why policies are adopted at particular times is a part of the concerns of the sub-branches of political science which are concerned with public policy and public management.”
Many thanks for your enlightening observations. I just wonder if the academic disciplines – and sub-disciplines – have become far too specialised to address the “big picture” in a meaningful way and to contribute to public understanding.
I also note that Colm, having pulled the pin from the grenade, seems, perhaps wisely, to have taken cover!
@Brian O’ Hanlon – we should build mental hospitals because we need them not because we need to find something for builders to do. What stimulus money??
@paul quigley – you seem to be under some misconception about what economists do. Have a look at the literature and you will find that the bulk of the papers are concerned with the analysis of resource allocation and behaviour without reference to politics, politicians, elections or parties.
“we should build mental hospitals because we need them not because we need to find something for builders to do. What stimulus money??”
I understood that the will of the late Dr Swift ….
“Why do nearly one million workers in the private sector have no pension provision at all.”
Eh, they do, don’t they? Or has the state pension just been disbanded? The reason they call it the contributory pension is…
The question is why does the state want to subsidise the savings of wealthier people with tax free allowances…
“..the bulk of the papers are concerned with the analysis of resource allocation and behaviour without reference to politics, politicians, elections or parties.”
And so they should. But we have a problem when government, the “permanent government”, the quangocracy, the elites and “insiders” collectively decide, depending on circumstance or preference, to ignore or to abuse or to use selectively, but inappropriately, key elements of this analysis that relate to public policy. Different varieties of this “unholy alliance” may be observed at work in all of the established democracies. The US variety delivered the systematic de-regulation of the banking and financial sector that led to the current global crisis – and the “freshwater” economists proved to be very useful idiots.
Ireland, of course, has its own variety and it has proved more virulent than most. It is the pomps and works of Ireland’s unholy alliance that fuel much of the comment on this site.
So what should economists, with a competence in, and knowledge of, public policy analysis, do? The consensus appears to be that it is sufficient to “speak truth to power” – as this blog admirably and consistently attempts to do.
But it appears to me that this leaves a large constituency distinctly dissatisfied. Since this crisis is manifesting itself in economic, fiscal and financial terms, there is an expectation, rightly or wrongly, that the economic fraternity should be in the forefront resolving the problems.
But there seems to be a corresponding failure to recognise that the current system of democratic governance precludes the effective, widescale engagement of competent members of the economics fraternity – unless they are appointed (e.g., Patrick Honohan), retained to perform a specific task (e.g., Colm McCarthy) or retained as an advisor (e.g., Alan Ahearne).
So, should economists be actively advancing reform of the process of public policy design and implementation to ensure full use of economic theory and practice or should they remain as “hurlers on the ditch” – waiting to be called into play by government?
Chow and Lie
The solution to your tears about the Hotel industry is simple. Allow the Banks to fail. Their assets will be sold off. The Hotels will be sold. They will be bought by people who cannot and do not need to borrow. They will be very profitable. But you seem to be more concerned about those who have paid too much for hotels that are slowly but surely being driven into the ground by Zombie banks.
Not economics, just special pleading!
Something should be done and I am sad to see that none of the economists are doing it: recognize that depression times are back and set out what steps are necessary based upon previous depressions, 8 or 9 in history.
How about intervention to protect the man (in biblical sense) in the street and save the State some dosh – remove the heaters from the garda cars?
” In contrast, the Economics of Doing Nothing is that this is often the best policy, and the cheapest.”
Would that were the case. It would have been vastly preferable to the extremely reckless policy the government has embarked on, with widespread support here, if not the general population.
The policy is a failure even in its own terms. The OECD’s estimate of the fiscal stance is a tightening of 6.4% GDP, beginning in the autumn of 2008. However, in the 4 quarters since, net expenditure by central and local government has been €27.9bn, exactly the same as it was in the prior 4 quarters.
As fast as the government reduces the value of public sector liabilities through slash & burn, it is increasing their volume through rising unemployment and is reducing its assets via falling tax receipts. So the public sector deficit has doubled from a little over 7% of GDP to nearly 15% of GDP.
Doing nothing would have been better than this.
Also, why must these schemes end up benefitting the dumber members of politicians families, as stockbrokers etc? The finance created, will allow schemes that can be useful to the economy, ie infrastructure. Direct investment in really needed projects will create employment allowing workers to pay these contibutions.
Or is the real problem that we are too wealthy? Pigs at the trough, sharing out partially, feathering our own nests at the expense of others?
Things are looking grim in the world’s largest and most advanced economy ……. Geee, is this a depression?
Yet another classic Colm McCarthy ideological preference dressed up as ‘technical’ policy advise.
First and foremost this is based on the assumption of
a) markets tend toward general equilibrium
b) government disrupt this equilibrium when they ‘intervene’
It is premised on a the FALSE assumption that perfectly functioning markets operate in the absence of the state. The state just ‘interferes’.
The perfectly competitive market hypothesis has failed and ought o be dumped out the window along with the economic policy advise that accompanies it.
Markets are embedded in institutional arrangments. The state is but one public body that is embedded in this interactive society-economy relation.
The ‘Economics of Doing Nothing’ is a signal for ‘Market Fundametalism’.
The very same policy prescription that led to the financial crisis and the ultimate collapse of financial markets.
Market fundamentalism is the problem not state intervention.
“In contrast, the Economics of Doing Nothing is that this is often the best policy, and the cheapest.”
unless those making the decisions on action or inaction leave something to be desired.
As a number of people have pointed out, it is past time to do something about those who decide what “best policy” is, as I suggest in another non-economic forum here
Colm will recognise the argument, as it formed part of my submission to An Bord Snip Nua.
I agree. but also worry about the future of a profession that has “do nothing” as a principal conclusion.
The advice to “do nothing” (when giving into the urge/desire/pressure to “do something” would be worse than doing nothing) is aimed at politicians, not economists. And, in any event, politics is a trade.
@ Peter Carney – there are lots of issues where economists would advise to do something, or to do something different. So the principal conclusion is not “do nothing”, rather it is “do nothing, unless there is clear evidence that doing something makes sense”.
[…] meantime, that champion of the ‘market’, Colm McCarthy begs to differ. In a remarkably sanguine piece he suggests that: Hotel Stock: Hotels are a pure private good. Due to policy-induced capacity […]
“In Alexander County, the sheriff’s patrol cars have been repossessed”
That’s a classic.
I understand this, and do agree; if I didn’t think economics was useful I wouldn’t be here. I simply wanted to indicate a logical result of a laissez-faire philosophy. Which, although not directly the topic under discussion here, is related and worth considering in any event.
In general, it seems clear to me that economic science gets quite messy when it starts telling people what to do and what not to do. Instead we could concentrated on showing people that what they’re already doing follows basic principles. From should a position people will naturally come to their own conclusions about what’s best to do..
Perhaps an overly microcentric solution that doesn’t give enough weight to the political forces that be, but economists can hardly be charged with controlling these. Just an opinion.
One important point I wanted to add to my comments addressed to Colin Scott above. If you refer to my Designcomment blog entry, The Shoe Box King, you will notice it deals with an idea – that in modern day times, we have all of this modern technology available (like that we are using now) which tends to re-assure us, and give us confidence we are working more closely together and communicating over higher bandwidth. My blog entry, The Shoe Box King, was an attempt at looking at it another way. Take the policy making for green issues, which I have observed in the past couple of years in Ireland. What we normally see is funding released from various departments to various foundations, think tanks and voluntary movements, all loosely tied into the ‘green movement’, in Ireland. What you often see is the funding of some Phd level research, to publish a peer reviewed paper, by each separate little organisation within the green movement. I would strongly argue, that all the funding is doing, in that case, is keeping this plethora of competing challengers for green-tech funding alive. It has grown up like an eco-system – and often one group process a little piece for another group – there is a sort of Taylor-ism which has developed to it. What do you notice though? Again, referring back to my blog entry, The Shoe Box King, one of the few things that government, or state can do better than the private sector, is to fund multi-disciplinary, across-the-boundary, sort of work-ing. I mean, where you tightly knit together different viewpoints on a short intense project. That is where you see the fire-works, that is where you get people really energized. We don’t see that happening however, in the green policy production process. What you do see, is a lot of separate organisations, each with their own token PHd candidate, who has to operate in isolation. Who becomes, kind of the badge of honour for each separate think tank unit. It is one way to deploy funding and organise human resources, but is not always the best. Unless you need to do a Manhattan project or something – but even then. BOH.
A good author, in terms of studying the above is Nicholas G. Carr, and his various books, Does IT Matter, and The Big Switch. BOH.
From other thread:
A question I would have to ask, at the extreme opposite end of the economics policy-making production line, (from the Phd candidate in the small think tank) is the front bench in the Dail. Why does the front bench not have more speakers on economics and finance? Why don’t the various departments work, in order to foster more joined-up debate and thinking about economic and financial matters? We are only a country of 5 million people for heavens sakes. More to the point, as soon as the DDDA report hits the kerb, it is unlikely if any amount of spin-doctoring will help. Indeed, it is unlikely ever again, if a single minister for finance, will ever want to take on board, sole responsibility for decision making, ever again. BOH.
@Pat Donneley A good article. I travel back and forth to the states once or twice a year, have been doing so for years, its obvious the craic is only starting.
The state has been paying bills with unfunded vouchers since October. A fifth of buses have stopped. Libraries, owed $400m (£263m), are closing one day a week. Schools are owed $725m. Unable to pay teachers, they are preparing mass lay-offs. “It’s a catastrophe”, said the Schools Superintedent
A friend of mine (in another state) has a kid in school where teachers on an effective 3 days week because the money isn’t there to pay them. Anyone with a few bob is paying for teachers or scrambling to get their children into private schools…
@ edgar morgenroth
Resources are not allocated, except within organisations. Everyone else has to find them, invent them, make them, fight for them or trade for them. The contributors to this website take the trouble to make their contributions broadly accesible, and long may the spirit reign.
We really need economists, but the orthodox academic curriculum is a political and institutional obstacle. Joe Stigllitz got a Nobel prize for demonstrating that central concepts of neoclassical economics are bunkum. You don’t have to follow his equations to understand that assymetric information, and therefore control of information, is a key to competitive advantage.
Michael Hudson’s 1972 ‘Trade Development and Foreign Debt’ demonstrates that the ‘techincal discipline’ of economics has, in practice, served the particular interests of international creditors. As we would seem to be headed straight for the debtor’s camp, the older science of political economy may be more useful to us.
Excellent. The truth has a certain ring. I have to say the squeeze and release of the current sytem has led to excellent progress. They have a very very stable world with little actual prospect of a world war despite all the fearful rhetoric to the contrary. They have been doing a good job and restraining the yobs who took advantage via derivatives and overlending was badly controlled, but what can you do?
The waste, lies and disruption suggest that more control is required. This can go badly as with Mussolini et al, or well. The sheep certainly should be frightened but most are used to it. Their venal greed has enabled this mess and as you say, “economics” has enabled it.
The remedy is more information and more truth and less lies.
The immediate future for Ireland must mean more information and the media are frankly biased or incompetent. The banks are aware of what is going to happen but are sheepish as the messenger usually gets it in the third Act. This site has a crucial role to play.
Pompous wellwishers who have no clue as to what is going to happen have to some extent taken over the NAMA debate. They can see no evil, apparently. Others are shills for the middle class dole they see as a crucial part of the package.
NAMA may be capable of being a useful part of the solution, but only if it is vigorous and transparent. The EU will ensure that happens, but we all know that it takes too long to correct the stupidity of the executive and all the time they shell out to those who are talentless, in defiance of the rhetoric about competition.
The gang that put us deeply into a pointless mess must be cut out somehow. They simply do not get it and they will be reviled for decades. They have neither shame nor legacy. They are simply dangerous to all attempts at recovery. Pension them off or otherwise. All the senior civil servants should be vetted for their competence and not for their loyalty. They are all supposed to be on temporary contracts. Revert those who do not shape up. Unless this is at least 50% of them then there has been another cover up. Assistant Secs as well. Dispense with the General part of their name. What a bunch of bankers!
Disband all the quangos and sell off their assets. Too many jobs for those who gum up the works.
The Wizard of Oz has no purpose if the sheep see all the strings and end up getting shafted. The social disorder is not good for government and as in WWI, they architects have miscalculated badly. The train timetables must be obeyed.
They expect to have to blow one or two of the valves to calm things down. Mobile comms may not be worth investing in until after the depression? The internet per se is less mobile and less of a threat as the impulsives will be stuck at home with all the goodies. Why did Brian O’Hanlon come to mind?
The younger, mainly male, impulsives may have to be drafted to face the new threats. And keep unemployment down and occupy them to keep out of the way. They have a few in mind to add to the war on drugs, crime, terror etc. You may think that there is a chronic lack of imagination in these and you would be correct. Predictability is sometimes a good thing. The Irish connection of these guys should buck the F$%^ up and clean the shop somewhat. But at least there may not be widescale mayhem. Too much imagination implies a lack of control.
The markets are rigged, you mean?
Yes of course. Cheap food means people starve when they are poor. They have no incentive to farm for themselves when a westerner or Nip, dumps tonnes of food for nothing, “to aid the world’s poor” and get massive government grants to do so. Cutting out farmers frees up more slaves for the cities.
But this is progress and governments are there every step of the way, interfering for all they are worth! Making money for their new friends in business. Mercantilism!
What do the people you meet think of this? The informed, the sheep the unemployed? They have started up a faux revolutionary movement to control the impulsives, the gammas. Is that attracting followers or do people realize it is a trap?
Are the conventional pollies in touch?
Pat BMW Kenny famously lobbied for the car scrappage scheme.
We can only thank our lucky stars that he doesn’t carry a handbag.
@Pat I wouldn’t claim to be an expert on the states by any means; its just that staying and working for a month or 6 weeks once or twice a year and doing it over a period of years gives a perspective.
I’m sure someone doing the same here would notice stuff changing because if you’re away for 6 months and come back, you notice gradual changes more than those living there. Ireland 2010 is a different country to Ireland 2007.
On the politics, I’m not up to date enough, its been almost 6 months since I was there. The school situation is something I know from a friend of mine who is getting worried.
Choice is down, nervousness and fear is up. The choice (from a consumer perspective) was something I first noticed a year or so ago. It really struck me because it was the first time I ever saw it in the US.
this is just a money game.
if dempsey wanted to save ‘one life’ he could remove the registration tax on new cars.
if we let them get away with an nct for 10 year old cars every year you can be sure its just a step to do it for every car no matter what age.
if you dont contact your td to protest to this you are an idiot
As an owner manager of an SME, not an economist I am rather taken with Colm McCarthys view of life in comparing the value of handbags with cars. One thing the economy is short of is tax revenues, those buying cars are putting up up to 50% of the price in tax to the government, pre the Greens the bigger the car the more tax you paid (the Greens just put people out of jobs messing with the system).
Unlike handbags, cars need fully trained people to maintain them and a range of ancillary suppliers such as tyre fitters etc.
So from the foregoing a small reduction (scrappage scheme) in the tax take increases tax revenues and helps maintain employment, the government acting like Ryanair?
There are also a great many people employed in Ireland in companies such Kostal making automotive components-are there any handbag component manufacturers that anyone knows of in Ireland? I
Is that not what Colm’s report was all about?
@Jerry Kiersey – the car scrappage scheme has been examined on this blog on lots of occasion.
You are of course right that a significant portion of the price of a car go to the exchequer and that cars result in other derived demands.
The scrappage scheme when viewed over a number of years is only going to bring forward purchases – in other words it merely brings forward the tax revenues which is of course welcome.
This scheme only makes sense if the interest we don’t have to pay (due to brought forward tax revenues) exceeds the cost of the scheme. Do you think that is likely?
In the meantime the new cars will reduce the amount of servicing needed, since by definition the scheme does not add to the total stock of cars and one can presume that a new car will need less servicing than a 10 year old one.
[…] air–any cash spent on regeneration must be borrowed, and at some cost. Here I’m with Colm McCarthy, we shouldn’t be moved to borrow money because of a need to do something. However, most of us […]
[…] A great post by Colm McCarthy about how we are sometimes better off if the Govt. do nothing, rather than meddle in the market. […]