As I mentioned above somewhere, we need to be careful when we throw out terms such as intellectual failure. It may well be the case that individual graduates of our education facilities in the 1990s and 2000s are very bright people, well equiped to deal with the complexities presented in modern day academia. Having spent long enough at third level, during the said period, I am in no doubt as to the work rate of our students at third level. Regardless of what Craig Barrett or anyone else may say about grade inflation. If you ever get your hands on a copy of Nicholas Negroponte’s book, Being Digital, it is well worth a read. Negroponte has dyslexia, but still managed to train and graduate as an architect. I suppose his drawing capabilities were good. He later went on to head the MIT Media Labs. I believe, Negroponte learned to read finally using his laptop, and has since headed up the one laptop per child initiative in the US. But coming from Italy and living in the US, Negroponte has some interesting points to make about our respective approaches to learning.

I think we are prone to serious intellectual failures in Ireland, due to the way in which we employ competition at second level education, as a motivational tactic to punish kids who are less attentive. Negroponte made one very crucial observation in the book I mention - that kids in high schools, in the United States have a greater chance to live life, and involve themselves in things that interest them. How many high schools in Ireland for instance, would print a school paper? Would that be encouraged as an activity? Negroponte makes the point that US kids are full of energy by the time they get to third level. Whereas their European counterparts can sometimes be drowned out. We pay an awful lot of lip service in Ireland to the smart economy, and how we are going to employ the Stanford model to enable us to spin off Google’s, and Yahoo’s etc. But we fail to realise, the Stanford model itself exists within the wider United States model for second and third level education. Which is entirely different to that in Europe. When we had the debate about grade inflation in Ireland recently, I listened to much of it. But I didn’t hear any of the points I have raised above, made in our grade inflation debate.

The economists here at the Irish Economy blog, were anxious to pull out the spreadsheets and start analysing the problem from an ‘inflation’ point of view. Which springs largely from the fact, that economists are one of the few trained to analyse things such as ‘inflation’. But they willfully ignore whole aspects of the education process, which is more of a human resources problem, than anything else. I wrote a blog not so long ago, I think in response to some Stephen Kinsella wrote. I am not sure, but I know that Stephen enjoyed my blog entry, at the time - and is working hard, to understand new ways to teach economics in 2010. BOH.

http://designcomment.blogspot.com/2010/03/school-for-innovators.html

“Presumably, consistent with those reservations, the Department’s advice to government throughout the boom was not to base fiscal policy decisions on prevailing estimates of the structural budget balance.”

I take your argument but have doubts.

If that had been the case would Honohan / Regling not have reported it? It would have strongly buttressed their conclusion that our crisis was largely “homemade”.

Furthermore, with the reputation of the DoF under strong attack, would it not have been in the institutional interests of the DoF to make public details of such advice? That Dept. was quick enough out of the blocks to criticise David McWilliams for daring to suggest that the September 2008 bank guarantee had been his idea and not theirs.

And my final point is this: maybe that advice was given, was acted upon but produced nominal surpluses still too small to be structrual surpluses because the scale of fiscal dampening required to counter the monetary stimulus was grossly underestimated?

That would bring the argument back to where, in my opinion, it starts and ends: intellectual failure much more than political failure as the cause of economic policy failure.

Weren’t universities training schools for future clerics, lawyers and doctors?

Were those professions not the ‘advanced’ degrees, graduates would attempt to do, if they weren’t satisfied with their academic level of achievement? I.e. They didn’t want to go off and teach/work or something? The olden days version of ‘fourth level’ education. BOH.

You’re not being old-fashioned enough. Weren’t universities training schools for future clerics, lawyers and doctors?

bjg

Thanks for that reference.

You’ll be glad to know that “Studies” is still going strong …
http://www.studiesirishreview.ie/j/page72

On that vein, it is worth investigating Andy O’Mahony’s RTE radio interview with Tom Garvin and Finola Kennedy from October 31st 2009, in discussion about The Quest for Modern Ireland, by Bryan Fanning. (Irish Academic Press) O’ Mahony talks about the impact of a journal known as Studies, which he says paved the way for a transition in education in Ireland. BOH.

http://www.rte.ie/radio1/offtheshelf/2009-10-31.html

You wrote “Forgive me but you display a gross misunderstanding if what academic economists do. They are as are all academics paid nit to monitor anything but to teach and do research in an area if expertise. Any monitoring they do is a public good that comes foam the day job.”

Given your own vigorous and commendable contributions to public debate, I am a bit surprised to see you advance this line of argument.

In my opinion, the teaching of economics must bear a relationship to real economic phenomena. But the academic teaching of economics risks reducing itself to a set of hoops candidates must jump through to get qualifications.

Instead of the old-fashioned view of the university as the brain of society with academics playing an active role in general intellectual debate, we have universities today at risk of reducing themselves to mere degree factories.

Much of what is taught is barely relevant to what happens in the real world. How many people with economics degrees bought houses in Ireland in the years 2005, 2006, 2007 and 2008? Should their economic training not have equipped them with the intellectual framework to see that such purchases were potentially very dangerous to their net wealth?

Interesting line of thought, I must dwell on that some. I don’t have any prepared responses to that, I must admit. BOH.

The problem for Ireland, and for society, is that there is no incentive to take tough decisions when they’re needed but before everyone realizes that they’re needed. There’s no reward for being right in hindsight, leading to people taking consensus decisions, following the herd. Many investment managers do it, apparently all politicians do it.

The crucial problem arises when “society” decides that it should socialize the consequences of wrongness and get someone else to pay the cost. Unless the people who make wrong decisions are able to suffer some consequences, the incentive for right decisions is removed and we will continue to see awful decision making and awful predictions, and awful costs.

Here is a particularly relevant couple of sentences, which I extracted from my old blog entry just now: Over the course of the last year or more, Ireland as a country has retained its focus exclusively on things that are large and impressive, in terms of their mechanics. Things like the European monetary union, the central bank, the National Asset Management Agency are interesting to study. But all of these things are too large, too complex for even the best economists to understand completely. BOH.

Brian Cowen must accept political responsibility for his actions. But we should be careful about making him an intellectual alibi for the failure of most professional economists who were paid to monitor the Irish economy.

Good post, very fair points. Perhaps what you should include in that point also Cormac, is that in our education systems, we should try to allocate some few marks for sport, teamwork, cooperation & group effort. Any sense it that? I mean, you look at what a combination of a Karl Whelan, Brian Lucey, Colm McCarthy, Philip Lane and a few others can achieve when they pull together (not leaving out the Russian). I’m delighted to hear that lads are enjoying watching the world cup tournament these evenings, and wish any of them well on their well earned hols. But in additional to the failure of professional economists, something also needs to be said about failures of group effort. Be it between individual economists, between departments, between communities or between traditions. Its an area where we can improve in Ireland. An area where we do need to improve. The Roy Keane incident at Saipan is sort of symbolic of a whole era in Irish history. Individual members of the major political parties in Ireland have experienced difficulty in coordinating together also. The Willie O’Dea incident was a complete own goal, to stick with the footie parlance. I blogged about the subject of linking together and group dynamics at the time I remember. Being familiar with building construction myself, where a myriad of things need coordination, within a very short period of time, I do respect that, as an art in itself. BOH.

http://designcomment.blogspot.com/2010/02/gaps-that-should-not-exist.html

Forgive me but you display a gross misunderstanding if what academic economists do. They are as are all academics paid nit to monitor anything but to teach and do research in an area if expertise. Any monitoring they do is a public good that comes foam the day job.

There’s not much of your recent post that I would disagree with.

But I think that we should be as critical of the academic economist class (which is still largely in situ, despite manifest failure) as we are of the governing political class (which won’t remain in situ for long).

Brian Cowen must accept political responsibility for his actions. But we should be careful about making him an intellectual alibi for the failure of most professional economists who were paid to monitor the Irish economy.

Cowen must be held to account. But so too should those economists and their intellectual models who/which failed to give clear warnings of what was to come.

Its okay now to talk about larger surpluses, but Fianna Fail is a democratically elected political party. It was very unfortunate, that the same decided to hang there hat on, the idea to spend while at the same time generating some surplus. They thought they were doing the right thing by leaving a moderate surplus in the public finances, while distributing as much of it around as they could. I guess, one could call it a non-strategy. It aimed to navigate a middle ground, somewhere between surplus and deficit, and in the end, achieved nothing of value to us today.

The spending, being very much related to the political environment and international perceptions. At the present time, it is unpopular for the Irish government to spend. The government has to be seen to be tough. But the problem is, when it is politically okay to spend, it seems as though it can have a negative impact on the cycle. On the other hand, when the government should spend to counteract the cycle, it is no longer politically feasible to do so.

What the un-real property market in Ireland really needs at the moment is some form of property tax and a lot at utility charges. That would broaden the tax base considerably, and might put Ireland on a better medium term track to recovery. On the other hand, to go down that route today would mean FF backbenchers might walk away from the government. In that scenario, the general election would occur, and none of the NAMA stuff might make it through. What we see, when we look at it in the totality, is a mixture of bad mis-timings, and unfortunate coincidences. Which is really difficult to plan around, even for a political party with all of the best intentions and wishes for the country.

For instance, who could have predicted that Sean Quinn in 2008 would suddenly decide to take up a huge position on the shares of Anglo Irish bank, which provoked the markets into betting against him? All of that happened gloriously under the noses of the Anglo management at the time, without their involvement or knowing. How does one account for unpredictable events like that occuring? With great difficulty I imagine. In fact, we didn’t need the crisis of 2008 in Ireland - we were already generating a sufficient number of unpredictability, on our own, without anyone’s assistance. BOH.

“…the overarching error of fiscal policy in the boom years was the failure to anticipate the reversal of the tax revenue surge that occurred during this period. To safeguard against this reversal, much bigger budget surpluses than were recorded would have been required. Instead, the government used large transitory tax receipts to fund the rapid growth of permanent spending commitments and the narrowing of the tax base. Another policy error, arguably of a lower order of gravity, was the inappropriately pro-cyclical fiscal stance from year to year[Note 6]”

Note 6 “Year-to-year changes in the overall fiscal stance per se, however inappropriate they may have been, did not play much (if any) causal role in the deterioration of the public finances between 2007 and 2009, or in
the severely constrained position in which the Irish government found itself when the crisis struck. What would have mitigated the former was less reliance on property-related sources of revenue during the boom;
what would have mitigated the latter was larger surpluses on average over the boom years.”

Yes there was an electorate that wanted to have its cake and eat it; senior officials in secure jobs and guaranteed high earnings for life who were cowards, taking sham benchmarking and not one taking a public stand on principle including when McCreevy came up with his lucky-dip Tammany Hall style decentralisation plan.

Good paragraph. I have heard some commentators, John Waters I believe was amongst them, allude to the fact that Fianna Fail have figured out the electorate proper. No doubt about it. The paragraph I have quoted demonstrates, is the extent to which the John Waters statement rings true today. I suppose we are into areas which I am unfamiliar with, the analysis of society, civic duties, sense of responsibility and solidarity between citizens. That is a whole rich field for exploration and study, with huge consequences for the functioning of the economy and systems on the island.

One story I can tell, which does provide some additional insight, is about the very successful Sinn Fein electoral campaign of a few years ago. The one which established Sinn Fein as a very strong party in the southern half of the island. At that time, Fianna Fail had provided some very detailed analysis of each constituency via its website. It saved a fresh, young political entrant such as Sinn Fein in the south extremely well, as they did not have the resources to do that sort of analysis themselves. They were able to devise from the Fianna Fail information, a proper strategy for where to target their efforts in the election. What is that they say about flattery and imitation? BOH.

Yes there was an electorate that wanted to have its cake and eat it; senior officials in secure jobs and guaranteed high earnings for life who were cowards, taking sham benchmarking and not one taking a public stand on principle including when McCreevy came up with his lucky-dip Tammany Hall style decentralisation plan.

Yes, economists were too polite to take on the economist shills from the financial services who dominated the airwaves.

Besides there was data showing that FDI had stalled and there was insignificant growth in employment in the the tradable goods and services sectors

Yes, the business community shamefully egged on public spending and business people kept their traps shut as there was too much loot to lose otherwise.

However, with FF in power, property incentives were extended and capital gains tax halved to boost speculation in property.

Bertie Ahern was one of the big boosters of property and with his ministers, was happy to see a weak regulatory system allow the banks to fuel the bubble.

We would have taken a hit with the end of the global credit boom, but anyone who would argue that more prudent political leadership wouldn’t have made a difference, is in need of help, in my opinion.

The relationship of the political leadership with FitzPatrick was key as the other banks, absent effective regulation, felt they had to travel on the same road to perdition.

Yet they either missed the bubble or in the case of some of them got fed up warning about the bubble and stayed stum.

This is my point entirely, that economists move in one’s and two’s into the various branches of permanent government, is not going to make a huge amount of difference in driving policy changes. That is what I found strange about professor Lucey’s suggestion we should have transport economists, labour economists, construction economists, agricultural economists, sports and tourism economists and so on. There is a great danger, when you have all of those, they will simply turn native and keep stum as good as everyone else. If there is one thing we know that government agencies are resourced to do, is to process and filter information from diverse sources - and compile it together into some output, which a mere academic professor could not do, with a word processor and broadband connection between lectures. But the surprising thing is, given the humble resources that many of the academic economists had, how much more pointed and focussed in their concise academic commentaries and papers, they were able to be. Of course, the academic economists benefit from an exposure to international best thinking and discussion at any point in time.

My best guess, is that many academic economists would like to see their concise commentary papers developed further by an agency with adequate resources and staff. I believe, that if an academic economist was to see his/her initial brushstrokes, filled in a bit with more detail and supporting research, they may even begin to comment on that. They might even begin to find holes in their own theories, or inconsistencies. But without the further development, all the academic economist ever has, is the will to make very strong, well-worded appeals. Some of which might be picked up by the Irish Times or some other publication. I believe that this combination of the very independent and humble academic, with the stronger more resourceful agency or department could provide fertile grounds for exploration. From a basic human resources point of view, it creates ample incentives on both sides of the fence. It doesn’t require anyone to hand over ownership of their personal ideas or theories. It offers a way for the academic to ‘back down’ also, if the development of the initial idea was found to be flawed in some way, upon further analysis. I am disappointed really, that professor Lucey’s first draft of what an economics knowledge augmented, public service might look like. Professor Lucey’s overall concept is fine, but his suggestions for execution and implementation leave much to be desired. BOH.

There were people with economics qualifications in the major govt depts and state agencies. Yet they either missed the bubble or in the case of some of them got fed up warning about the bubble and stayed stum. Deploying more people from a cadre who had a propensity to be wrong would not have produced better outcomes.

Too many economists were drinking the coolade in the bubble years. Some of these will even tell you now that they warned then about the risks. Some of them probably even post on this site.

Fine we agree that there was a massive systems failure on the part of the official bodies to warn of the impending risks from a credit boom. However there were siren voices saying all was not well, including your good self. In addition, I presume there was a statement in each report detailing the downside risks.

In terms of solutions, Brian Lucey expressed an idea on radio not so long ago, that perhaps economics professionals could be deployed to take positions in various departments of permanent government in Ireland. This would at least provide us with the foresight to see impending problems as they developed, and allow us the space/time to create counter-active policies and procedures. However, I do have a real problem with that strategy. Maybe it was to the benefit and not to the detriment, that many economists who shouted wolf were in academic quarters, and could enjoy one benefit of that status - in being able to publish an independent, un-biased assessment of realities in a short, concise academic text format.

My notion of how to develop the value of human resources with economic insights would be rather different from that suggested by professor Lucey. I would rather leave many of the economists where they are at the moment. If they like academia, then why move them out of it, and into various departments of permanent government? Rather, it might make some sense for the various quangos we have created to be re-focussed. In order to accept submissions in concise format from noted academic economists, and to carry forth the analysis through more rigourous, time-consuming research and analysis. That means, that Ireland via is quango agencies gains the ability to build detailed developments of various ’scenarios’ as envisaged in the broadstrokes, by the academic economist, who are immersed in a different sort of world - where they can benefit from an exposure to international latest thinking. Just a thought I wanted to leave you all with. BOH.

We won’t see a similar high-wire act for a long time. But we can be sure that there will be one sometime in the future and all that has been bitterly learned now will have been forgotten - ‘this time it’s different’.

There’s little point obsessing about what the ring-master - or some spectators - could or should have done. His licence won’t be approved the next time he applies. The task now is to get the injured performer walking again.

One could also add the glowing tribute to the Irish economy contained in the IMF’s September 2007 country report to this list. If, as IMF claimed last year, it was evident there was an underlying structural deficit in 2007 of -8%, why was this not stated in the 2007 report? The 2007 report had instead contended that the public finances were being run on long term balance/suplus “in line with Fund advice.”

I agree that the Economist warned of these dangers. But I seem to recall that the Economist’s Year in Review for 1997 had more or less predicted a property crash in Ireland for 1998 (yes, 1998). Part of the problem was that the boom lasted for so long and was so intense that previous (somewhat tepid) warnings were shown to be incorrect with the passage of time. In these circumstances, people (understandably) think “This time is different” and that the detractors have cried wolf too often.

Fine we agree that there was a massive systems failure on the part of the official bodies to warn of the impending risks from a credit boom. However there were siren voices saying all was not well, including your good self. In addition, I presume there was a statement in each report detailing the downside risks.

Bottom line, do you think that any minister worth his salt would take sounding outside official Ireland, especially if his political adviser was whispering in his ear that all was not well? Do you not think any leader worth his salt should think or at least ask outside the box

I find your exoneration of the governing classes of 2002-07 quite endearing now.

“Your defence of the 2002-07 government on the grounds that they could not be expected to know because they were too (how shall we put it) intellectually limited is rather endearing.”

That’s not my defence.

My defence is that the broad thrust of the economic advice on which they rely failed to indicate serious problems ahead.

@ Michael / Finfacts

As Central Bank governor, Maurice O’Connell did warn against loose credit standards.

The trouble is that (i) he cried “wolf” back in the late 1990s - this weakened the credibilty of any later warnings (ii) he didn’t take any action on foot of his warning e.g. by increasing capital requirements for certain categories of loans.

As far back as its 1998 annual report, the Central Bank was warning “against dilution of underwriting standards” at our banks. Yet, as noted in the Honohan Report, it never made use of its powers to issue policy guidelines to the Financial Regulator.

I take your point about “The Economist” - its warnings were loud and clear. But what about official (i.e. governmental / government-funded) watchdogs? They are the ones that government relies upon. Consider the following:

 In its December 2005 “Medium-Term Review, 2005 – 2012”, the ESRI concluded that “The fundamental factors driving the Irish economy remain quite favourable.”

 In July 2006, the IMF reported in “Ireland: Financial System Stability Assessment, July 7th, 2006” that “Financial soundness and market indicators are generally very strong. The outlook for the financial system is positive.”

 The OECD reported in November 2006 that “Ireland has continued its exemplary economic performance, attaining some of the highest growth rates in the OCED.”

 In its November 2007 Financial Stability Report, the Central Bank concluded that “The Irish banking system continues to be well-placed to withstand adverse economic and sectoral developments in the short to medium term.”

 The EU Commission reported of Ireland in March 2008 that “Despite the weakening in the budgetary position in 2007, the medium-term objective, which is a balanced position in structural terms, was reached by a large margin.”

 As late as October 2008, the scheduled agenda of the Dublin Economics Workshop weekend meeting in Kenmare did not plan any discussion on economic bubbles, property prices, credit or banking.

Bottom line: there was a generalised intellectual failure by professional para-governmental economists to comprehend what was going on. There were only a few exceptions to that generalised failure.

I think it is perfectly reaonsable to for the government to rely on the advice given to it by the Dep of Fin, Central Bank, ESRI, IMF, OECD and EC.

To expect the government to favour the advice offered by the Economist magazine (and it is not clear specific advice is even offered in the article, only implied) over that offered by organisations specifically charged with providing it would be bizzare.

All governments need advice on running the economy. They must rely, at very least in part, on the expertise of the broader economics community to provide that advise. This economics community must decide which people, due to their expertise and judgement, occupy positions of influence within organisations such as those listed above.

In short, the economics community ranks advice (by ranking authors and organisations) and thereby determines which advice ought to be listened to by governments.

The people and organisations placed in positions of influence by the broder economics community did not sound the alarm.

While it could be argued that this advice ought not have been followed, that would be to impose an impossibly high standard of policy on a government, a stanadard of policy above that which would have been implemented by economists of the highest repute.