The report is here. The press statement is here. The loss for the first half of the year is reported at €8.2 billion. And “The Minister for Finance has recapitalised the Bank with a further €8.58bn effective 30 June 2010, bringing total capital support to €22.88bn.”
As the Apres Match version of the Minister might say, that’s a lot of noughts.
I’m constantly surprised by the naivety of opponents of Ricardian Equivalence. There are indeed many reasons why it may not hold. Some of these have already been mentioned in a previous post. I can add another to the list: hyperbolic discounting.
In addition, the difficulties associated with econometrically testing the proposition are almost intractable, mainly because of endogeneity considerations. What is certain is the near impossibility of isolating a particular policy episode and conclusively asserting that it does or does not amount to an expansionary fiscal contraction.
Nevertheless, none of the arguments against Ricardian Equivalence are sufficient to enable us to conclude that there is no tax discounting whatsoever. Such a view cannot provide “a valuable theoretical baseline”. The same remark applies to policy. Otherwise, the sort of spiralling sovereign debt burden, which Ireland is currently experiencing because of the bank bailout, would have no welfare implications because it would not affect private behaviour.
Cardoso and co have another interesting paper. Here’s the abstract:
Given the recent efforts in several countries to reorganize the research institutional setting to improve research productivity, our analysis addresses the following questions: To which extent has the recent awareness over international quality standards in economics around the world been reflected in research performance? How have individual countries fared? Do research quantity and quality indicators tell us the same story? We concentrate on trends taking place since the beginning of the 1990s and rely on a very comprehensive database of scientific journals, to provide a cross-country comparison of the evolution of research in economics. Our findings indicate that Europe is catching up with the US but, in terms of
influential research, the US maintains a dominant position. The main continental European countries, Germany, France, Italy and Spain, experienced some of the largest growth rates in economic scientific output. Other European countries, namely the UK, Norway, the Netherlands, Denmark, and Sweden, have shown remarkable progress in per capita output. Collaborative research seems to be a key factor explaining the relative success of some European countries, in particular when it comes to publishing in top journals, attained predominantly through international collaborations.
Unfortunately, they did not include Ireland.
Jean Claude Trichet’s Jackson Hole speech is here. This bit caught my eye:
The economy, it is sometimes argued, is at present too fragile and thus consolidation efforts should be postponed or even new fiscal stimulus measures added. As I pointed out recently, I am sceptical about this line of argument. Indeed, the strict Ricardian view may provide a more reasonable central estimate of the likely effects of consolidation. For a given expenditure, a shift from borrowing to taxation should have no real demand effects as it simply replaces future tax burden with current one.
The written version of the speech cites two papers by Robert Barro as supporting evidence for this position.
I think it’s worth noting that the Ricardian equivalence idea put forward by Barro—that consumers see deficits and taxes as basically the same thing—has been tested many many times. And the general consensus on this, as I understand it, is that there is very little evidence to support the idea.
Moreover, though the idea works in one very simplified model set up, there are lots of reasons why the proposition does not hold in reality (liquidity constraints, people having finite lives, people not having rational expectations, uncertainty about the path of government spending—see this extract from David Romer’s textbook.) Very few economists emerge from graduate schools believing in the Ricardian equivalence idea.
There are, of course, lots of arguments in favour of European governments setting out their long-term plans for the restoration of fiscal stability. However, it is a pity to see economic theories that are known to have little support regularly rolled out as arguments for fiscal austerity.
Trichet follows up on his Ricardian equivalence comments by arguing that expansionary fiscal contractions “are not just a theoretical curiosity” with the footnotes citing the old Giavazzi and Pagno paper with its two examples: Denmark in the mid-1980s and, of course, Ireland in the late 1980s. I’ve already said my bit about this, so I won’t repeat it. Suffice to say, this is pretty weak evidence that Trichet is serving up.
Cardoso and colleagues have a new paper in Scientometrics, comparing the performance of PhDs in labour economics graduating from Europe and the USA. They find that European PhDs publish more, but US PhDs publish more in high-quality journals (according to Kalaitzidakis).
UPDATE: Freely accessible working paper version.
One of the pledges in the October 2009 Revised Programme for Government is to declare Ireland a GM-free zone. The Programme promises to “declare the Republic of Ireland a GM-Free Zone, free from the cultivation of all GM plants”, and states “To optimise Ireland’s competitive advantage as a GM-Free country, we will introduce a voluntary GM-Free logo for use in all relevant product labelling and advertising, similar to a scheme recently introduced in Germany.” This followed the commitment in the 2007 Programme for Government that “the Government will seek to negotiate the establishment of an all-Ireland GMO-free [crop] zone.”
The issue has become topical because of a proposed change in EU legislation which would allow individual Member States to permit the cultivation of GM crops or not. The idea is to combine a European Union authorisation system for GMOs, based on science, with freedom for Member States to decide whether or not they wish to cultivate GM crops on their territory. Any such prohibitions or restrictions would have to be based on grounds other than those covered by the environmental and health risk assessment under the EU authorisation system. It is expected that the new legislation will enter into force by the end of this year.
Yesterday’s Irish Times reported that the Irish Organic Farmers and Growers Association has called on the government to immediately implement the Programme for Government pledge. Would it make sense to do so? Continue reading “Should Ireland declare itself GM-free in food production?”
In this Jackson Hole paper, Carmen Reinhart and Vincent Reinhart find that the negative impact of severe financial crises on macroeconomic performance is long lasting, with real house prices remaining below the previous peak a decade after the crash, unemployment remaining at an elevated level and a cumulatively-large decline in GDP growth.