Alpha Politics

That squelching we hear is the sound of political heels digging in.  It is hard to know whether the effort to shift the burden of the fiscal adjustment to others is better symbolised by Mary ORourkes staking out a no-go area on behalf of pensioners, or Jackie HealyRaes latest demands for Kerry pork.   Pat Leahy captures this depressing scene well today in the SBP (article here):

There are many other aspects of the way we run our affairs that outsiders such as Commissioner Rehn might wonder about.

What, for instance, will Rehn and his friends in the square glasses from Frankfurt make of the fact that the government can pass this budgetwhich they consider necessary for the continued economic independence of the countryonly if they agree to build the Tralee by-pass and open a new ward (or whatever) at Kenmare Hospital, in order to keep Jackie Healy-Rae happy?

The capacity of Irish politicians to always put their own local interest over the national interest is astonishing.   It is true that this is precisely what they have been instructed to do by their voters, but at this time of extreme national crisis, it is still remarkable. 

Not surprisinly, the delay of stabilisations has been a central focus in the literature on the political economy of economic reform.    A classic paper in this literature is Alberto Alesina and Allan Drazens, Why are Stabilizations Delayed? (1991).   [The paper is available from JSTOR here; a non-technical summary along with empirical evidence is given is Alesina et al. (2006), Who Adjusts and When?  The Political Economy of Reforms (available here).]

The essential idea is that the burden of the stabilisation will not be equally shared in a polarised political system.   How unequally depends on a parameter, alpha.   The higher is alpha the larger is the share of the burden borne by the loser.   Each group has the Healy-Rae like power to veto stabilisations that are not in their interests.  With uncertainty about the costs of delay for other vested interests, stabilisations tend to be delayed in a “war of attrition”notwithstanding the collective costs of such delays.   (See pages 3-4 of Alesina et al. for an accessible non-technical description of the model.)

I have written in earlier posts about the importance of the overall adjustment being viewed as fair.   One element of this boils down to alpha being viewed as small, so that the various vested interests dont have to dig their heels in quite so firmly to avoid being the ones ending up bearing a disproportionate share of the burden.  Broad political leadership is required to create the necessary trust. 

Pat Leahy concludes grimly on where our broader policital system seems to be:

The problem is that there is no certainty that the government is capable if of implementing a fiscal programme that would achieve such an outcome [i.e. avoid an EU bailout/IMF intervention].   The opposition remains generally resigned to the targets, but against the measures that would achieve them.   Civil society appears to be mobilising against the cuts. 

One wonders what Rehn will make of it all. 

28 replies on “Alpha Politics”

My mother who was a quite civilized woman used to use a phrase ideally suited to Irish politicians. Shooting would be too good for the feckers, slow hanging would be more appropriate. JHR is but a small part of a larger problem.

What do we expect? Our political systems core value is ‘get as much as you can, while you can, for your tribe. And if you can’t do that, pretend youre doing it, otherwise the other guy will get your seat.

We have never elected anyone to run a country, we elect those that can get us the most.

The current system hasnt enabled any of them to think of the national interest. Its like sending your son to school in France for his education and wondering why he speaks French after 20 years!

JHR is being extremely econo-rational here. He is simply responding to his incentives; if he delivers extra stuff for the people of Kerry, they will allow him to keep his job. Otherwise he goes out. I suggest it will come as no surprise to economists that if we wish JHR’s behaviour to change, we must change his incentives. The question is how.

Why so critical of redneck representatives – the Pale is full of learned men who argue for fiscal restraint but monetory largess – surely the only flaw of these country bumpkins over their urban brethren is their lack of sophistication regarding the poltical art of pie cutting.
Listening to Moore McDowell today on the Eamonn Dunphy show he was arguing quite seriously that the Fiscal and banking problems were quite separate and therefore inferred they needed to be dealt differently.
What economic garbage from a economics professor
Anyhow we know there are 3 ways to skin a peasant and tax / benefit reduction is just one of them.

JHR is as sharp as a tack and is quite capable of buying and selling learned men from within the pale before breakfast. As skilled a political operator as Haughey and Ahern. The creme de la creme of Irish politicians. God help us!

Ireland is confronting what the philosopher William James called in 1906 the “moral equivalent of war.”

At this point there is little value in lamenting the type of representative that the Irish people choose to elect.

Isn’t it time to move beyond the convenience of saying it’s up to the politicians to decide this and that?

Isn’t it time to challenge the vested interests from left to right who only publicly respond to speculated changes if they are seen as likely to negatively impact members?

How different is Jackie Healy-Rae’s self-indulgence than that of those who wish to have bubble-inflated receipts from the public treasury maintained?

If tenured professors are afraid to take public stands on the Croke Park agreement, staff pensions and how public funds can be better utilised in their universities, no other insiders are likely to break cover.

Colm McCarthy should not be left as a voice in the wilderness. It’s a positive that he has not been long enough in the public sector to be afflicted with Stockholm Syndrome!

As to Mary O’Rourke’s point on the old age pension, there is a tendency to conveniently conflate all public paid pensions.

People who rely on the old age pension receive about a third of the average wage.

This is actually where I would release the economists from prison, but leave them in chains.
They can decide where the cuts need to go. Since the OAP and all welfare payments are spent locally, they can be left alone as the only fiscal stimulus likely. All tax incentives especially those likely to be wasted on the purchase of bank shares, cut to nil. All tax rates increased. Etc. Cuts McCarthy should be invited back for mopre cuts, please.

J Edgar Hoover or G2, can tell a newspaper about JHR and have him and a few others run out of office. A quiet word first with all those who might think they can put their constituents ahead of others. I know a few “gentlemen” who would do that. Then destroy them. If necessary. Usually only one or two are required as an example. But these are straitened times.

It’s why we need the IMF. As others have noticed, the first question the IMF team asks is: are you prepared to upset your friends?

Change demands some understanding of the centrality of TIME – this lot have failed abysmally in coping with ‘time’ in its dysfunctional (due to narrow and unnecessary self-imposed clientelist constraints) decision-making and its failure to comprehend the consequences of its decisions.


Let’s keep it European for the mo. Commissioner Rehn has form, intellect, and experience. I’m sure he will ask a few interesting questions. Kipis Olli! Failte romhat!

Those of us who have lived and worked in the country for decades are not surprised. For anyone who left, worked somewhere semi-sensible, and came back, it must be a dreadful shock to realise that the system not only didnt improve, it got worse.
The issue on OAP’s is a microcosm – the grey vote is important to FF so they run scared of any change there , combined with the ghost of Ernest Blyth.
At this stage the only thing off the table should be nothing. All in.

I think we should now abandon any pretence that we have any policy choices to make. The ‘Germans’ esconced in the DoF (see Morgan Kelly’s article) will, this morning be looking at the headlines about pensions and Jackie Healy-Rae’s hospitals; only one conclusion can be reached: these people (i.e. us) do not understand.
What is curious is that nobody has pointed out that the alternative to the Lenihan/Rehn budget is an IMF/Rehn budget that will be much worse. Public sector wgaes will go to a 20% discount to European peers, ditto pensions. No hospitals in the middle of nowhere.
Perhaps I know why this isn’t raised: I will now be accused by fellow bloggers of simply trying to scare the children with threats about the bogeyman. Sorry, guys, this is no fairy tale.

“Sorry, guys, this is no fairy tale.”
Which is exactly why concerns about the effects of fiscal adjustment on the wider economy are overblow. Not because they won’t happen, not because we might be mired in low growth for a decade, but because that looks like the current best outcome.

Retaining control over how we move from bottom when we reach it is more important than how we hit bottom. To retain any measure of flexibility, the budget deficit has to be closed and has to be closed sharply and decisively.

15 bn this year.

At least Jackie Healy-Rae and Mary O’Rourke are acting in the interests of constituencies. They’re representing the citizens of the state – albeit within the parameters of a flawed system.

But it’s a form of democracy. If I were Ollie Rehn I’d be a lot more perturbed by the influence on political decision making of individual holders of wealth who don’t pay anything like their fair share of taxes. That’s not democracy.

The pity is that our elected representatives don’t speak out in the interests of their constituents more often. And that we put up with it.

I don’t have access to JSTOR but the summary article is certainly interesting.

My reaction to the article was essentially “Ehm, I suppose we all knew that but never said it so clearly. Nice job!” Not having read the full article I suppose I’d comment that a 2 player model is indeed a simplification, and that it’s more likely that the “loser” is outmanuevered rather than “conceding” in an N-player model, but the dynamics of N-player models would defeat the DG Competition to analyse.

Perhaps one solution for the future would be to have half of the Dail elected as they are currently with the remainder a list system, at least that way only half the elected politicians would be captured by their local constitutents. The remainder might get some work done.

It’s also not surprising that Minister’s are not focused on the job in hand when unlike the US they have to concern themselves with their constituents and getting re elected come election time as well as their ministerial duties. Politics in Ireland is so interneccine (or should that read incestuous) with seats in a constituency past down from father to son almost with some sort of divine right. Nice to know that all this can be summed up by a greek letter.

Isn’t this crisis about the end of this Republic ? The complete failure of the political system. FG would have implemented the same policies if they had won in 2007. The country is now being run by Gov General Olli Rehn in the name of core zone banks.

@ Keith Cunneen

Listening to Moore McDowell today on the Eamonn Dunphy show he was arguing quite seriously that the Fiscal and banking problems were quite separate and therefore inferred they needed to be dealt differently.
What economic garbage from a economics professor

Exactly. The same people who have dumped the country’s savings into the black hole that is the banks are now back for savage cuts for the rest of us. The sequence of these events is likely no coincidence – as a thought experiment, can anyone imagine the reaction if they tried to bail out the banksters after the proposed cuts?

I believe Mr. McDowell is correct, or rather he was correct until the gubbermint made the banking crisis into a sovereign crisis. We are where we are now and there is not much time crying over the lakes of spilt milk that has resulted. This doesn’t mean that heads shouldn’t roll, though. The guarantee, as some of us anonymous cowards said at the time, chose between the banks and the economy. Indeed, as some of us hurlers said, it chose between the banks and the state.

So where do we go from here? We still are faced with the same two choices – pay back or bust.

Be careful what you wish for. The way things are going the price of access to the EFSF may well be a number like that – or even higher. Our problems seem to be getting simpler: we need 20bn in 2011 and few people, even Brussels, seem inclined to lend it to us in our current state of mind. If nobody lends it to us, that’s what the cuts have to be.

That has been the arithmetic for three years. It doesn’t change with the passing of time…

Of course, if the adjustment had been made each year as required, we’d be 40 bn less in debt. There would have been other results, of course, but at least we might be in a position either to:
a) not go bust or
b) provide some stimulus from our own resources

@Brien Lucey

The people get what the people want.

Bertie claiming to have been educated at the LSE did it for me – or rather the fact that it bothered hardly anybody. All the other crooks re-elected with big majorities “sure, good on him”.

To those who are not native and know the place, frankly, it just looks corrupt, incompetent in many ways and devoid of principle almost throughout society.

Everyone will refuse to take an adjustment. It will all get heaped on those who aren’t appropriately connected or can’t put a rabble on the streets.

The place is too expensive, too smug, too conditioned to expect “subsidy”and “fixes”.

When will the fiscal fetish gang accept the basic economic law that you cannot increase tax on the back of a declining money supply.
We have a declining money supply because we never broke up the banks – seizing their deposits to create new banks and leaving the bondholders to play with their precious mortgage paper.
I believe Moore McDowell comes from a monetarist philosophy that believes in the creation of bank credit to drive growth – how can the banks create credit if they have huge unserviceable liabilities and declining assets.
A large section of the Irish banks assets are with the ECB and the remaining bond holders so therefore depositors at least theoretically are very far down the line of default.
It is the function of any central bank to be the lender of last resort but the ECBs adgenda seems to be the propping up of the shadow bank sector that it in the main created.
Lets not beat our self up regarding what happened in the past – the CBs created the monetory inflation many years ago – it just found itself blowing up property assets rather then monetory assets.
The solution in a debt based money system is simple yet for some strange reason the CBs do not want to go there.
The money needs to flow towards monetory assets to equalise the debt overhang – this thing could be solved in a week.

“What is curious is that nobody has pointed out that the alternative to the Lenihan/Rehn budget is an IMF/Rehn budget that will be much worse. Public sector wages will go to a 20% discount to European peers, ditto pensions. No hospitals in the middle of nowhere.”

I happen to partially agree with you on this issue. Also with your analysis of “three bubbles” with the public service bubble yet to burst. In truth this is the only bubble that will be burst as distinct from bursting.

With the latest new that AIB is pay million in bonus payments, it is clear we are in the looting phase of the economic disaster. That is where people get as much as they can regardless of the consequences because they know the riot police in the form of sanity or EU commissioners will soon be on the scene.

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