The Irish Economic Situation: Hopeless, but not Serious

In Billy Wilder’s classic movie “One, Two, Three” James Cagney plays a hard-charging marketing executive coaching his clueless son-in-law on the correct answers to give during an important job interview.  The son-in-law is told to describe the current international situation as “serious, but not hopeless,” but during the job interview he mangles this and describes it as “hopeless, but not serious.”  The interviewer is impressed with his originality and insight.  The same mangled answer might apply to the current Irish economic situation: hopeless, but not serious. The corner has been turned. The Irish economy will now experience a slow, steady recovery as the IMF-guided programme unwinds the deep structural flaws that developed in the Irish economy during the credit-fueled bubble of 2002-2007.

Recall the DEW conference “Responding to the Crisis” held in January 2009.  As the collective presentations made clear, the Irish economic situation at that juncture was serious AND hopeless.   Ireland had a hollowed-out tax system that was entirely unaffordable, a too-high minimum wage and too-generous social welfare system that made active labour force participation uneconomic for a large segment of the population, an overpaid and too-large public sector, and a dangerously pro-cyclical method of taxing property via transactions.  The speakers spoke convincingly, but offered no politically feasible way to restructure the deeply flawed economic system.

Our political and business elite, with the help of our European partners, have now muddled their way to a solution. An unaffordable bank bailout has left the state at the edge of default, and led to an IMF-EU rescue package. The discipline provided by this rescue package allows the political elite to overcome the political infeasibility of appropriate restructuring.  The restructuring programme implicitly described in the January 2009 DEW conference is now politically feasible.  

The role of Irish economists now is to just help everyone calm down and get on with the business of economic restructuring.  We can expect the usual noisy demonstrations from those offering Alternative non-alternatives, but if the electorate is sensible they will ignore them and their sound and fury will soon fade away.  There are also lots of positives in terms of cultural/social/environmental rethinking as Ireland emerges from this unfortunate credit-fueled-bubble episode.             

138 thoughts on “The Irish Economic Situation: Hopeless, but not Serious”

  1. @Gregory
    Very well put. Sensible people know what needs to be done – and have known for years. But I worry about your view that political cover will now be granted by the IMF to do the sensible things that will lead, ultimately, to recovery.

    Our political shambles is leading to perceptions abroad that apart from financial concerns we also have a systemic governance crisis (not just in the banks). That sits uneasily with your implict assumption that we now have sufficient governance infrastructure to do, finally, the right things.

    More pressing than this is the ongoing folly of pretending we have a liquiity rather than a solvency problem. Until somebody works out a way of either giving us money (as opposed to lending it to us) or forgiving our debts, no amount of structural reform will see us through this current crisis.

    People on this blog often ask what the markets are thinking: well, today they are rendering a verdict that it is all about solvency and that lending us 80bn is completely and utterly beside the point.

  2. @ Gregory

    Do you think the policy of protecting bond holders at the expense of taxpayers is the best economic choice available ?

    @ Simpleton

    What the markets seem to be saying today is that the bailout needs to be restructured. Loading more debt onto the sovereign to dig out the banks again doesn’t seem to be a great idea and I don’t see yields falling as was planned. The markets are hysterical . Where is Barbara Woodhouse ?

  3. @Raymond
    “Using austerity to deal with structual problems? ”
    No, using austerity to deal with persistent overspending and under taxing problems.

    Using structural reform to deal with growth problems… why, for example, is there no indigenous sector?

  4. @ raymond sexton

    that article is very interesting. up until the point where he describes ireland as a “paragon of fiscal virtue”. you would have to doubt the opinions of any economist who would make a statement like that.

  5. He is probably the equivalent of some of the trade union economists we have here in ireland, fully prepared to solve the problems of an ideal, imaginary world rather than the one’s we face in the real world.

  6. Fine but the bottom line is that we have too much debt.
    Normally austerity feeds back positively by freeing up labour and capital for alternative purposes.
    The break in the virtuous cycle for us is that savings made go to pay down unsustainable debt. It is, to coin a phrase, dead money.
    You cannot decouple the economy from the debt issue. That has been the mistake up to now.

  7. @hogan,

    The infrastructure and utility sectors provide the platfrom for economic performance in both indigenous and FDI sectors – see my comment on Philip Lane’s previous post. If these are inefficient they impose burdens and deadweights costs on all. And this is also linked to under-taxing and overspending.

  8. @ Gregory O’Connor,

    Very well put article, but I really don’t know if we are capable of helping ourselves anymore.

    Countless ideas, recommendations have been suggested on this site by numerous contributors and bloggers.

    While some / many of the ideas have merit there appears to be no implementation of these good ideas.

    Mr Paul Hunt has time and time again pointed out the flawed strategy in Irelands energy market. Yet nothing changes. At times one gets the suspicion of a hidden third force at work actively trying to make this country as uncompetitive as possible.

    There was a small glimmer of hope by the electorate in the GE of 2007. The Green party offered a alternative to the mainstream parties. In almost every respect the Green Party have failed to show they have the maturity to play “Senior Hurling” as the late Seamus Brennan said. The Green party cannot even work in a professional manner with their coalition parteners. That definetely rules the Green party out of any future govt coalition in 2011.

    The Govt of 2011 will require steady, reliable, mature and professional management.

    Labour and Fine Gael take note.

  9. Can we sustainably have the same currency as Germany and pay 5+% interest on 80B plus the money we owe the ECB. It doesn’t seem possible the debt is shifting around but ultimately it will have to paid or forgiven. I think the markets feel Ireland cannot possibly afford to pay off this debt our economy will never reach that level of growth.

    I think a two-speed Europe is possible where Ireland (et al) can somehow devalue and then rejoin. Either way it’s going to get pretty messy.

  10. @Paul Hunt
    “The infrastructure and utility sectors provide the platfrom for economic performance in both indigenous and FDI sectors – see my comment on Philip Lane’s previous post. If these are inefficient they impose burdens and deadweights costs on all. And this is also linked to under-taxing and overspending.”
    I agree, but see this as a growth problem, not as an overspending problem (except, perhaps, in that it is an inefficiency tax which redistributes upwards…).

    Immediate cuts in both the costs and the expenses (as in payouts) of legal actions, advice etc. would have tangible benefits in terms of overspend. Immediate cuts in a range of other fees paid likewise.

    The recipients of those fees would, however, be able to claim austerity and there would be a knock-on effect on ‘income’ in the economy. This doesn’t make those cuts any less necessary, but we have to recognise that all government spending is in the economy and that cutting it is austerity as such.

  11. @Gregory O’Connor

    The role of Irish economists now is to just help everyone calm down and get on with the business of economic restructuring. We can expect the usual noisy demonstrations from those offering Alternative non-alternatives, but if the electorate is sensible they will ignore them and their sound and fury will soon fade away.

    That’s a pretty big ‘if’. Mankind’s track record would suggest that in times of crisis it is the populists and snake-oil merchants who have their day in court. The fact that the country’s pie is shrinking may well foster behaviour at individual level that is madness at collective level. I reckon Ireland faces the ‘prisoner’s dilemma’ on a massive scale.

    I certainly wouldn’t bank on the ‘sensibility’ of the Irish electorate. Think: ‘Sinn Fein vote’. We’ll know in January.

  12. A lot of crying over spilled milk. Ireland is going through a classic banking crisis NOT a sovereign one. It is easily solved. Banking/financial sector and construction sector shrink. Kick out DEPFA and others who used the “low” CT rate to book their financial “poison” out of the Docklands. Other sectors such as tech, drugs, chemicals and good old agriculture will save the day. A banking crisis solution most likely will end making money (many of the classic examples of Sweden, LTCM did so). Common sense is in short supply. Put Dermot Desmond in charge.

  13. @Simpleton

    The more credit cards you throw at a bankrupt the worse hole he will get himself in.

    The 100 bn thrown at us by the EMF/IMF etc. will just make the problem go away for a couple of years while they deal with the much bigger problem that is ready to explode in the Iberian Penisular.

    In fact the 110 bn will turn all irish gilts to junk (they are nearly there already) as there was a sort of a disconnect in market from the fact that Lenny, on the instructions of the great Trichet no less according to Hennigan, made bank bonds pari passu with gilts on that fateful night in September. Depending on the numbers and there have been a lot Irelands debt/GDP ratio shot overnight to between 150%-300%. In otherwords we were bankrupt that day.

    This 110 bn is just confirming to a number of German and U.K. pension funds and banks that decision by Lenny. It is just a game of pass the toxic parcel to IMF and the ECB. However they may give us a little bit of liquidity in order to pay the interest on the junk bonds and help towards our very real structural deficit so we are not up in front of the headmaster again for another two or hopefully three years.

    By “legally” taking on the 110bn, most of which they hope will flow back to the U.K. and German bondholders of the zombie and dead banks we are just confirming to markets that our true debt is North of 150% of GDP and all irish paper is junk other than what matures in the next two to three years whom they hope will be paid by their loan that will be supervised and micromanged by them.

    At some stage Ireland will have to default or devalue as the law of external national debt cannot be changed. The IMF can reduce the minimum wage to zero and cut social welfare to €10 per week and hopefully divert all that cash to the bondholders and this still will not work. They can up taxes in all areas and the irish will start dealing in cash to avoid their new lords. Don’t say they havn’t been warned.

  14. @Hogan,

    I suspect I’m not making myself as clear as I should. Successive governments have adopted a ‘low-taxation/high point-of-use’ model for infrastructure and utilities. For example, in the energy sector, governments sanctioned excessively high final prices to finance much of the investment while extracting dividends and avoiding any call for equity injections from the Exchequer. The high prices facilitated lower taxation.

    This is an extremely inefficient way of financing investment and places a deadweight cost on all consumers and the economy. This is pure financial inefficiency and has nothing to do with pay levels in these businesses. I agree that reducing pay (in the semi-states and public sector generally) will reduce consumption and growth – and would add that pay reductions could make workers even more unwilling to deliver the efficiency reforms that are required.

    Right throughout the infrastructure and utility sectors the biggest problems are inefficient financing of activities dysfunctional structure, regulation and policy and there is potential to save billions annually quite rapidly.

  15. @Paul Hunt
    You are making yourself clear, but I disagree with:
    “This is an extremely inefficient way of financing investment and places a deadweight cost on all consumers and the economy. This is pure financial inefficiency and has nothing to do with pay levels in these businesses.”
    It is not just pay levels that are important. Where does the money go that is inefficiently channelled in this manner? It goes somewhere in the economy (barring the champagne, truffles and first class flights).

    Cuts in the amounts borrowed (i.e. brought into the economy) are going to be austerian however they are allocated. Whether this is through greater efficiencies or whatever.

    Now, personally, I see this as a good thing, but I don’t see that dressing up the consequences of reduced borrowing as another other than shrinking the domestic economy is a useful exercise.

    For future investment/growth in the economy, I prefer that these cuts fall more on the side of spending, on efficiencies, on structural reform, on rationalisation of regulation etc. as I think that private investment has more chance of generating economic growth in the medium term than public investment does.

  16. @Jules

    At some stage Ireland will have to default or devalue as the law of external national debt cannot be changed. The IMF can reduce the minimum wage to zero and cut social welfare to €10 per week and hopefully divert all that cash to the bondholders and this still will not work. They can up taxes in all areas and the irish will start dealing in cash to avoid their new lords. Don’t say they havn’t been warned.

    Nice to meet an ultra-realist.

    Extract from article in today’s London Times (behind pay wall but I found copy in The Australian):

    But even as Ireland tried to hold its polity together, senior economists told The Times that the €85 billion rescue was merely a sticking plaster for Europe’s troubles. The size of the bailout may have been underestimated and could grow once the International Monetary Fund examines the books, according to James Nixon, chief European economist at Societe Generale. “This would leave Ireland massively indebted and we think there is a very significant risk of a debt default within a two-year horizon.”

    http://www.theaustralian.com.au/news/world/portugal-on-edge-after-ireland-bailout/story-e6frg6so-1225959140006

  17. “The role of Irish economists now is to just help everyone calm down and get on with the business of economic restructuring. ”

    Let me fix that for you:

    “The business of right wing economists is to use the epic global failure of right wing economic policies to try and enforce even more right wing economic policies on a dispirited, alienated and vulnerable population.”

    The goal is basically a Hayekian one of sacrificing a just society for wealth.

  18. Page 1 headline on the international (paper) edition of ‘The Times’:
    Fear stalks eurozone as Ireland faces ruin

    Page 1 headline on today’s on-line Times:
    William and Kate: let’s have a party

    “The heart of the wise is in the house of mourning; but the heart of fools is in the house of mirth”
    Eccleiastes 7:4

  19. 14:22 23Nov10 RTRS-DUTCH FINANCE MINISTER SAYS SHAREHOLDERS, BONDHOLDERS IN IRISH BANKS “WILL HAVE TO BLEED” IN CONSOLIDATION
    14:23 23Nov10 RTRS-DUTCH FIN MIN SAYS COULD BE THAT RAISING OF VAT WOULD BE BETTER THAN RAISING CORP TAXES

  20. @ Carolus

    There is going to be a bond haircut anyway. Either now for bank debt on a controlled scale or later on the whole sovereign debt on a much wider scale as part of an intensification of the crisis.

    Have you ever come across Ophiocordyceps? It is a parasite that attacks ants in the Peruvian Amazon and eventually controls their brains. The fungus grows inside the ants and releases chemicals that affect their behaviour and eventually kills them but not before the sick ant is manoeuvred into a position favourable to the further spread of the fungus via the body of the dead ant. What is the biological reason for the existence of the fungus? It means that ant numbers in the jungle are controlled. If there were too many of them the jungle ecosystem would collapse. A small number of ants are sacrificed for the greater good of the ant community.

    http://www.guardian.co.uk/science/2010/aug/18/zombie-carpenter-ant-fungus

    All of our financial systems work along similar lines. If the banks get too big for the global economy they will eventually destroy the whole financial ecosystem.

    Haircuts are a relatively painless way of stopping the damage before it goes too far.

  21. @hogan,

    I don’t think we’re disagreeing, but I continuously find it difficult to expalin the structural and financing inefficiencies in the semi-state sector. You ask where does the money go that is inefficiently channelled in this manner. Think about electricity and gas networks in Northern Ireland, power stations hither and yon, etc. Think about financing Green fantasies that generate rents that will leach out of the economy. Yes, some dividends are provided to the state, but the return is poor by any standard. Over and above the usual depreciation charge, electricity and gas consumers are paying to finance investment up-front and then paying dividends on the equity they provide. This kind of nonsense is pervavsive in the infrastructure and utility sectors.

    It would take too long to detail the reforms required across these sectors – and bore other readers senseless – but a comprehensive programme of restructuring and privatisation would reduce consumers’ bills and the costs being imposed on the economy, improve the quality and quantity of service provision, remove the contingent liability that the borrowings of these businesses impose on the state’s balance sheet, reduce net debt (and the debt/GDP ratio) and release some funds for a focused investment stimulus.

  22. @Paul Hunt
    Yes, I think we are agreeing. I accept what you are saying, but using welfare as an example, where does rent supplement go? To landlords. Who spend it on? Imported stuff, interest, holidays abroad, bling and tat.

    A large proportion of everything that is spent by government leaks out of the country. By borrowing spending money, we are stimulating everyone else. What I am saying is that it doesn’t matter what the spend is on or how the tax is extracted, the overspend is the main problem. Dealing with the areas that spending goes to and what the ultimate spending is on is going to be good for growth in the future, but is not going to address overspending now.

    In future, it would be great if state investment was paid for out of state income (i.e. no debt involved) and that it is lean in terms of dead-weight costs. At the moment, all returns to the state are low.

    For the present, reducing state spending means immediately reducing costs whether deadweight or not. All spending has to be reduced.

  23. You refer to the credit-fuelled bubble of 2002-2007.

    Are you not aware that, in its 1998 annual report, the Irish Central Bank warned “against dilution of underwriting standards” at our banks? Or that in April 1999 the then Governor of the Central Bank, Maurice O’Connell, warned the country’s mortgage lenders that they were advancing too much money to borrowers?

    What data do you have that suggests 2002 (rather than 1996 / 1997) as the starting point of the credit bubble?

    The credit bubble started with EMU.

  24. @Cormac Lucey
    I think you are mistaking cause and effect. The credit bubble, IMO, started with the yen carry trade, the Greenspam puts and then the yuan carry trade. Central Banks follow medium term market rates, while trying to influence them in the short-term (they set short-term rates with reference to medium term). Medium term rates collapsed in the 1990s all over the world.

  25. @Cormac Lucey

    Point taken – I might be citing too-late a start date for the credit-fuelled bubble. Perhaps 2000 as a compromise? I do not have a strong opinion on that starting date. My own recent research uses 2003:Q1, but that is simply due to data availability limitations.

  26. @Gregory

    ” The role of Irish econmists now is to just help everyone calm down…”

    Very well said and I agree 100%. (IMHO it is a pity another prominent Economist, and “beneficiary of the Public purse” did not keep this in mind a few weeks ago before allowing his thoughts to appear in the print media and causing widespread discomfort throughout “Middle Ireland”. )

    We will have an election and the best date for that is January (with an early return from Dail break on 3 January and 10 days to get essential business done before disslution). Not December and most certainly not March.

    In case any one is wondering I have not stepped into a can of “organic green paint” and would be quite happy if only one or two Green Party candidates are re-elected just to keep some focus on environmental issues.

    We may be providing some(Economic) commotion around Europe right now but we have to remember two indisputable facts:
    1) A lot of EU members would like to have the socia/economic status we enjoy.
    2) We are the longest CONTINUOUS DEMOCRACY within the EZ and only member that does not have to live with the legacy of WW2 or Military dictatorship.

    Ireland has always been “open for business” and this will not change despite our penchant for raucous debate and Party political shenanigans which take place against the backdrop of Democratic Governance.

    Having said all above I have to give in to one temptation:
    I wonder if anyone has noticed two developments in Galway East or sees any connection?
    A sittting Fine Gael TD has announced his intention to retire after the next election and a business man who “dipped his toe” into the political arena during 2008-2009 apparently broke a long silence and appeared in the UK media discussing current Irish events.

  27. @hoganmahew

    I think you are missing the point. Reductions in social welfare is at a much larger GDP multiplier than the displaced taxes on higher earners or in Irelands case ECB backed paper.

    If welfare is reduced by say 1bn GDP and the cash diverted to bondholders GDP will drop by about 1.5 bn and the critical debt/GDP ratio increase by about 1%.

    Basically hitting welfare is not going to make the IMFs sums any easier and will piss of a lot of people. Welfare reduction only generally makes sense when you are close to full employment and have a pretty tight labour market when large payments are disincentive to work.

    However attacking FF natural monopolies and cartels such as the legal system, consultants ESB etc. will have a positive result as the cost of buisness will go down and employment increase.

    Even when all this is achieved we will have to default/devalue/cut some serious hair anyway as the irish external debt/GDP ratio is above the critical level.

  28. ISn’t it time to recognise we need poitical as well as economic reform? Perhaps it’s time to grow up and put the civil war behind us, recognise the policy similarities between FF & FG and merge the two. And bury the parish pump in 6 feet of concrete.

  29. @simpleton

    I couldn’t agree more. The tattered remnants of FF should merge with FG or they will face a deacde of dwindling votes from their geratric support base before disappering into historical oblivion when the people realise that their local TD has no power over local events

  30. maybe i for one am very slow. i returned to ireland in 1998, as the so called celtic tiger was up and running. i may not be equiped with the educational background,of my peers but can differentiate between right and wrong.in the year 2000 ireland was the only country in europe that was purpotedly in the black,thats ten short years ago,since then we have sold our infrastruture to foreign shores,we have sold our natural resources( i.e the corrib gas field,and others associated in and around the irish coast line). we have sold our minig rights,our fishing rights and most of all our labour rights,as the only people now working are the european ellement who now reside here,whome were brought in originaly as cheap labour,and who have thrived not only with work,but with all the benefits through the socialservices structure. we have sent and spent millions if not billions to these peoples for child benifit and repatriation to ther original homeland,our own people have to fight for the minimum that the social system allows them to claim,yet the migrant worker and so called asylum seeker is rapelng the country with smiles on there faces.now we are led to believe that this money from europe is going to be our saviour,what a laugh,as this money is going to pay off the eroupean bond holders so they do not find themselves out of pocket. we had two votes in this country in the last few years,one for the maestric treaty,and one for the lisbon treaty ,these were given a very large no vote the first time round, but were brought out again when the government spin doctors, put a scare into the people about them losing there jobs, well the people voted yes the second time around ,and geuss what we still lost our jobs. so much for democracy it makes me think back to animal farm all animals are equal, but some animals are more equal than others. when as a people do we stop waiting for some one else to right our wrongs,as we have always done in the past, i’m all right jack,stuff you seems to be our new rallying call,

  31. @ Shay Begorrah

    “The business of right wing economists is to use the epic global failure of right wing economic policies to try and enforce even more right wing economic policies on a dispirited, alienated and vulnerable population.”

    Is the euro project that has caused this mess a right wing policy?? Au contraire mon ami, c’est le petit poodle projet de la socialiste elite d’Europe!

  32. @jules
    “If welfare is reduced by say 1bn GDP and the cash diverted to bondholders GDP will drop by about 1.5 bn and the critical debt/GDP ratio increase by about 1%.”
    That’s a total strawman. Of course exporting a billion versus spending it in the economy is going to have a bigger effect. Mind you, that is one reason why it is a poor idea to borrow from abroad to goose growth…

    What I am talking about is borrowing by the government. As it is 80+% from abroad, that brings money into the economy. As the deficit is 19bn, that’s a big whack being brought into the economy this year.

    But does it matter how inefficiently it is wee’d away? 1 bn on deadwight costs spending (a national convention centre, for example) vs. 1 bn on welfare payments?

  33. You are showing your ignorance of the Irish political system. Labour and FF would make better bedfellows. Both are populist, think that govt spending sorts everything & believe that payment is someone else’s problem. In addition, both are creatures of the trade union oligarchs.

  34. Our leaders question time was shown live on sky news today. Profound contrast when compared with the british versions i’ve seen, involving blair, brown, hague, cameron et al. Cowen and Kenny are dreadful public speakers, just long meandering painful exchanges. They seem to be able to use 10 words and at least 4 “em’s” where 5 words would suffice!

  35. You’ve got to love this piece for it’s patrician insouciance.

    Those calming economists – who had nothing whatsoever to do with the idealogical foundations of the current crisis – presumably relish the cosy feeling they will not be counted among the lower orders that will bear the brunt of IMF slash and burn.

  36. Simpleton,

    My lack of respect for the legion of the rearguard is not tribal. It is based on observation of their track record over the years. I note you did not address my observation that they have more in common with Labour rather than FG.

    By the way, saying that really annoys lefties as they conceive of themselves as morally superior to the rest of us. Read the op ed pages for the alleged paper of record.

  37. Would any of our politicians win The Apprentice?
    Nope.
    We need one seater constituencies with appointments to ministerial jobs made by a committee.
    A cost saving and a weeding out in one go.

  38. Would any of our politicians win The Apprentice?
    Nope.
    We need one seater constituencies with appointments to ministerial jobs made by a committee.
    A cost saving and a weeding out in one go.

  39. @hoganmahew

    i actually agree with you. I just feel sorry for all the newly and long term unemployed and hope that the IMF go easy on them.

    However i stand by my more general point that in an ecoomy without external debt GDP can be boosted by taxing the employed and efficiently transfering this to the unemployed as the unemployed save less and spend more on local produce.

    As for the cash spent on white elephants, what a waste. Fxxk them and their greenie quislings. i use dublin airport twice a week and it was fine no need to blow a billion. Similar things could be said about a lot of the motorways that i also use a lot.

  40. @Paddy Orwell

    While no one disputes the difficulties that being in the Eurozone now presents to getting our finances under control I feel it is a teeny tiny bit of a stretch to blame it for the global financial meltdown, our hare brained bank guarantee scheme or even the preceding credit surge; the old DM would have inflated the property bubble just as well as the Euro.

    Institutionalized greed and lack of regulation got us here, neither of which are the weaknesses of socialism.

    Also, the EEC and then EU has been of huge benefit to us and we have given back very little in return, plausible counterfactuals that get us to the enviable state we were a decade ago are not easy to make.

    Whether the EU’s swing to the right is a result of or a cause of our woes is an interesting question though.

  41. @ Shay Begorrah

    30 years of Reaganism/Thatcherism got us here. Ireland came late to the party but caught up in style. The little people were thrown smarties in the form of limited salary rises and suchlike but the destruction of the regulatory landscape and the expansion of credit were ideological. The US, UK and Ireland all got a dose of the same medicine and all are on shaky scraws at the moment. The English language was a great vector.

    Between 1976 and 1979 Carter’s presidency focused amongst other things on breaking the power of the Israel lobby, health insurance reform and the development of environmental legislation. Morning came to America and those three issues were either parked or put into reverse. 30 years on Israel is in serious trouble, the US has a massive health insurance problem and the environment is in crisis. The triumph of Reaganism has led us to a very sorry pass. Inequality in the US is back to 1920s levels.

  42. Eureka,

    Have you seen the Apprentice this season. Your proposal was put forward twice by FF in the sixties.

    Your main issue is that you don’t like the TDs elected by your fellow citizens. The solution is clear…change the electorate.

  43. @Greg & Cormac,
    I tend to date the beginning of the bubble to early 2003, because of this: http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=117.BSI.M.IE.N.A.L40.A.1.U2.0000.Z01.E (hope the link remains stable).

    There were good real economy reasons why property prices increased rapidly from around 1995 up to around 2001. You know, booming exports, booming employment linked to the export boom rather than substantial overseas borrowing, increasing pay. That sort of thing.

    I always thought the Central Bank had damaged its authority by crying wolf in the late 1990s.

  44. @ Tull
    No. I have no issue with my fellow citizens. The current methods of candidate selection and transfers works against conviction politicians and for politicians who should be convicted.
    An example system might be of single seat constituencies electing to the dail to decide national issues. Then divide the country into 5 administrative regions. Abolish county councils and merge them into these regional bodies instead.
    It is a cheaper system that could not be any worse than what we have already.

  45. @Eureka

    We used to have a system like the latter which evolved into the former but most of the Island left it behind in 1922.

    The debate regarding PR and “first past the post” still rages in the UK.

    I have also been unpleasantly surpised how the modern version of “appointment by committee” (ie the list system) disengages voters even in small European countries.

    IMHO it would be safer (albeit still chaotic, lacking in certainty and less efficient) to keep the system we have. In Ireland the “great unwashed” are very educated and have become used to having their voices heard.

    If we were to change our electoral system I fear we we may need our army to do more than holding parades and giving itś “Professionals” pensions in their 30`s for spending 20 years doing whatever else thay do to pass the time.

  46. @jules
    Well, now we are in agreement.

    The limitation to taxation is that you can’t get blood from a turnip. If you do make it a disincentive to work and to save, there will be neither work (productivity) nor savings (capital for investment).

    What there shouldn’t be is tax incentives. You earn an amount, you pay an amount, doesn’t matter how you do it, doesn’t matter how much it is (within bands). Everybody pays something, so everybody has a stake in what gets done with it. At the moment, 70% of the workforce doesn’t give a monkeys (50% don’t pay tax, 20% are unemployed or out of the workforce).

  47. [off topic – for quote collectors]

    The Delirium of Milliards
    The majority of statesmen and financiers think in terms of paper … They sit in their offices and look at papers which are lying in front of them, and on those pages are written figures which again represent papers … They write down noughts, and nine noughts mean a milliard. A milliard comes easily and trippingly to the tongue, but no one can imagine a milliard.

    What is a milliard? Does a wood contain a milliard leaves? Are there a milliard blades of grass in a meadow? Who knows? If the Tiergarten were to be cleared and wheat sown upon its surface, how many stalks would grow? Two milliards!
    – Walther Rathenau, Berliner Tageblatt, 9 February 1921

    I came across this citation in Adam Fergusson’s marvellous history of the German hyperinflationary crisis of 1923, entitled ”When Money Dies – The Nightmare of the Weimar Collapse”. The book itself was long a collector’s item but has since been reprinted. It is also available online here, so you can print it out using your university’s (or other public sector employer’s) printer and paper free of charge:

    http://www.wolf1168.us/misc/Articles%20of%20Interest/When%20Money%20Dies.pdf

    Hyperinflation is hardly an immediate risk facing Ireland today, of course — but if you want to know what itjust might be like, Fergusson’s classic is probably the best account ever written in the English language. As to the Rathenau citation, please replace ‘milliards’ by ‘trillions’.

  48. @ Carolus

    this is the problem we have – arguably the two most important monetary authorities base their core ideology on events that took place 80 years ago – Germany’s/Bundesbanks obsession with avoiding hyperinflation and the US’s/Fed’s obsession with avoiding the great depression.

  49. @gregory connor

    “The discipline provided by this rescue package allows the political elite to overcome the political infeasibility of appropriate restructuring. The restructuring programme implicitly described in the January 2009 DEW conference is now politically feasible.”

    Implies the problem could not be addressed because the public were not open to persuasion by the politicians (the imaginary ones who knew what was going on that is).

    It is a bit like the fact that a banker refusing mortgages a few years ago might have been lynched – or at least complianed about to the local TD.

    I might be inclined to blame the public in significant part, but I don’t think they would stand for it.

  50. If we wish to abolish parish pump politics then we can do that without messing around with the rest of the constitutional system, although it would be better to have workable funding arrangements for local govt and that counts as a worthwhile constitutional goal too.

    We can abolish parish pump politics by forbidding TDs, on pain of explusion from the Dail, from getting involved in any issue that is local to their constituency or possibly to any adjacent constituency. Appropriate drafting wouldn’t be trivial, but you could abolish localism at a stroke….if you’ll excuse the bad pun. TDs would be required by law to be national legislators.

    Now, if you wanted to argue for a bypass for Tralee you’d have to argue for national legislation that required bypasses on all towns above a certain size, etc., and for appropriate prioritization mechanism to decide which town came first. Any attempt to drive criteria in a way that favoured your own constituency would be grounds for judicial challenge and explusion from the Dail. Done. As I say, not a trivial drafting challenge, but doable.

    However, I suspect the electorate wants localism. So do most TDs, since they demonstrably stink as national legislators.

  51. a fine statement; by hoganmahew 6.29 does he honestly believe that only 30% of the people of this country pays tax? the amount of tax collected from wages alone,is very miniscule to the whole of the tax gathered in anually, every one pays tax whether working or not,employment is only one item which is taxable

  52. @james
    That may be true, but while it would be seen as somehow unfair to charge different rates of VAT in Tesco depending on how people were dressed, it’s seen as perfectly fair as long as “someone else” pays higher rates of tax on their employment.

    When a large percentage of the population pays no tax for working, there’s too much assymetry in how people feel about taxes on working. Ireland has heavily punitive taxation on high value labour. “Someone else” should always pay.

    Now, before you start, please read up some of my previous statements on Ireland’s protected sectors and how they’re not getting paid for their work but are extracting rents from their protection racket. Tax isn’t the solution to that problem.

  53. @Hugh Sheehy

    We can abolish parish pump politics by forbidding TDs, on pain of explusion from the Dail, from getting involved in any issue that is local to their constituency …

    If I were philosopher-king that’s just what I’d do. Or perhaps I’d just eliminate constituencies altogether and restrict suffrage to myself and a couple of my clones.
    And if my grandmother had wheels, she’d be a bicycle.
    Let’s dream on.

    @Bond
    Ta. Plenty to ponder over.

  54. It is in line with the terms of the EFSF. The FT worked out that the rate could be up to 8% recently.

    BTW, 10 year bond rates have risen in Europe and spreads in the core have widened. There has been some speculation that the EFSF is facing difficulties raising the money from its target investors in the Far East. Apparntly they have begun to doubt whether they get paid back.

  55. Carolus,

    How about just letting 3 or 4 posters here choose the Dail and Cabinet. Only fans of Fintan O’Toole need apply.

  56. hugh,well you are quite rite on that one, but the point i was trying to make,is that every one is ready to blame the unemployed.there are only a small amount of people per head per capita, that are unemployed full time.these times now which are upon us,have swelled the unemployed ranks,to proportions we have not seen for many a year but may see for a lot more to come,with all the damage that has been done,to the country and its economic state there is no magic wand to repair it. i’m just afraid that all the debates and future tribunals will reap the same rewards.

  57. 7% is sounds distinctly unfriendly. They seem to be trying to treat us as if they had just beaten us in WWI. 7% is neither a bailout nor a bail-in. It’s reparations.

  58. @ Gregory

    “The Irish economy will now experience a slow, steady recovery as the IMF-guided programme unwinds the deep structural flaws that developed in the Irish economy during the credit-fueled bubble of 2002-2007”

    I have to say, I somewhat disagree. The Irish debt problem will not go away no matter how comforting the EFSF loan. It will be a drag on the Irish economy for decades whilst all structural reforms will be aimed at ‘supply’ in the labour market when in reality we need ‘demand’.

    It will be minimal, sluggish growth with no job creation and massive levels of emigration (myself included). In effect it will embed the dual labour market-economy: MNC v’ the rest. We need to ask serious questions about the type of political economy we want our institutions to support – the IMF prescription aimed at structural reform is in effect – slash and burn. We need investment and growth.

    The only way this debt problem will be resolved is if a) the eurozone falls apart and each country negotiates its own default or b) we start printing a hell of a lot of money and hyper-inflate it away. In the meantime, the under 30’s will spend their time making job applications in a second language.

  59. I’ve just re-read Gregory Connor’s posting:

    Recall the DEW conference “Responding to the Crisis” held in January 2009. As the collective presentations made clear, the Irish economic situation at that juncture was serious AND hopeless. Ireland had a hollowed-out tax system that was entirely unaffordable, a too-high minimum wage and too-generous social welfare system that made active labour force participation uneconomic for a large segment of the population, an overpaid and too-large public sector, and a dangerously pro-cyclical method of taxing property via transactions. The speakers spoke convincingly, but offered no politically feasible way to restructure the deeply flawed economic system.

    Our political and business elite, with the help of our European partners, have now muddled their way to a solution. An unaffordable bank bailout has left the state at the edge of default, and led to an IMF-EU rescue package. The discipline provided by this rescue package allows the political elite to overcome the political infeasibility of appropriate restructuring. The restructuring programme implicitly described in the January 2009 DEW conference is now politically feasible. [italics mine]

    I hope that Gregory is right about this, but I’m sure readers here would appreciate some quantification on thepolitical feasibility front.

    Wearily, I repeat the questions I have put several times in the past week:

    DRAFT QUESTIONNAIRE TO IRELAND’S LEADING ECONOMISTS AND TO ANYBODY ELSE WHO FEELS LIKE ANSWERING IT

    WHAT reduction in public sector pay/pensions is politically feasible today that was not politically feasible in January last year?

    — minus 10%? minus 15%? minus 30%?

    WHAT reduction in the minimum wage is politically feasible today that was not politically feasible in January last year?

    – 1 euro, 2 euro, 3 euro, ….

    WHAT reduction in welfare services is politically feasible today that was not politically feasible in January last year?

    etc. etc. [to be completed]

    How silent economists sometimes are when it comes to numbers, and how loquacious when it comes to words. Strange.

  60. CG
    How important is the Minimum wage? Are the cleaners in the banks and the strawberry pickers really that much a cause of the problem? Just asking.

  61. @James
    The point isn’t to “blame” the unemployed. The question is merely about money.

    @Carolus
    I prefer to have noble goals and settle for something more practical rather than having merely practical goals and being forced to settle for something downright tawdry.

    @All
    Crikey, at 7% it’d be time for aggressive resolution mechanisms that convert debt to equity. 7% certainly doesn’t sound like any kind of bail out worth having.

  62. @tull
    If Deppity Hangdawg is right, we are plucked, stuffed and buttered… happy thanksgiving…

    What a pointless exercise if that is what on offer.

    So, how do we go about stiffing the ECB and eliminating the deficit in a single year. It’s year zero time…

  63. The late reports on the markets in the Italian media (La Repubblica and Il Sole 24 Ore) are giving quite sharp and even angry coverage to the Irish situation. Angel Merkel’s ‘extremely serious’ concerns are echoed fully and while the Irish media may engage in guess-the-weight exercises on the bailout, European markets lost €80 billion today collectively and much of the blame seems to be falling on Ireland. Also many comments hostile to a bailout which does not entail a rise in corporation tax – must be Merkel’s nightmare. Curiously the Italian media also claim that of €85 billion only €35 billion will be put into the banks.

    Greece, i thought, was drawing down 3-year funds from the EU at 5% and from the IMF at a little over 3%. I am open to correction on this. If Ireland was being charged near 7% it would imply that the funders expect the debt to be on their books for a very long time, would it not?

  64. @Brian Lucey

    How important is the Minimum wage? Are the cleaners in the banks and the strawberry pickers really that much a cause of the problem?

    Brian, the Sermon on the Mount is the cheapest shot of all. And I cried all my way to my leafy suburban villa avec vue imprenable before I got round to answering your post.

    Actually I haven’t a clue how important the minimum wage is. Perhaps it is of marginal significance. But I was not asking that question. The question I asked concerned political feasibility, not political morality.

    [puts on Fintan O’Toole cap]

    Was it for this that the Wild Geese … ? Ochon agus ochon …

  65. BL, the high prices in the non-traded service economy and in tourism industries are not just a matter of price gouging by professionals, weak competition and ludicrous property prices/rents. They are also a consequence of relatively high pay at the low end of the scale. Tackling this should have a positive impact on the competitiveness of all exporting industries.

    There are also some traded industries, notably food, in which significant numbers of people are on relatively low pay, and where a drop in the minimum wage should allow businesses to protect jobs or to expand employment.

    The impact will not be limited to just people on the minimum wage. A bigger issue is that pay for very substantial numbers of people is positioned relative to the minimum wage, so a downward shift in the minimum wage should permit a much more widely based fall in labour costs towards the low end of the scale.

  66. The welfare system would appear to be a greater challenge than the minimum wage.

    Unemployed married man, three children, council housing. Will he work for €14/hour gross? Debatable.

  67. There’s no way 7% is sustainable. 7% is type of rate Sinn Fein could run an election campaign on and pick up 25 seats. 7% is the type of rate that will cause the Eurozone to fall apart, not stick together. 7% is the type of rate that causes the Irish state to declare large parts of the German banking system insolvent.

  68. 7%? With friends like that who needs enemies? If as many commentators subscribe that “they” need us to take it to save themselves then maybe it is time to refuse to take it unless we get it at 4%

  69. @ Hogan

    first off – i dont think it IS 7%, because, as i said, its insanity.

    However, Plan B is simply a default. Or go straight to the IMF and ask them for a Plan B. Or have a referendum on Eurozone membership. I dunno, whatever nuclear option you want. All of a sudden McWilliams is gonna look like a moderate in terms of his opinions. Gerry Adams will be Minister for Finance by April.

  70. @BeeCeeTee

    re: minimum wage

    Spot on. It’s amazing how otherwise intelligent people seem to find this tradeoff between the minimum wage and employment so difficult to grasp. In Bryan Caplan’s great book ‘The Myth of the Rational Voter’, the ‘minimum wage’ issue is one of the litmus tests that distinguishes between the brights and the not-so-brights. There are some who ‘just don’t get it’.

    re: 7%. Off the wall it is.

  71. Only announced on RTE news so the exact details were “sketchy”.

    Seemed to be real though as they said AIB would be 99.9% state owned and BOI would be significantly majority state owned.

  72. @The Alchemist

    Unemployed married man, three children, council housing. Will he work for €14/hour gross? Debatable.

    Actually, not debatable. Unless the unemployed married man has the moral probity of the venerable Matt Talbot. Cords and chains and self-flagellation, etc.

  73. 7% is not remotely rational; especially if it means Ganley as a revenant.

    @ The Alchemist

    “Unemployed married man, three children, council housing. Will he work for €14/hour gross? Debatable.”

    Well he’d be €230 or so better off a week. Rational?

  74. @bazza

    Thanks for the link. The German pols, press and commenters have been almost obsessive about CT. Also talk about fictitious invoices between parent and subsidiary companies and related scams.
    It’s a good bargaining chip, anyhow.

  75. http://www.ft.com/cms/s/0/da446f6e-f41e-11df-886b-00144feab49a.html#axzz168winVBN

    “And for Ireland, the corporate tax is crucial to sustain the external sector – the one healthy part of the economy.

    Even if this were not so (and the Irish are guilty of fetishism; there is room to nudge the rate up without losing competitiveness), using Ireland’s plight to force a change in the rate now would, politically, be the most monumental own goal Europe could score. The Irish were converted to the Lisbon treaty by guarantees on tax sovereignty. Reneging on them would cause cracks in Europe’s political edifice that no words could paper over.”

    This is absolutely appalling.

  76. @Philip Nairu
    “Well he’d be €230 or so better off a week. Rational?”
    Not with the add-ons for dependent spouse and children, the back to school allowance, the medical card, the etc. etc. etc.

    14 euro an hour is about 27,300 a year. Above most of the means tests…

  77. If 7 pct related to the bank recap element only it wd be an ok deal. If it relates to state and bank funding it is bordering on a demand for reparations.

  78. And not a sniff about bondholders.

    Preparing to FLIP if there’s no deal.

    And what is with this 99.9%???? What is the POINT?

  79. The rumour of a 7% rate may make the reality of 5% more palatable for some – but in the great scheme of things what does it matter in this union of vipers – anyhow 5% is impossible if they are struggling with 1.5% now.
    Although 7% would confirm they want rid of us.

  80. 7% would be very bad strategically. Spain couldn’t manage 7%.
    Neither could Portugal where austerity already isn’t working.
    Maybe they want to break up the Eurozone.

  81. @Keith

    Do they really want to get rid of us?

    If the terms are too tough it will start to become rational for us to default. The Germans are frightened of having to recapitalise their own banks and we owe them 150bn.

    In that repect, it seems 7% or an increase in CT would be completely self-defeating from an EU point of view.

    I wonder what kind of rates bilateral loans from the UK, Sweden and Denmark would be. If they are bilateral, there is nothing to suggest they would be as draconian as 7%. While the total may only be 15bn at most it would put a much bigger loan from the EFSF in perspective. Its in the UK’s interest in particular to see us get out of this hole.

  82. Also, if the EU is not playing ball and insisting on 7%, would it be possible for us to get a direct loan from the IMF?

  83. @ hogan

    “Not with the add-ons for dependent spouse and children, the back to school allowance, the medical card, the etc. etc. etc.

    14 euro an hour is about 27,300 a year. Above most of the means tests…”

    Total income from welfare (including spouse and children) is about €21,400 for this family; they’d also get Family Income Supp by reference to threshold of €35K for a family of this size; back to school threshold is about €32K so they’d hold that; Medical Card can be retained for 3 years after leaving the dole. Let’s see how long it all lasts!

  84. @Philip Nairu
    Thanks for the figures – I may need them! Of course, by the time I do, they won’t be there, as you say.

    Still, it’s not much of an incentive to get out of the house (with the costs that entails) and actually work…

  85. The last problem Europe tried to sort out was the Balkans. Look how that ended.
    I would not be surprised if this rate is accurate but would like to wait and see. 4-5% is do-able. Anything else is folly
    @ Eoin – I never ever ever thought I’d see the day…..

  86. @Seafoid
    Its been a decade of the most wasteful spending imaginable.
    Bungalows and blight.
    Indeed what a waste the last 40 years have been.
    Who could have imagined that the west could go bankrupt without a major war ?
    The malinvestment has been epic in scale – with vast resources spent pouring concrete around the mediterranean basin for 2 weeks in the sun !

    What tiny fraction of this orgy has been spent that creates core wealth ?
    All those BTUs burned for so little …. how sad to see humanity go out with a vain spurt of stupidity rather then a dash for glory.

    Milton you have destroyed the west – congratulations on a successful mission.

  87. If it is 7%, RBS and Lloyds shares are going to take a hammering tomorrow. The British government isn’t likely to take it, as the major shareholder in both.

  88. Folks, funny you are freaking out over whether it’s 5% or 7%…either way, any rational investor wouldn’t lend the money.

    You are bankrupt. Insolvent.

    Don’t feel bad, you are just realizing it sooner than others.

  89. @ Bazza

    Sweden suggested their rate would be around 3%, which isn’t that different to their own borrowing rate. Will the most popular new-born name in 2011 be Bjorn?

  90. If there is going to be any loans from Sweden then I expect the interest rate might reflect the risk.

    A Swedish professor in international economy has publicly said that it might be difficult to get paid back from Ireland.

    Any loan from Sweden has to be approved by the Swedish parliament. Public opinion is not supporting loans. The Swedish public seems to think that Swedish public money can be better spent in Sweden.

    My guess is, without reforms in Ireland it will be difficult to get a loan approved in Sweden. Lowering the minimum wage is not seen as an act of solidarity or a worthwhile reform, it is seen as the Irish don’t care about their own. If you want solidarity, show solidarity.

    & the term ‘Double Irish’ is becoming know as well.

  91. This has to be my all time favourite.

    I laugh out loud every time I see this , oh the irony , the arrogance of the man – indeed what a little shit he was.
    Look at the disbelief on the faces of the Icelanders whose forefathers survived on the island only by not being solely economic agents of rent.
    The future president of Iceland in this film must be seething.

    http://www.youtube.com/watch?v=e_Ds_LRROLI

    Oh well chalk these monetarist decades down to experience I guess until another academic comes out with a wild theory that’s never been tested and strangely does not sit well with common sense and for some funny reason mildly retarded politicians hear these voices in the wind and inexplicably act on them.

  92. @Sarah Carey – the riding instructions are probably still from Bacon’s original Nama report which (I’m paraphrasing) said that preservation of a stockmarket quote was important. Eh, yeah. That has really shown its worth in providing access to capital markets, the apparent rationale behind the original assertion.

    The backward-looking approach all the way through, the attempt at every turn to restore the status quo ante as if that were desirable (remember the Anglo going concern waste of time and money), and the refusal to reverse ANY decision until it was proven wrong…and then never to admit its original wrongness – it goes on yet.

    At no stage has this government attempted to get ahead of the problems – banking or fiscal – and I can only assume that’s down to a touch of both Lord Denning’s “appalling vista” approach, and a refusal to admit any of the problems’ roots were due to their policies. If you can’t analyse a problem properly, you can’t solve it.

  93. @ Keith
    Thanks for the link. THought you were talking about Paradise Lost for a while – was getting really worried!

  94. @Keith

    Thanks for the link. Absolutely fascinating.
    The rot set in during morning in America and the rest is history.

  95. I’m an American of Irish descent…brothers, together we will rebuild. Please understand there is no way you or I can pay off our countries debts.

    For America, it would cost $2222 / month for the next 30 years per every 111 million American taxpayers to fund our “unfunded liabilities” on top of their current taxes. It would cost another $250 / month per every tax payer just to pay our $13.8 Trillion debt. Average American household makes just over $50k. Then we have massively underfunded states, pensions, etc. that all need significantly more $.

    Brother, once you get your 7% loan, maybe you can loan us some?

  96. Two questions:
    1. All these figures about German exposure to Irish banks. I thought these all came from the BIS and thus didn’t in any way differentiate between IFSC and non-IFSC debt. I’m not saying one is gilt-edged and the other a turkey but in relation to what the Irish government has to stand over, I think it’s worth knowing if these figures are accurate.
    2. For great deals on taxation, I thought ‘double Irish’ was only a necessary condition and that a ‘Dutch sandwich’ or some such was sufficient. Not of course that we want to get into that sort of finger-pointing game.

    For those feeling depressed reading about a European stitch-up, I’d recommend the link to Barry Eichengreen’s thoughts on this, in Kevin’s post.

  97. I am convinced that decreasing the minimum wage is socially dangerous (which has real costs) and that the argument that it increases overall employment is not well developed.

    It is particularly curious to give tourism in Ireland as an example where lowered wages would make the industry more competitive, our hotels are apparently the cheapest in Europe.

    Of course Germany, with a lower cost of living that we have, has an almost identical minimum wage as well as a lower Gini coefficeint and lower unemployment. What Germany also has is a more progressive tax system and significantly lower wages at the higher end of the professional scale.

    Lastly an increase in the low end of the wage scale has a disproportionately large effect on domestic consumption as the less well paid and have more immediate needs (they have an incentive not to defer spending and less ability to “invest”).

    I await someone with a background in economics to present actual data demonstrating a statistically significant link between a drop in the minimum wage and increased employment, all other factors being equal.

  98. @Ronan L
    1. You may be right, but it is difficult to figure out the quantum. You might get more answers by reposting on the new thread? (7%!)

  99. http://www.eschatonblog.com/2010/11/and-after-youre-done-giving-25kperson.html

    “””IMF on Ireland, 2006:
    • The outlook for the financial system is positive. That said, there are several macro-risks and challenges facing the authorities. As the housing market has boomed, household debt to GDP ratios have continued to rise, raising some concerns about credit risks. Further, a significant slowdown in economic growth, while seen as highly unlikely in the near term, would have adverse consequences for banks’ non-performing loans. Stress tests confirm, however, that the major financial institutions have adequate capital buffers to cover a range of shocks.”””

  100. @keith
    No fan of Friedmans – I am old enough to remember the thatcher era – and I can recall how angry his pomposity made me then. One point though – and that is government intervention – which we did to prop up the banks with the guarantee – is not moneterism

    Just switched on VB and B.lucey and Paul somerville are on – is it really 7%?

  101. @AMcGrath
    I was thinking of the enormous creation of credit withen banks for little long term reward.
    Remember during thatcherism there was no austerity – it was merely a transfer of wealth .
    Indeed the reason for the collapse here endorsed by former thatcherites is that they believe that they can replicate those times but fail to recognize that neither the present banks nor the sovergin can increase credit.

    Besides monetarism needs a enormous beaucracey however nearly all of this lies with the banks not goverment – think of the number of bank workers and try to imagine them as goverment workers who use interest as a tax.
    With unrestricted credit creation of modern monetory theory they can have no brakes on their greed.

  102. Total income from welfare (including spouse and children) is about €21,400 for this family; they’d also get Family Income Supp by reference to threshold of €35K for a family of this size; back to school threshold is about €32K so they’d hold that; Medical Card can be retained for 3 years after leaving the dole. Let’s see how long it all lasts

    With 3 children I get the medical card on an average private sector wage. The figures showing I would be better off on the dole are based on my family being ill every month as far as I can see.
    Just because our medical cards cost the state €1,250 per year to pay my doctor it does not mean they are worth this figure to my family. I’d much prefer a healthcare voucher of some kind, the surplus of which would be returned to the exchequer if I don’t use it.
    Really these extra benefits should be abolished as they cause poverty traps and instead income tax/social welfare payments used for wealth redistribution only.

  103. @ hoganmahew wrote

    “Central Banks follow medium term market rates, while trying to influence them in the short-term (they set short-term rates with reference to medium term). Medium term rates collapsed in the 1990s all over the world.”

    CBs set short term interest rates and it is the degree which they fit / do not fit with the Taylor Rule which I use to consider whether they are generally appropriate. http://en.wikipedia.org/wiki/Taylor_rule

    Medium term rates may have collapsed all over the world in the 1990s but the key for me (and for most Irish housing borrowers) is the degree to which EMU gave us interest rates from 1997 – 2007 which were generally inappropriate and generally too low.

    Have a look at the graphs on pages 18 and 19 of this OECD working paper “Monetary Policy, Market Excesses and Financial Turmoil” and you will see what I mean. http://ideas.repec.org/p/oec/ecoaaa/597-en.html
    Note the very high correlation coefficients in some of thise graphs.

    @ Gregory Connor said

    “I do not have a strong opinion on that starting date. My own recent research uses 2003:Q1, but that is simply due to data availability limitations.”

    If you look at 30/40 year graphs for annual credit growth, average house prices and total numbers employed, it is clear that something major happened in the mid-1990s which casued long-run trend lines to break hard for the upside. I would suggest that that “something” was EMU membership, cheap interest rates and the beginning of the credit bubble.

    @ BeeCeeTee said

    “I tend to date the beginning of the bubble to early 2003, because of this: http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=117.BSI.M.IE.N.A.L40.A.1.U2.0000.Z01.E (hope the link remains stable).

    There were good real economy reasons why property prices increased rapidly from around 1995 up to around 2001. You know, booming exports, booming employment linked to the export boom rather than substantial overseas borrowing, increasing pay. That sort of thing.

    I always thought the Central Bank had damaged its authority by crying wolf in the late 1990s.”

    I totally agree with you on CB in late 1990s. But, as I was saying the same thing at the same time myself, I have some sympathy with them. It was their later switch into the bull camp (various Financial Stabilility Reports) that stunned me – they were like devout missionaries turned swinging hedonists after arriving in Tahiti!

    Your graph looks very interesting but I don’t fully understand what it describes. If, as I suspect, it indicates securitisation activity or the rise of interbank debt owed abroad, its sharp rise from 2003 onwards may not necessarily indicate the start of the bubble but, rather, the exhaustion at that point of domestic sources of credit which had been fully used up since the mid-1990s.

  104. Time to bring those oil and gas resources ashore!

    Put aside 100,000,000 (Millions, not billions!) to set up the new resources industry. Add employees and organize.

    Serious, but not hopeless.

  105. “The role of Irish economists now is to just help everyone calm down and get on with the business of economic restructuring.”

    I have chills. I would like to see it challenged by some of the Irish economists who contribute to this site.

    For starters, since when do the “Irish economists” have a role? Who wrote that job description?

    And then, how condescending a statement! The Irish public are not children in a crèche who’ve gotten themselves worked up over a scary Halloween story.

    I always thought economics was the study of human behaviour in relation to the allocation of scarce resources, and that hence economists of any nationality were merely practictioners of that study.

    I missed the point when they became a political lobby that spoke with a single voice to the sheep-like Irish public.

  106. I wonder if the 4 year plan out today will include tinkering such as tax on mobile text messages and other similar proposals. A penny here, a penny there, etc.

  107. Nothing like a bit of political commentary masked as economics. Thanks Gregory.

    The Fianna Fail govt. will appreciate your “lets get on with it” approach and confound the naysayers attitude.

    Talking of Irish economists as a class is unfair. We can hardly blame all economists for not having the foresight or the courage to come out and say that the economic policies being pursued where wrong or that the state did not have the appropriate oversight of the banks.

    It is apparent though that some economists, like some politicians, are very removed from reality.

    EuroIntelligence bulletin recently commented about academic economists not being aware of the social/political angles to problems.

    Your political post would appear to prove and yet disprove that sentiment

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