Year: 2010

Downside risks and up

There are two pieces in today’s Irish Times on state guarantees for downside risks. The first is on toll roads: We apparently guaranteed an income stream. The second is about the power network: There is no need to budget properly and hedge your bets, as the cost can always be passed on to the customer. Other examples are the REFIT scheme, which puts a price floor under renewables, and the put-or-pay contract for the Poolbeg incinerator.

Such guarantees reduce the downside risk and hence the cost of capital for the investor. That is fine if the investment is in a public good.

However, the downside risks are transferred to the taxpayer, while the upside risks are enjoyed by the shareholders.

I would therefore introduce a special profit tax, which applies to operations that have a state guarantee against downside risks. In that way, the taxpayer shares in the good times as well as the bad. It would also make companies think twice before demanding a guarantee.

The CSO’s detailed public finance data

The CSO publishes annually, as part of the National Income and Expenditure document, detailed tables related to the public finances, which are of particular interest in the context of the current urgent focus on fiscal policy, to the extent perhaps of providing a more useful starting point for multi-year fiscal plans than the traditional exchequer and budgetary formats, which are not fit for that purpose. Some details and links to data on all this follow.

Continue reading “The CSO’s detailed public finance data”

Innovation in branding

One fan of the old Weezer is so upset by the band besmirching their image that he is offering money for them to disband. From the Guardian.

I just ignore Weezer’s later work.

Posen on stimulus

Last week’s news was terrible, but I felt even more depressed the week before. If we enter a spiral in which we get worse news on GDP and GNP than expected, and then conclude that we will have to push through even more deflationary budgets than previously planned, then we have entered a doom loop from which there is no escape.

Unless.

(Unless what?)

Unless the cavalry comes charging to the rescue, is what. Unless Ireland is bailed out economically by the rest of the world, via a world trade boom that allows us to export our way to recovery.

Unfortunately, there are lots of question marks hanging over this scenario right now. The cavalry is uncertain as to where it is headed, and for every piece of good news we get from overseas, there is a corresponding piece of bad news (and vice versa). Any honest forecast of where we are headed in the immediate future will have extremely wide confidence bands associated with it, which in the Irish case will surely straddle the zero axis.

This is why it is so utterly in Ireland’s interests that policy makers overseas listen carefully to Adam Posen (short version here, longer version here). I strongly urge people to read the full speech. It is a carefully argued (and, for a central banker, passionate) plea for further stimulus measures, as well as for a certain way of thinking about the macroeconomy. It is nice to know that some central bankers, at least, understand how serious are the downside risks facing the world economy right now.

I am sure that our political leaders enjoyed their moment in the sun this spring as poster boys for austerity. But insofar as they contributed to a feeling that austerity was the right policy everywhere — and not just in basket cases like Greece and Ireland — they did their country a disservice. Far better to have a quiet word with their colleagues in more solvent states, pointing out to them our nine successive quarters of shrinking real GNP, and to say to them: this is what austerity can do, even in an economy as small and open as ours. Are you really sure you want to follow suit?

The Village on Poolbeg

James Nix, master’s in real estate, barrister, and unsuccessful candidate for the Green Party, has a piece in the Village: “Incinerating money: the economics of Poolbeg”.

The summary is interesting: An overwhelming success story of private sector dynamism in recycling is set to be undone by an oversized incinerator at Poolbeg – at massive cost to Dublin’s businesses. This was told to me in confidence, but it is good to see it confirmed in print. IWMA is not against incineration. Rather, they know they cannot compete. Nix champions the local companies who are fighting to maintain their grip on an undersupplied market.

Nix claims (as are others) that the Poolbeg incinerator is vertically integrated with waste collection. It is not. The incinerator will burn waste from any collector.

Michael Smith, Village editor, has a companion piece: “The Poolbeg incinerator: an essay in cynical lobbying”, in which he argues that Minister “Gormley has faced an insidious onslaught from multiple quarters” — a cabinet member victimised by the powers that be.

This was published yesterday. Smith write: “[t]he most blatantly inaccurate presumption was that emissions from the Poolbeg incinerator would be included under the EU Emissions Trading Scheme. This resulted in a significant underestimate of the costs of the facility.” This is disingenuous. After inclusion of CO2 emissions, incineration externalities are still far below the Eunomia estimates.

Smith also writes that “John Gormley is […] sitting on the foreshore licence” something that the Minister has repeatedly denied (see latest example).