DRB: Use the Mirror

Mike
I dont think it is fair to this blog to assume that the comments population for each topic is the basis of comparison between the importance or popularity of the topics.
The large ones usually mutate and have a few rounds of handbags.
You should know this?

Further, I dont think the media had much interest in academic economists back then, but they can confirm or reject this statement!
Good article though.

Michael’s article is very welcome, and his key point, on people preferring facile solutions and window dressing change, is crucial. Irish society has become extremely conservative and ever more prone to group think. Transformative economics reforms would be of huge value, both the intrinsic value, and the demonstrative value to our trading partners. The Irish Public Service(including politicians), seems to genuinely loathe change…note the huge payoffs to unionised workers for _any_ change. Change, resulting in progress, is something to be embraced, however I’ve little notion of how such a change in mindset can be achieved.

The period since late 2008 has seen a series of contractionary Irish budgets, implementing about €20 billion in tax increases and expenditure cuts. At over €4000 a head, this makes most other fiscal contractions around the world (many of which have produced serious protest) look tiny.

Despite this, Irish people have by and large accepted the consequences with great patience. In February, we elected a government that agreed to continue implementing the austerity provisions of the EU-IMF programme. Hennigan’s response to these developments is to condemn the Irish people as unable to take tough decisions. Personally, I think this is nonsense.

Hennigan also condemns the Irish people as obsessed with looking for foreign scapegoats and cites an apparent “anti-EU hysteria”. Given that EU policy has been to cheer on the loading of bank debt onto the Irish taxpayer and then (once this burden lead to state being unable to raise money in the bond market) to offer Ireland loans at a more expensive rate than Greece, the response of the Irish people and media to the EU’s behaviour seems to me to have been, if anything, somewhat restrained. When was the last march against the EU demonstrating the supposed hysteria Hennigan claims is stalking the nation?

Mr. Hennigan’s somewhat distant view of events in Ireland today strikes me as sour and prejudiced, with a heavier emphasis on settling scores with imagined foes than on fairly reflecting the true reality.

@MH

You note..

“..The Irish Economy blog publishes economic facts not commonly available in the general media. However, there are facts and facts.

Paul Krugman, Princeton University economist and New York Times columnist, wrote in 2009: “In a 2007 interview, [conducted in November 2007, eight months after the outbreak of the subprime housing crisis] Eugene Fama, the father of the efficient-market hypothesis, declared that ‘the word bubble drives me nuts’, and went on to explain why we can trust the housing market: ‘Housing markets are less liquid, but people are very careful when they buy houses. It’s typically the biggest investment they’re going to make, so they look around very carefully and they compare prices. The bidding process is very detailed.’”

Facts are very important, and Prof Fama of the University of Chicago was ignoring the then known facts about the subprime mortgage finance crisis and the packaging of junk mortgages by Wall Street banks for sale around the world..”

In the case of residential housing it has been suggested on this blog time and time again, be it here or in the US, that this is not a market whereby ‘normal’ market efficiencies can apply. In the sense that it is not normally a cash market it is a market that lives and dies on the availability of credit i.e. the leverage providers control the market which simply means the lending banks control the prices. Not the property consumers. This is a fundamental and crictical fact much forgotten in housing markets but makes comparison to other cash markets more problematic.

Why we have such a difficulty in getting our heads around this fact is still a mystery to me (Fama is guilty of it here) and as a result an even a bigger mystery is the underlying objections often aired to the possibility of mortgage write downs largely as a result of asset mis-pricing by the banks of their bread and butter product for the decade up to 2007.

Allow ourselves the luxury of living in a world where ownership of the Irish lending banks was still in the hands of private investors.

I ask myself would, if that were the case, there be such an outcry about private writedowns or is it the ownership issue alone which is causing us the anguish now?

The argument goes that I’m not willing to pay for my neighbours mortgage write off, because it was his/her own doing – let them stew.

To me this argument is as daft as it is socially corrupt. Why? Because, as indicated, banks price property not consumers – if the price was wrong why do we as a country insist on blaming the largely innocent novice property consumer – in any other commercial transaction most of us would gladly advise our neigbours to go go back and seek a fairer price – ‘ you were done’ – would be the neighbourly advice. Why not now? Is it all about the ownership thing?

@Karl
I hear again and again that the periphery only accounts for a tiny proportion of the Euro GDP but the more relevant question is what is the size of the entire money / debt supply in these jurisdictions as a % of the overall Euro economy.
I would include all Of Iberia , Ireland and Greece in this calculation.

Also this idea of a small country that is regarded as the most open to capital flows in the western world can be successful in defending itself against corporations , other non state actors and tradional state players is farcical.
Ireland was a victim of the reduction in fiscal debts relative to GDP in both America and continental Europe after the victory of the first Gulf war – this dramatically increased credit flows throughout the world and a country most open to these flows through trade and monetory liberlisation was a obvious target to exploit.
The fact that we were not very bright or that we had numerous orcs withen the establishment did not stop other players from exploiting this island dart board.

A top class article by Michael Hennigan. I particularly like his Tammany Hall and machine politics references and our inability to scale up.

@Rich’s “academic fat cat” comment,
Does anyone know if there is some legal requirement these days for all commentators who are critical of academics to assume that said academics have no “real life”?

I’m a PhD student on roughly the minimum wage and will remain so for most of my twenties. I wonder when people will start questioning my knowledge of real life.

I must say that I enjoyed reading the article. As the Queen gets a mention, I was reminded of another remark reliably attributed to her after reading a particular dispatch: “It’s brilliant, but is true?”. My answer, in this instance, would be “yes, as far as it goes”.

I would agree with Rich that taking a cut on a grossly inflated income is a relative issue. And this helps explain the muted response of the Irish public. Many are in receipt of incomes from both state and private sector sources and some couples have the pleasure of discussing the relative merits of the various arguments over the dinner table.

But it is undeniable that the peripheral countries are not solely responsible for the pickle in which they find themselves. The Irish people in their wisdom know this. Where to draw the dividing line, that is the problem!

It seems to me that the calculation is easy enough. The bulk of it will lie on the wrong side as far as popular opinion is concerned.

It is also a pity that the article does not eneter in more detail into the fact that the bailiff has arrived. Ireland was always poor and, as Dan O’Brien has demonstrated recently in the IT, this situation has not changed. But the country was always solvent.

Personally, I take a certain pleasure in the fact that those responsible for the present impasse, including those insisting on maintaining it, now no longer have any place to hide. Which do the Irish people want, inflated public service salaries, pensions, employment and social security benefits or “frontline services”. They cannot have both.

@Karl +1.

What is so shocking is how little the Irish People have protested- why are we so meek? Do we not care what will happen our children’s generation- those who will be lost to decades of stagnation?

Rich, perhaps I failed to portray the generality of my comment. It was a critique of your assumption that academics live in Lala Land and, even if they haven’t felt the impact of this recession, that their points are somehow less truthful/valuable/poignant because of it. Essentially you’re playing the man and not the ball, and that is an irritatingly regular tactic round these here parts.

@Karl Whelan
Re your last line – it is a book review after all; be thankful it wasn’t an arts review…

PS I don’t think it is credible to count spending foregone as cuts…

@Rich
Why do you think a war like 200% fiscal debt is unsustainable ?

Its because a vast amount of our earnings go to pay unsustainable mortgages that give very little net increase in added productivivty and subtract from domestic money velocity.
A conversion of the ECBs 100 +billion into equity would further crash the property market and help clear it at a economic cash price.
But the ECB needs to keep these assets at a high price as they like their clients to extract a economic rent.
However this economy needs reduced leverage , not more or sustained private debt.

If the ECB will not let us Negoiate our private external debt , or not monetize goverment bonds – it is best to default into a free floating punt.

Karl

You dont offer a critique in the middle of a heimlich manoeuvre to the paramedic because it might take a few more violent convulsions than usual to save the patient, this is another example of fluff meets facts

This is a hard road that we chose to set off on when we borrowed all that cash, none of us complained as our taxes fell because stamp duty and CGT paid the bills, the European economic influence may not be quite miagi-san in appearance but with out them where would be?

@Karl W

“In February, we elected a government that agreed to continue implementing the austerity provisions of the EU-IMF programme. ”

What does this mean though? The EZ will look at that fact and conclude that the Irish did this because they perceived it was in their own self-interest to do so. If you imagine the guy who is the epitome of the target of Henningan’s regular moans, isn’t it the case that he would have voted for a party that was going to implement the deal – or at least said it would?

“Despite this, Irish people have by and large accepted the consequences with great patience.”

The carers certainly have, they were easy targets, possibly not least because they are literally unable to mount much of a vigorous objection.

The guy looking for a fare driving a Taxi round Dublin having been made compulsorily made redundant, while his savings dwindle away paying his mortgage certainly falls into that category. He’s getting a bit hacked off though.

The state sector employee – believing he is protected from the prospect of compulsory redundancy or further meaningful pay cuts, many enjoying record low mortgage rates – surely has good reason to fail to take to the streets.

The unemployed builder receiving lots of different welfare payments in respect of him and his family, including having accommodation sorted for him who turns down invitations to occasional work from his pal who is still in the business but has lowered his rates, may be being rational by not wanting to rock the boat.

As for senior civil servants, OK if they are going to focus on their earnings in 2008 and ignore what happened in the decade leading up to that year, trivialise their job security, very high salary by international comparisons (of what solvent countries think they can afford to pay) then you can see how the world should be amazed they are still at their desks rather than manning the barricades.

“Hennigan’s response to these developments is to condemn the Irish people as unable to take tough decisions.”

“The Irish people” – Does he really do that? How is Croke Park working out, is that a demonstration of determination to get on with reform? Is Hennigan irritated by “the Irish people”, or are some “Irish people” being used as human shields by others?

Hennigan doesn’t need to go on about the ECB, thats being done by many others, me included.

@MH.

I have to say that I was slightly angered at your article. While there is an ocean of truth in the failure of Ireland to come up with structural reforms or to equitably share the pain of the crisis, for my own part, I am not going to accept a national collective guilt for the undoubted sins of past or indeed present leaders of the country.

Whatever the origins of the cross that Ireland threw on its own back on Sept 28th 2009, there is no doubt that the cross, once there, has been nailed to Ireland’s back as firmly as the ECB could possibly nail it, even at the likely prospect of killing the condemned.

And I have listened to the arguments about the ECB support of €140 BN for the banks at 1%. The fact remains that we have lost maybe €100bn in deposits and many more billions in pension fund investments as a direct result of the ECB insisting on Ireland paying the bondholders and thereby putting the whole State at risk. If it were not for the ECB we would not be where we now are in terms of deposit flight. It is that simple.

Like @Zhou above, there was a solution proposed by Morgan Kelly. The solution had two parts.
1. Live within our means.
2. Do not accept the banks debts.

You may not agree with the solution, like many people, but it was put on the table. That was a real start for Ireland to get out of group think mode.
Surely we can feel free to debate whether the existing course of action is a credible one.

The real challenge is for other economists to put their solutions down and try to improve the ship’s course even if will take some very deft manouvering to steer it away from the rocks.

@Hogan

I read the Joschka Fischer article.

It was one of the best I have read so far, an excellent analysis but it does appear to steer away from the specifics of a resolution to the current crisis.

@Garo et al.

If an individual on social welfare gets less money as a result in a change of social welfare rates, how is that not a cut? To suggest that aggregate spending on social welfare could decline when unemployment rates have risen to the extent that they have is absurd.

That’s some word count!

Pity you can’t cash chips on the shoulder in at the ECB window – we’d all be sorted then.

Honestly I have found this blog to be great. I’m in the process of making a decision on whether to emigrate with my family or not. It’s a fairly big deal – 2 kids but 2 aging parents – you get the picture. Sometimes I’ve been a bit despondent about things and then you come on here and there might be a post by JTO or a insight from Bond or a musing by Ceterus and a succinct comment by Tull and you get the feeling that there is fight in the old dog yet. I don’t think they’re ignorant. Anybody who has lived and spent money or owed money can comment on economics. We all live economics every day of our lives. So bravo on a grand scale to the moderators of this blog who made a decision at some stage to let the unwashed in. Thank you

@The Dork of Cork
“Whats wrong with running fiscal defecits ?
It prevents malinvestment as far as I can make out.”
Er, all schools, hospitals and roads are malinvestment?

@Karl Whelan
“Well count it whatever way you want, do you disagree with the point being made — “makes most other fiscal contractions around the world (many of which have produced serious protest) look tiny”?”
No, but we are not really going back very far to see a situation where the current level of income would have satisfied the spending at that time. Tax income is above 2003 levels, for example.

You can’t accept the debt-deflation argument of excessive debt and the bubbles they create without also accepting that a part of this bubble went directly to government, that the government allocated too much of this to current spending, and that the washed out tide has left naked fiscal strategies everywhere.

There is also the effect to consider. Despite deflation, overall government spending has not reduced, it has increased. The state, largely through social security payments, has effectively been stimulating the economy. It is the revenue side that has fallen, not the expenditure and it is the types of expenditure that has changed, not the amount:
http://www.budget.gov.ie/Budgets/2010/Documents/Final%20SPU.pdf
2008 expenditure 73 bn
2009 expenditure 72 bn
2010 expenditure 72.3 bn
2011 projected decline of expenditure from 47% of GDP (excluding financials) to 45.5% of GDP (based on 0.8% real GDP growth) = effectively no change.

The same strategy from the ‘eighties is being tried. Cut capital expenditure, raise taxes, hold spending at existing levels and hope for the best from growth and inflation. It failed then, will it work now?

@KarlW
austerity is neither radical nor bold, it is merely the logical converse of inflating the bubble…the minimum necessary action to exit the foolishness. Truly radical action would seek to examine the cause of the bubble, and seek to cure wider systemic deficiencies. Examples would be

– a meaningful fiscal policy council
– ditto re economic advisors
– establish a proper property market, with high quality information
– programme of public education re personal financial decision making, and same for election choices
– meaningful reform of Irish banks
– ditto re the Senior civil service
– and on … and on

Now that the IMF et al have intervened, the government call no longer even claim that the (necessary) austerity is courageous. Thus where is their true reform ?

@Eureka

Sure we are all economists now. I think Maeve Binchy said something like that. As far as ignorance is concerned…well what can I say. Good luck with your emigration decision. Been there, done that and it does broaden the mind.

@Karl
“Beyond the compulsion of commenters on this site to assume that all contributions are motivated by narrow self interest..”
Even the ignorant and unwashed do not assume that all contributions are motivated by narrow self interest, from what I can see only a few are rabid anti-academic. As Eureka said above thanks for allowing us lesser mortals contribute.

I have to say, I’ve yet to see a better peice of critical analysis of the endemic problems in the Irish economic and political process. Hats off to MH. I would find it difficult to argue with any of his points in a face to face debate.

@Hugh
What is the purpose of this adjustment ?

Who gets the surplus ?

Will reductions in pay of the protected class increase wages in the unprotected class ?

We are not in a closed loop economy – our fiscal debt is generally not domestically held.
In such a situation the money supply will continue to decline as it immigrates to service interest.
Why do you want to sustain and indeed accelerate this situation ?

@Karl
I have never implied that your posts and comments are motivated by self interest. You can search through all my past comments and verify this. If anything yor contributions are always intellectually honest and reflect on your personal and professional integrity. I am a fan Karl so don’t get the wrong idea.

But I do disagree with you on the adjustment. It is clear that Ireland was living way beyond it’s means from at least the mid 00s. Tis a pity that the adjustment came so late and was so feeble and so poorly directed. Things got do out of whack that even 20bn is not nearly enough.

@Ceteris
Hmmm. The DoF on one side, the ISDA on the other. It rings a little of Mr. Corrigan’s “they’re all wrong”. Surely the ISDA are right, because it is their job to say so?

I’m away for the next few days and won’t be posting. Hugh’s right that we’re basically just re-treading the old teenagers debate.

I’ll just say this. Make whatever points you want about the bubble economy, about public sector pay, about the need for further deficit reduction. I’d probably agree with most of it.

But, after what we’ve been through so far, I think the characterisation of the Irish people as unwilling to take hard decisions and motivated by anti-EU hysteria is inaccurate and unhelpful.

Another busy thread. Need to get fitter to keep up.

Fischer has a very nice point about France v Germany, the old couple arguing. So true. France has been there for a millenium.

Michael H has a lot to say too, but needs more structure. Sometimes less is more.

Too many others to respond, but zhou showed a bit of class on the ball. Come on ye boys in green.

@ Karl Whelan

Hennigan’s response to these developments is to condemn the Irish people as unable to take tough decisions. Personally, I think this is nonsense.

Of course it’s nonsense to you as your response relates to the symptoms of the crash not the underlying causes.

We all reflect our experiences and as for your point: ‘distant view of events in Ireland,’ after 33 year in commercial life in Ireland and overseas, it’s arrogant to imply that the closer proximity of Belfield to ‘events’ invariably gives a clearer vision on issues than I may have.

You don’t appear to grasp that for example the panic bank guarantee decision of Sept 2008 was not an aberration; the default response for decades to major issues has been to respond only when a crisis becomes dire.

You maybe happy with slow-motion whether it’s determining Anglo’s losses, the length of the official investigation of the bank, the baby-step reforms since Aug 2007 etc.

Your colleague Colm McCarthy’s Bord Snip report provided a blueprint for serious reform but maybe we need more than 88 planning authorities not less?

Like so many other official reports such as the Kenny Report on development land, it was thrown on a shelf; despite the fruits of a corrupt land rezoning system, it remains a protected scared cow.

The roots of the broken systems are deep and I wrote during the bubble on ‘A Banjaxed System of Public Governance where the Buck Stops Nowhere’: “The default option for ministers is to commission a report. The gulf in terms of what is expected of a person of management calibre in the private sector – accountability, responsibility and ability to make decisions – with their public counterparts, is stunningly wide.

Nevertheless, the issue of reform isn’t on the agenda and while partisans can battle over laundry lists of self-styled achievements and plans, the parliament sits for only 90 days and it takes years for urgent issues to be tackled.

It for example has required a public tribunal, the involvement of the former Boston police chief and 2 reports on Garda structural reform, to come forward with basic management system changes and nobody can honestly say when the changes will be implemented.”

When should the broken governance systems be attended to?

As for socialisation of bank losses, I highlighted the fact that it was the Irish Government, which was first to unilaterally take that action.

@ zhou_enlai

There is great unity and solidarity in this country compared to other countries. Some people look around at their countrymen and always see their worst side be it greed venality or shallowness. Others see the full picture including people’s generosity, loyalty and endeavour.

This grá mo chroí type comment is like something from the Bertie Ahern boomtime playbook.

Of course there have been big cuts for many sectors but you’re a fool if you think that a 15% in VHI payments to consultants is ‘hardship’ and there’s no need to break professional cartels.

So the legal system is no longer an option mainly for the rich?

I happen to be an entrepreneur by choice; so no need for lectures on optimism.

No wonder so few question the spending on for example science policy.

@Michael Hennigan

Regarding the criminal investigations into Anglo etc., I’ve never had the ‘pleasure’ of sitting in on a trial for a white collar crime, but I have sat in on a number of hearings for shoplifting and other minor offences, and it is shockingly easy to flub something and have the defendant get off on a technicality when they’re obviously guilty. I recall one shoplifting case that fell through because the shop’s certificate of incorporation didn’t match the shop’s trading name. And this is for an offence where the offender is caught red handed, and there’s no need for any investigation.

In that context, it would be surprising and worrying if the investigations into Anglo were finished quickly. If everything isn’t nailed down, Sean Fitzpatrick et al will get off.

“We could declare full public transparency on public procurement, which would end a system that benefits insiders – – why don’t we?”

Indeed so. The gap between recommended selling prices in MIMS Ireland (guide to prescribed drugs dispensed in pharmacies) and the actual price the consumer pays can be quite sharp – in favour of the pharmacist of course.

The very fact that a government has to hold a referendum to adjust the pay of senior civil servants (the judiciary) indicates a soundness in Irish official polity on a par with a cracked bell.

In what passes for reality in Ireland it has been clear for generations that certain parts of the establishment have only been too happy to cling to and reinforce a class system that runs counter to economic growth.

During the period of the The Great Compensation Epidemic, SMEs and community groups pleaded for literally years with successive governments to exert some control over the situation. The cost of public and employers liability went up in the moon. Despite the presence of high profile business people in the campaign, it took until the emergence of the Celtic Tiger to get compo off the scene – the law of unintended effect – and PIAB was borne. The impact of all that legal noise on economic growth, has that been quantified?

This morning I hear that emigration among 18-34 year olds is as bad as ever. Over the course of the next couple of days, that bad news story will be excised from media commentary and some call center of other promising to employ 10 or 20 people over three years will be trumpeted as a success and ‘proof’ that the Smart Economy gravy train is on schedule (but please keep refueling it Minister).

The gentry and solidarity don’t mix, except in propaganda.

Michael Hennigan should practice what he preaches.

In his article, Michael states or quotes approvingly:

“However, there are facts and facts.”

“Facts are very important.”

“Fact-checking is a hassle which is often avoided by commentators.”

“When widely followed public figures feel free to say anything, without any fact-checking, we have a problem. It becomes impossible to think intelligently about big issues, let alone act on them. Facts, opinions and fabrications just blend together.”

I totally agree with this. In fact, I seem to waste a lot of my diminishing amount of free time doing this. Nearly all my posts on this site are the result of ‘fact-checking’ some ‘fact’ that is reported in the media that turns out not to be ‘fact’ at all, but fabrication.

On John McHale’s housing thread, which is nearby to this one, Michael Hennigan made a number of claims about housing in Ireland. Among them that (a) houses got smaller during the Celtic Tiger (b) houses in Ireland are the least affordable in the developed world (c) houses in Ireland are the lowest quality in the developed world. He has repeated these same claims numerous times on Finfacts, usually in the context of trying to present FF and the construction industry as corrupt.

However, by doing the ‘fact-checking’ that Michael recommends and demands of others, and after trawling through numerous CSO publications, EU and OECD housing reports, and so on, I totally and comprehensively demolished his claims on that other thread. Any one is free to look at the debate on the John McHale thread and come to their own conclusion. On this issue, Michael has done no fact-checking himself, but simply ‘blended facts, opinions and fabrications just together’, the very thing he attacks in others. It would appear that, on this issue at least, he is doing what Professor Whelan alleged, namely ‘settling scores with imagined foes than on fairly reflecting the true reality’.

Having said all this, his FinFacts site is excellent, and I agree with him about the foolishness of leaving the euro and about the anti-EU hysteria, although that is much more apparent in the media and on the internet than on the streets.

@Karl Whelan
“But, after what we’ve been through so far, I think the characterisation of the Irish people as unwilling to take hard decisions and motivated by anti-EU hysteria is inaccurate and unhelpful.”
I think you’re right. I sense a level of frustration that harder decisions are not being taken. The awareness is there that big changes are required. The evidence of change (as opposed to just new taxes and cuts) is scant.

I don’t think that people are supine, either. I think they are realistic about the need of something to be done, if not quite the scale required.

@Michael Hennigan

“So the legal system is no longer an option mainly for the rich?”

Hang on a second there. I have a major problem with the restrictions on entry to the legal system. Many good students who have performed well at school and managed to get a Law Degree from leading universities cannot afford to pay the massive fees for professional qualifications while at the same time living on meagre wages and paying high rents in Dublin. The result of course is that those who can afford to stick it out, rather than those with the most ability, come through.

However, many people still managed to enter the solicitors profession as the doors were thrown wide open once you had the money and could pass the entrance exams. I would be surprised if the number of solicitors has not more than doubled over the past 15 years or so. As such, while the price went up, the quota was reduced and numbers flooded in. This has led to a huge increase in competition.

This is probably because course fees became a major source of revenue for the Law Society and as such had to be maximised. Numbers of students have of course now dropped because of lack of demand rather than lack of places. There are no jobs to be had and prospects are bleak for the next 10 years. Competition is cut-throat and getting paid is a difficulty for anyone whose clients rely on bank financing.

On top of that, there is a hang-over from the bubble with insurance costs rising on foot of fraud and negligence which took place during the bubble. This means outgoing have risen. Most of this arises as a result of the undertakings system which was brought in at the behest of the banks to save them from having to pay legal fees. It also arises due to extreme competition to hold on to clients during the bubble as agents, clients (including ordinary house purchasers and sellers) pushed for lower fees and quicker turnarounds. Solicitors cannot blame others for this but there you go.

As such, the fact that legal careers became an option primarily for the upper-middle classes and above, has not caused a lack of competition. Furthermore, as the ranks of the upper middles classes grew in the bubble years to include many civil servants, more and more people managed to get within reach of the career.

The problem might be that the bubble in solicitors incomes led to a brain drain which stifled innovation in other areas. Perversely, the economic barriers to entry might have ameliorated that.

“This grá mo chroí type comment is like something from the Bertie Ahern boomtime playbook.”

Tá mo chroí líonta le ghrá. However, this is not mere platitudes. Have a look at Dan O’Brien’s article setting out the ills plaguing Greek society at the moment:
http://www.irishtimes.com/newspaper/opinion/2011/0613/1224298811413.html?via=mr

Our unity of purpose and the lack of division in ou society is a great strength. Despite many journalists’ jealousy of the super-rich, most of our population moved to the middle classes as David McWilliams said. Apart from massive outliers, income inequality decreased and equality of opportunity increased over the last number of years. Certainly the professions were not way ahead of the rest the way they used to be. This may have been based on a false economy but it did breed unity which we can benefit from now.

@ Kevin Walsh

On the Anglo investigation, The Irish Times said on June 3rd: ‘Mr Justice Peter Kelly said last month that progress on the investigation by Mr Appleby’s office and Garda into Anglo was “not at all satisfactory”. He refused a six-month extension to the investigation period and issued a deadline of July 28th.’

What strikes me is that there are 2 key issues: 1) the Anglo-INBS director loan transactions over 8-year period 2) the scheme for unwinding Quinn’s shareholding.

There are other issues that presumably came to light in the trawl through the files but on the 2 issues, it’s baffling that 2 years have passed with no conclusion.

@ John the Optimist

I’m not the Pope and I never have a problem acknowledging errors.

I have been busy and what I suggest: read the section on Ireland in the European Housing Review 2009 report via the Royal Institution of Chartered Surveyors site. There is a reference to a Eurostat housing statistics report.

Then tell me what you disagree with as regards house size data and usable space per person.

This is one of these issues where for me the anecdotal evidence very much supports the data, ‘distant’ or not Whelan may think I’m from Dublin.

@ Paul Hunt

Methinks the eminent professor has a low tolerance threshold.

Your analysis on the decision making process is spot on.

Because the process flows from the top of the pyramid, individual ministers’ interests and level of motivation or lack of it, can be key to an issue being given front burner status.

However, as Irish political parties only produce aspirational headline policies in opposition, we end up with reviews, taskforces, reports galore and so on.

@Michael H (and Zhou),

A little surprisingly, we seem to be close to reaching a landing on a number of these issues. The key questions are what should be done and how.

As the first in a Willy Brandt-like ‘policy of small steps’ I would focus on refrom of Dail procedures to imporve the policy-formulation and decision-making process. However, as i have put it elsewhere…

“Does anyone seriously believe that a government will willingly introduce political reforms that will reduce, in any meaningful way, its exercise of excessive executive dominance?

What this requires is senior backbench TDs with no, or little, prospect of advancement – and, ideally, who accept that this Dail might be their last. They will be immune from the usual blandishments and threats, e.g., ‘keep the head down and a Minister of State job might come your way’, ‘we value your support and loyalty and we might be able to scratch a few bob for that road, school, hospital, community centre,etc. in your patch’, ‘you’d be wise not to make a fuss about this Dail reform stuff because there’s a couple of eager boys and girls who’d like to be on the party ticket the next time and we’re finding it hard to hold them back’, ‘you assured us you were ‘on-message; this reform stuff isn’t very helpful’, ‘we can’t figure out why you’re so bothered about this stuff; we have a game-plan to introduce radical reform. The party’s on board. It’ll be tough to get it through and your antics could queer the pitch.’

It would be good to believe there are some.”

Michael’s article makes interesting reading and who can doubt that we need reforms to how business in Ireland generally is done. It is not after all just the semi state sector that appears to be taking advantage of the Irish citizen, the grocery cartels, the phone companies, banks and various classes of rentiers are equally adept at squeezing us until our pips squeak. There are definitely structural problems and openness has to be a major part of the solution.

There is one odd thing about the article. Every now and again there seems to be a kind of logical tic where the most significant factors are mentioned but the analysis is skipped over due to the intensity of feeling.

The ECB vetoed “haircuts” or discounts on senior bank debt during the negotiations of the EU-IMF bailout last November because of fears of spreading instability to other countries.

Why exactly would the ECB be so worried about the spread of contagion to the well governed countries, with their well governed banks?

What would have been the effect of this “contagion”? How exactly did the entire EU economy become vulnerable to the effect of a property crash in Ireland? What was the legal and moral justification for the losses not being shared among investors? What would those losses have been?

At the start of the article the same thing happens, when the last global financial crisis (the most significant crisis in the history of modern capitalism) is glossed over as the kind of thing that happens when everyone gets a little bit complacent.

These things happen. We are where we are. Sad but not bad. Any entrepreneurs would understand.

So, the global financial crisis is a bit of a mishap, for which all the involved experts are a little bit to blame, but the initial Irish bank guarantee was the most irresponsible action ever by a sovereign government and we to need to stop complaining and take our punishment like men.

Clear everybody? Should we move on to how our racial character failings led us from the true path of fiscal responsibility and good governance?

Michael mentions the victims cross twice but the Christian obsession I think of when reading this article is original sin.

When emotion trumps reason, facts and consequences are ignored.

My emotion is your strongly held belief, my principle your piety. Ah, pieties.

Whenever I encounter the word “MOPE” and an approving reference to Roy Foster in the same article I am disinclined to take seriously one further thing said by the author, Ireland’s proto Niall Ferguson and apologist for privilege par excellence has a great deal to do with the strain of reactionary rightism that passes for critical thinking among Ireland’s would be euro-capitalist ascendancy.

However, even as a populist anonymous non-academic I still have to acknowledge that Michael Hennigan is trying to construct a comprehensible narrative of our current situation, even if one feels that the word “reactionary” might be revealed in the mirror as the steam rises.

To a foreign observer what is a little bit surprising and disappointing is a nearly total absence of discussion in this blog of what should be the “business plan” or the “strategic plan” of Ireland in the future (with the possible exception of Paul Hunt contributions).
The “Celtic Tiger” years expansion was fueled by foreign (American) investment and Europe structural funds. The following years growth was due to the cancerous growth of the construction trades financed by foolish foreign banks. The inventory of unused buildings will take years to disappear and the appetite of the Irish for real estate speculation is durably satiated (I hope).
Ireland has become a high cost of labor country and it is unlikely that large industrial plants will be built by multinational firms again .The European headquarters of those firms will stay if the corporate tax rate remains low (which is far from certain),but this will be completely insufficient to draw down the unemployment. The investment by Irish owned manufacturing firms seems to be minimal .
What Ireland need are medium sized manufacturing or export oriented service industries with Irish-based decision centers.
I understand that the short -term preoccupations of the contributors of this blog dominate the discussions but I think there should be room for proposals for the long term. I hope that the reason they are absent is not some liberal dogmatism .Markets do not take care of everything as Ireland recent history demonstrates.

@Overseas Commentator

You cannot have a domestic industrial strategy when you have no domestic power over capital flows.
I beginning to think you are a interplanetary commentator rather then a terrestrial one.
Since the creation of free floating currencies and free trade nations do not now exist.

@isaac

The economic failure is a product of a failure of politics in the Republic.

Absolutely, the rest of the world is ticking along nicely, no problems at all. It is just us, and the ECB and EU are generously helping us out in a spirit of solidarity.

I personally blame Padraig Pearse for the whole thing.

More seriously, do you think that is possible that the lack of a proper inquiry might have something to do with our European partners (they only beat us because they love us and we let them down) rather than just inertia?

Fine Gael and Labour have nothing to lose by exposing the last governments collusion with the banks and you do not have to be have to be particularly conspiracy minded to think that the interests behind the initial bank guarantee and the continuing bondholder bailout might be one and the same.

Perhaps we will be allowed an inquiry after 2013?

@Seafoid,

agreed.

on the guarantee, for me it symbolises the ill-thought out nature of policy planning in Ireland.

@The Dork of Cork
If you were right there would not be any German auto industry left,Airbus would not fly, Areva would not buid atomic power plants and Singapour would be another Macao.

What a nice excuse to do nothing!

Not sure about Singapore but all those other industries were creatures of Nation states.
I am somewhat knowledgeable about the genesis of Airbus as that was a creature of IMF intervention into Britain and the destruction of its aerospace industry and its boffin culture in general.
Some of its rag tag remnants retreated into the French propelled Concorde project which over time became Airbus industries.

As for the French states decision to subsidise Nuclear for long term electrical independence, such a strategic goal would be impossible in todays world.
Indeed during those years many who preached how expensive such a project was to the Nation of France never conceived that their free floating petrodollar system was net energy negative over the long run.

These projects were the last fits and starts of a still Statist French state as the rest of the planet got on with the job of farming oil credit.

You prove my point

@Paul Hunt

“What we lack is a proper forum to thrash out economic policies and strategic options and to frame policy-decisions.”

Ireland has had forums on every aspect of national life for along as I can remember. White papers, Green papers, tissue thin papers, etc. Agriculture, Education, Science, Industry, etc all have had their fair share of forums and Dail committees.

Some while back, some miscellaneous group of cretins sold a gullible Irish government (one of many) the idea that Ireland was reaching a golden post-industrial age. There was no need for fitters and turners, instrument technicians and sheet metal workers, etc . Instead the country could survive economically on ‘industries’ devoted to using professional credentials as resources. Fairyland by another name.

@The Dork of Cork

We will be a archaeological mystery for centuries – think of the acedemic research papers.

Our plan is simple: We stage a recovery from a huge speculatory property bubble, partially enabled by corruption, through building a five hundred million Euro temple to gambling near Michael Lowry.

I insist that a pyramid be included in the scheme.

@Zhou,

I may not have made myself sufficiently clear – either to you or the Alchemist. I’m not looking for anything extra-parliementray; I want to see the Dail and its procedures restored so that it may function as an effetcive legislative chamber. I addressed what follows to two TDs on another board:

“Although you are delegated (deputised) to represent the interests of your constituents, I am sure you are well aware that the interests of individuals and groups will conflict and a balancing of these interests will be required and that, in the common good, the interests of certain individuals and groups may have to be advanced to the detriment of the interests of others. Somebody must make judgements about these conflicts and that is why we elect you and your colleagues. We don’t expect sages or highly specialised and technical expertise, but we do expect our elected representatives to secure and assess the evidence supporting both sides of a proposal or position and to make a reasoned judgement in the public interest.

That is why there is a requirement for adversarial disputation before Oireachtas Cttees. When Ministers and their officials and advisers advance policy proposals or propose an executive action, they should be required to present their case before the relevant Cttee, the Cttee should secure relevant expertise to present evidence-based testimony critiquing these proposals and there should be opportunities for rebuttal and counter-rebuttal.

Cttee members would have opportunities to ask questions and to seek clarification and, when all the evidence – for and against – was presented the Cttee would be in a position to form a judgement.

We are inundated with ‘public consultations’, totally ineffectual ‘debate’ in the Oireachtas and people talking past each other in the media and on blogs. The whole process closes down debate and there is no effective engagement that would lead to reasoned disputation and the generation of considered verdicts or judgements. And this suits Government perfectly.

It would require a limited change in Dail and Cttee procedures to effect this change, but it would greatly enhance the process of democratic governance.

It is time to restore the Dail and its procedures. Only you can do it. Please don’t let us down.”

http://www.irishtimes.com/newspaper/breaking/2011/0614/breaking5.html

“Mr Gallagher said Mr Lenihan faced the most daunting and awful challenges as finance minister, which needed decisions to be made without guidance or hesitation”

Is there any other country in Western Europe that does things like this ?

@Michael Hennigan
My understanding of the ‘conversation’ with M. Trichet was that a phone message was left on the DoF answer machine on the Saturday as M. Trichet couldn’t get through to anyone. Mr. Lenihan was at a FF fund raiser at the races… this from Mr. Lenihan in an RTE documentary.
http://www.youtube.com/watch?v=WDN7NiEdNJ0

A true patriot… to Fianna Fail…

@Michael Henningan

Thanks for that.

McWilliams stars in ads for Bulmers these days.

@Paul Hunt

“I am sure you are well aware that the interests of individuals and groups will conflict and a balancing of these interests will be required and that, in the common good, the interests of certain individuals and groups may have to be advanced to the detriment of the interests of others.”

Now you have gotten to the core of the issue here. I was at a county councillors conference back in March and this was the subject of much debate. One councillor said her biggest problem was that voters presumed that by electing her, it was her job to represent their views EXACTLY in THEIR interests. She said she was elected to make decisions that might not be in the direct interest of the particular voters but for the greater good.
But they’d go crazy if there was some local protest meeting where they were demanding she vote against something – and she’d be trying to argue “I know this measure might inconvenience you, but you have to think about the greater good”. They’d say Nooooooooo you are OUR rep and you do what WE want.

And this is why I dismiss all this active citizenship b$ll!x. NOTHING will change until the culture does – and that comes from the people accepting that even though something may harm them personally, if its for the greater good they should support their political rep. Paul’s views maybe evolved, but the TDs know their voters have a different idea entirely of what their job is….

@ Sarah Carey

‘TDs know their voters have a different idea entirely of what their job is….’

Do you really believe this? I know plenty of citizens that voted on ‘the greater good’ and are adult enough to know that it’s not all about them. I’d go as far as guessing there’s a sizable part of the electorate repulsed by the ‘electing people to get you stuff’ voter philosophy.

@ JTO & KW
+1 & +1
or is that +2

@ Sarah Carey

The Irish TD’s principal work was highlighted in 2007 when Minister Tony Killeen disclosed that his constituency office mailed more than 14,000 letters annually.

As with development land sales in the past, there appears to have been a reluctance at official level, to discover who are the consumers of clientism.

I would guess that a lot of voters never hassle their TDs.

Also, unlike the US, we don’t have the same level of organised public lobbying of individual politicians.

@Sarah Carey,

No desire to start a scrap, since I agree with much of what you say, but when you refer to the need to change the culture, you’re putting the blame on the consumers and not the suppliers. If the only way public representatives choose (and yes, they do ultimately choose) to differentiate their offers is by promising something specific and of direct benefit to individuals and groups of voters, then one shouldn’t blame voters for responding in the appropriate manner.

And John Foody is right. It’s some and not all voters. There is this tendency in commentary to view voters as this largely homogenous mass. But all human life is there – in all its glory and joyful frustration. And it’s something to be celebrated. In many systems politicians will focus on the median or swing voter, but in our system, hampered by the lack of a broadly balanced division between centre-right and centre-left blocs defined in the main by where the boundaries of the state should lie, you tend to get the ‘shriekers’ as you describe them.

So that’s why I focus on supply. If the pattern and nature of supply changes, demand will also change. (I also agree with your take on the ‘wethecitizens’ exercise, but mightn’t be so derogatory. If Chuck Feeney wants to apply some of his accumulated duty free business profits to finance a grand tour of Ireland by assorted luvvies, polsci heads and consultant/PR types – and provide a bit of light supper and entertainment for those who turn up, that’s fine with me. He also provides some finance for the Tasc/progressive-left folks. It’s all pretty harmless and could add a bit to the gaiety of the nation.)

Despite adopting the UK system – and painting much of it green – we’ve never had a properly functioning legislative chamber (nor the corresponding process at the local level). All I’m arguing for is to restore this as it should be and was originally intended. I’m not into reform; I’m into restoration. My objective is increased political legitimacy and accountability. And if this is the overarching objective, we should seek to apply a Willy Brandt-like ‘policy of small steps’.

And small steps can be taken to restore the primacy of the Dail by empowering and resourcing Cttees, allowing chairs and vice-chairs to be elected by secret ballot of TDs, taking control of the order of business and putting government in its place of being of the Dail, but fully answerable to it. Enough TDs with the guts and gumption could do all this with the current Constitutional arrangements.

I want ministers and their advisers and senior officials to be scared sh1tless when they are summoned before a Cttee and face testimony and critique from those with knowledge, competence and expertise in the relevant policy area the Cttee has retained. Just imagine the theatre and drama as the woolly-thinking, special pleading and bluster is exposed. And this would be applied to all special interests seeking to influence policy and appearing or summoned before the Cttee.

TDs would have the evidence and analysis to properly scrutinise government and to hold it to account – as well as assessing the validity of the cases made by special interests. They would then compete to distinguish themselves in the eyes of voters by seeking to enact better legislation.

Change the supply and the demand will respond.

@zhou_enlai

The STV Multiseat constituency electoral system (much as I love the counts) is at the core of clientelism.

The STV is among the least bad electoral systems.

Single seat constituencies disenfranchise minorities and encourage large scale corruption, list systems are a good idea for second chambers but an alienating experience for the voter for single chamber systems.

Ireland’s issue is not with STV, nor is with TD’s having to have their interests aligned with those of their constituents, which is a surely a good thing.

The workings of local and central government are opaque, complex and seen to be slow and as a result we have grown to have an expectation that TDs, can mediate between this unresponsive and incomprehensible state and the citizen.

What might help is to replace the county council system with an alternate Dail sized system of elected advocates for local personal concerns and make all pleadings with our current system of TD part of the public record. I suspect that openness would deal with a large proportion of self interested special pleading.

Sorry for going off blog. This is not even political economy.

@Shay,

“Sorry for going off blog. This is not even political economy.”

On the contrary, this is directly related to the narrative Michael Hennigan attempted to craft which kicked off this thread. And Michael recognises the key role of the political decision-making process in all of this.

Some limited re-establishment of effective Dail procedures and some limited devolution of decision-making power and revenue-raising capacity to local authorities would go a long way to improve the process.

Successive governments, of all stripes, have created the machinery of this ‘unresponsive and incomprehensible state’ by using and abusing their total control of the Dail. The Dail belongs to TDs; government is of and should be fully accountable to the Dail. But governments have been able to dictate the terms. It’s time to reverse the terms of trade.

I have to laugh when US commentators refer to TDs as ‘law-makers’. ‘Rubber-stampers’ more like. It doesn’t have to be like this. Members of other parliaments have secured – or are constantly seekng to secure – more oversight over government. Ours don’t even seem to realise they have the necessary powers to do this.

@Sarah Carey,

I’m not doubting your powers of persuasion, but changing the behaviour of potentially millions of voters is a big ask. Alernatively, and in simple practical terms, there are, say 135 backbench TDs (of all factions and none) not on the ‘Government payroll’. And, remember, people delegated to the TDs they elected on 25 Feb. their ultimate authority until the next time of asking. Why not target these TDs to persuade them to alter Dail procedures so that can exercise better oversight of the government – and the machinery of government – in their voters’ interests?

A mutual learned helplessness characterises this clientelism. A TD will say ‘I’ll do what I can on your behalf to get something out of these f****rs in Dublin (or wherever else it might be after Bertie’s acentralsation’), but, sure, you know what they’re like. They have all these rules and regulations’. It’s time to tell TDs that they enact all the laws that empower government, establish all government agencies and authorise the executive actions of government and the rules and regulations applied by government agencies and they should get about doing the job properly. They have the power. No-one else does. The people have delegated it to them until the next time of asking.

Just do it.

1. consumers being voters

Well I just used Paul’s language.

2. On Lowry

But you see this comes to the crux. We can’t talk about democracy/citizenship in hallowed fashion and then complain about the result. Lowry is elected and so are his team of councillors (and An Bord Pleanala is the legitimate professional planning board of the state. It’s very funny to see the apoplectic rage of those who consider themselves to have a monopoly on legitimacy even though they are unelected and unofficial and Lowry is elected and ABP is official).

I think it can boil down to:
Politics has failed! It’s the politician’s fault!
or
Politics has failed! It’s the people’s fault!

As always, it’s a complex system. Of course, a political system dependent on self-selection as the principal method for candidate nomination will be weakened since self-selection should arguably be disqualifier.

But for me, it comes to this.

The people had opportunities to choose in 2002 and 2007 and enough of them chose to vote for the party that was most closely associated with creating the property bubble which we were warned (repeatedly) existed.
The system worked. People got what they voted for. Low income tax, high consumptions taxes, under funded public services which they could compensate for by purchasing services privately by the extra cash they had in their pocket. (which is now no longer there).

The reason there are no riots? no protests?
Because the people accept they made bad decisions. What’s amusing sometimes is watching commentators twist themselves into knots because they can’t accept that a lot of people accept that they shouldn’t have borrowed the money and they shouldn’t have voted FF.
It’s the system!
It’s the politicians!

Smaller Dails, increased local authority, all these things will help, but not change the fundamental dynamic. I think no matter what system you have, once its about democracy then voters can make poor choices. Not all the people, not all the time, but sometimes enough to screw it up for everyone else. You have to accept the result. You can hate the result, but you do have to accept the legitimacy of it.

@Sarah Carey,

In an attempt to maintain a tenuous link with this ecnomics blog, I used the language of ‘supply and demand’. (Though I would continue to argue that the manner is which public policy is formulated, decided and implemented should be of interest to those who frequent this parish, even though they seem to get all het up about the ‘what’ and fail to consider the ‘how’.)

I quite like the US approach where voters at elections ‘hire’ a politician to supply the governance they accept they require, but which they are unable or unwilling to supply themselves, either individually or collectively. If, at the next election, they are content, they may ‘re-hire’ the politician; if not, they will ‘sack’ him or her and hire another. In Ireland, voters seem to focus on ‘representation’. This is partly, I believe, because, as Shay put it, many people perceive the entire machinery of governance as something alien, ‘unresponsive and incomprehensible’. It is also partly because they rely on those they elect to subsequently elect a government and they can never be sure, when they are voting, what type of animal will emerge.

Both of these are rock-solid arguments for ensuring mechanisms are in place to apply effective restraint on government, but governments, over time, have been able to accumulate such excessive dominance over parliament that most voters have come to accept this as a given and rely on their public representatives solely as a means of extracting concessions or advantage from this huge machine. There seems to be no understanding that the TDs they have elected actually created and authorise the functioning of this machine of governance – and that they have the power to modify and control it. (Indeed, I would argue that the dominance of the executive has been embedded since the first ‘independent’ government in 1922 – and this dominance has been enhanced over time.)

And governments, quite understandably, will do everything in their power to close down debate and dissent. Generally, this is achieved by facilitating totally artifcial ‘debates’ in the form of ‘public consultations’, the use of ‘task forces’ and ‘reviews’, the usual ‘grandstanding’ that passes for debate in the Dail and the effective use of the government ‘spin-machine’. Occasionally, it will require the neutralisation of those whose dissent may be too solidly grounded on evidence and analysis and who could provoke sufficient popular discontent to compel a change in, already-decided, government policy. This may be achieved by inveigling the media to support a process of denigration organised by the government ‘spin-machine’ – with support from other ‘useful idiots’. But, more usually, it is sufficient to appoint the dissenter to one of the many quangos, review bodies or task forces.

So, please, don’t continue to blame the voters, consumers or whatever you wish to call them. In a democracy, people have an inalienable right to make stupid decisions. But they have an equally inalienable right to make different decisions at the next time of asking. However, in the period between elections – when they have delgated their ultimate authority to those whom they elect – they should have a legitimate expectation that their TDs will exercise restraint on the government they elect and enforce effective scrutiny. Since the foundation of the state, citizens have been persuaded, both implicitly and explicitly, by governments of all hues and by all the major politcial factions that they should not have this expectation.

So, yes, in an ideal world, it would be great if citizens could be persuaded to demand this service from their TDs, but we’re not. Therefore, the primary responsibility is on TDs, in particular backbench TDs, to do the job that people elect them to do. So the onus is on those of us who understand and value democratic legitimacy and effective governance in the public interest to put the pressure on these TDs.

I’m a non-expert reader of the site that’s found it a huge help in better understanding the situation were now in as a country. (Even if a lot of the more technical posts and the sources of the various feuds are beyond me)
This question is directed mainly at Paul and Shay. I never really considered in any thoughtful manner how domestic policy is made but the idea that it is a result of ‘public opinion’ was always dissatisfying. (I remember reading an article by Kevin Myers trying to link our financial crisis to the banning of the Playboy of the Western World, or something along those lines, and my monocle nearly fell out)
Recently I happened to read this posting on crooked timber which got me more interested in the subject:
http://crookedtimber.org/2011/05/10/count-me-in-with-the-unsophisticated-six-year-olds/
Is this, generally, the point you’re making? If so should we be looking at the specific policies that helped get us into this mess and trying to determine how they were formed? Has anything been written since the crisis on this topic? (Or even more generally on policy making in Irish politics)Who are the elites that capture the policy making process in Ireland? Does the situation in the US, Paul, undermine your ideas for reform as the same institutions, committees etc, failed to prevent the US crisis? This idea of ‘clientilism’ strikes me as a bit of a red herring, and the idea that the ‘40% that voted for FF’ are to blame. (As if the result would have been different if FG had been in power the past decade)
Anyway as I said I’m a non expert that’s only recently developed an interest in this area so apologies for any misrepresentation of your views etc