The Macroeconomic Challenges Facing Ireland

Is there a video link to this presentation, and Colm McCarthy’s?

This is an excellent presentation and has the great value of not alone touching on all of the relevant issues but of hitting the nail on the head with regard to what needs to be done.

But will it?

There is little evidence of either the necessary cohesion or steel in the new government. Indeed, if the hesitant approach to property and water taxes is any guide, the very opposite is the case.

@JtO
“Quite simply, as the census showed, the number of households in Ireland IS increasing by about 40,000 annually minimum”

Are you sure that is statement is true?
It may have been true over the 5 year census period but are you sure that it was true in 2009 to 2011 and will continue to be true in 2011, 2012,2013?

A broad-­‐based tax/welfare system that is as employment-­‐friendly as possible should be the target. Most taxes are distortionary in their own right (and there is a corresponding lobby group focused on the evil of each individual tax): the challenge is to find the combination of taxes that strikes a balance between efficiency and equity concerns. The desirability of collecting revenues from a property tax, water charges, other user fees and the elimination of many types of tax expenditures has been well ventilated in the Irish debate. In addition, the capacity to collect more income tax through reducing bands and allowances is also well understood.

However, the scope for collecting more VAT revenue has been underplayed in the Irish debate.

Half a dozen new taxes, but the most said about income tax is that the bands can be reduced?

I ask a deadly serious question? Why at this stage should raising income taxes so unthinkable? Indeed, unmentionable? Isn’t it time for the kind of people who breezed through the USC and who will shrug off water charges and property taxes, to start shouldering their share of the burden? They were quick to take their share of the cake when times were good. And I remind everyone, times were _very_ good.

The must be an increase in the income tax rates at the higher band. It’s not enough to say that no cuts should be ruled out. No tax increases should be ruled out either.

There appears to be huge systemic resistance to the idea of income tax increases. The US appears willing to default rather than give in to this elementary requirement of book balancing. The question is, is the Irish Government also prepared–in the long run–to default over the issue of income tax increases?

What say the economists?

@OMF
What is the purpose of these noble tax rises ?
In my view taxes only role should be to increase the efficiency of the economy- not to service external interest that is now speculative capital artificially joined to the hip of the new sovergin debt.
You can make arguments for higher taxes on cars & property but not on earned income.
The water charge issue is another absurdity – the resourses used to police such a farce is best invested in desperately needed capital & maintenance spending.
The US debt postion is in no way similar to our own.

From Philip’s Lane paper:

Moreover, reforms to boost productivity may only bear fruit with a long lag and may actually have a negative initial impact on employment levels, since adjustment costs and a stagnant level of aggregate demand mean that workers released from sectors undergoing reform find it difficult to quickly obtain new positions.

I know its not central to the note but that is the least edifying euphemism for mass long term unemployment caused by neoliberal market dogma so far. Could we avoid the use of the weasel word ‘reform’ altogether and just use the more honest ‘policy’ instead?

As has been repeatedly emphasized by Governor Honohan, financial stability would be more quickly restored if there were greater risk sharing among European governments in respect of the tail risks in domestic banking
systems.

We almost touch on the core point of the European financial crisis here.

It is odd, do you not think, that the failed financial markets that brought us to this crisis have faced no “reform” at all? In fact we have spent so very much of the peoples money in ensuring that there are no pressures to reform the financial system, particularly in trying to keep the losses out of the politically crucial core economies?

As regards the overall thrust of the paper, you can sell me the benefits of internal deflation when you demonstrate it does not further concentrate wealth or increase the power of international capital to shape public policy.

This is not relating to Philip’s paper at all (or Philip Lane hopefully) but I really had no idea that the advocates of the Euro were the psychopathic free market fundamentalists that they are. What exactly is the point of the Euro if the economic growth it encourages disproportionately enlarges the financial sector and it lessens the collective power of the people versus private capital Europe wide?

@ JTO

You assert that the property developers etc. are/will be the creators of ‘thousands of jobs’.

This is completely wrong in macroeconomic terms. DEMAND creates jobs. Perhaps you do understand this as you assert that there will be demand for an additional 40,000 new households per year. But the way you express this & suggest developers/employers +create+ the jobs in supplying these houses smacks of the usual claptrap that passes for economics commentary in the media.

But then what about your assertion of demand for 40k new houses per year? What evidence do you offer for that? None, nada. The present situation is well known. Demand for mortgages is on the floor. There are many houses completed & very near completion just sitting there – no buyers.

Hasn’t it occurred to you why that is? There aren’t people with the income to buy them.

So maybe you mean that will magically change next year? Lets consider that. The increased demand can come from only two sources. Expansion of the domestic economy or expansion of net exports or some combination.

Well, as the domestic private sector are struggling & there are more public spending cuts on the way, that’s a big negative on demand.

So that leaves the export sector to both counter that negative demand & provide some extra growth to give us a net positive. There is also the no small matter of increasing interest payments siphoned off the economy as we drawn down the ‘bail out’ loans.

Sure, exports have rebounded in the last year or so. But we might expect that, given the steep plunge at the onset of the crisis. Can that momentum continue when so many economies to which we export are stagnating (see latest UK figures, also US & a lot of the EU)? And then how much value from those exports, particularly in the MNC sector, will stay in the Irish economy? A significant part must be wages. But then if we have economists like Philip Lane wanting to see wages fall to be ‘competitive’, that will reduce the aggregate income to be spent here. And if our export competitors, espousing the same nonsense, seek wage reductions then that’s going to add to reduced consumer spending everywhere. The only gainers from this can be the employer companies. But they won’t be spending or investing the extra profits because, of course, demand won’t be there.

Really, the nonsense spouted by Philip Lane jumps off the page in nearly every paragraph, but lets just take one item:

“While there is no magic bullet finding solutions that can reduce labour costs across the economy remains a central challenge in boosting employment growth in Ireland.”

No Mr Lane, reducing labour costs will reduce demand which will +not+ encourage investment in providing goods and services that workers cannot then afford to buy. You make the false assumption that a ‘micro’ mechanism works at the ‘macro’ level. The kind of assumption that has greatly contributed to the failed global economy we now see.

And all of this so that the losses from a financial sector created debt bubble casino, now dumped on the fiscal budget, can be made good. Albeit with the (overhyped) gun of ‘systemic collapse’ pointed to our heads.

@jagdip singh

I take the point you are making. Until the CSO publishes figures, no one, including myself, has a clue as to how the extra 100,000 persons, revealed by the census, will be distributed over the individual years between 2006 and 2011.

However, I don’t see that a lot of signiicance should be attached to individual years. Figures fluctuate wildly from year to year. As I posted above, the period 2006 to 2011 is reasonably typical (in fact, biased on the side of recession), showing an annual average 40,000 plus new households in that period. That is a reasonably good guide to the future. If it was wildly different in the last year or two, it is wrong to conclude that that last year or two is a better indicator to the long-term future than the longer 5-year period from 2006 to 2011.

It is like a football match. You might predict the result of a match by looking at the result the last time the teams played. But, you wouldn’t try to predict on the basis of the scores in the last 10 minutes of the last time they played. As as example. I was at Tyrone v Armagh last Saturday. Tyrone won 2-13 to Armagh 0-13. But, with 10 mins left, it was Tyrone 2-11 to Armagh 0-9. So, Armagh won the last 10 minutes by 0-4 to 0-2. All I will say is that, when they meet again next year, if someone wants to bet with me on Armagh, on the basis that the trend of the last 10 minutes, rather than the full 70 minutes, will continue next time, I will be very happy to oblige, and will purchase an Irish government bond with my winnings.

@Jagdip
You have lost leave of your senses – if there was indeed housing pressure in certain areas half of the mobile retired population of the state could move to Co. Kerry alone with imaginative tax policies.
Your spending too much time behind a computer.
How anybody could even conceive of even more epic resourse misallocation after 20 years of Biblical waste is truely beyond even my furtive imagination.

@Eoin Bond
I think the incorrectly placed vacant properties issue is a little bit of red herring.

If the price of these properties is low enough then somebody will want to live in them. This will naturally draw demand from other areas.

If someone was offered a perfect 3k sqft property for €1 in the middle of nowhere they might be willing for the additional commute.

@ BEB
“We have finally realised that people don’t want to live in the middle of nowhere”

There was a great phrase along those lines in the Vanity Fair article on Ireland. The Irish countryside will never be the Cotswolds

This is a great map of the ghost estates.

http://irelandafternama.files.wordpress.com/2010/01/ghostestate_2510011.jpg

They aren’t all in the middle of nowhere but they are all subject to the same forces of entropy and neglect.

@Hoganmahew
Not to worry Hogan I am sure they will get their economic models to fit reality whether they are the right physical shape or not.

http://www.youtube.com/watch?v=AyqvENgz4z0

@ Rich

“to serve your own spin cycle”

Huh? What spin cycle is that chief? The facts are that the Dublin figures, if broken down, show a large excess supply on the Northside, and very little supply on the South. Moreover, a lot of the Dublin supply is on the outer band past the M50. Again, as the national figures need to be nuanced, so too do the Dublin figures.

Btw, 6,500 Dublin properties for sale? Per Daft there is 91k+ in the whole country. Doesn’t that tell you something about true urban demand and supply when the capital, with 25%+ of the population, has 7% of the vacancies?

@ Dermot

“Being solvent means being able to pay all of ones debts as they fall due.”

Nope, thats liquid. Solvent is being able to meet long term liabilities, or having assets exceeding liabilities. You could be solvent but illiquid (as a lot of banks were/are if you take away Central Bank supports), or insolvent but liquid (your average mortgaged homeowner).

@JohnTheOptimist

“This is all excellent, extremely intelligent, calm and well thought out, as is usual with Philip Lane, and in contrast to the hysterical gibberish we get from many other economists. Unfortunately for Philip, it also means that he is never going to make it as a celebrity economist in Ireland…”

I would tend to agree with [the first part of] that statement.

On the subject of celebrity economists though… as I was walking past a TV screen a few minutes ago, did I see David McWilliams out of the corner of my eye, taking part in an advert for a well known cider maker from this cherished land? So, now we at least know what he’s been drinking!

As a bit of light relief for those of us who are not on holiday 🙁 I wonder if any of the wags on this board would like to make suggestions for what sort of products other well known economists could promote on the TV? But no bleedin’ obvious ones like rose-tinted glasses please. I kind of see Morgan Kelly promoting a nice line of Darth Vader costumes and Death Stars.

In the small town I live in in north county dublin it was discovered that of the 3000 homes/apartments 1/3 were empty in the summer of 09 and many of these empty homes were in established housing estates and not in newly build estates.
The idea that young people will continue leaving home to buy a place of their own and create a new household is a joke. Most will now wait until they are getting married and starting a family or if they must leave home they will rent. The days of the rush to buy are over.

@ Philip

Great paper. With regard to the prior discussion of TK Whittaker’s contribution to the shaping of Ireland as it is now, it will be fascinating one day to look at how contributions such as this developed Ireland as it will be. From your perspective, the question is, ‘who is reading this, how seriously is it being taken’?

For the moment I can only take it in chunks.

“such that the projection of a near‐term return to market funding that was embedded in last November’s agreement with the Troika has turned out to be excessively optimistic.”

Excessively optimistic if you were a nutter. See grumpy’s contribution to discussion of ‘excessive optimism’. The question, as the state toodles towards another, quietly ignored, bailout, is how the predictions for growth will be made the responsibility of the people who made those predictions. Personally.

“Moreover, the burden sharing with private investors in sovereign debt
that is a feature of the new Greek deal means that it will be more difficult for Ireland to re-­‐enter the private market until and unless it has much
more sharply proven the sustainability of its fiscal position”

You mean point 6 of the recent agreement is a joke (“Greece requires an exceptional and unique solution”)? Again how do you make the people responsible for signing off on this take consequences?

“Moreover, a pre-emptive adoption of such a more ambitious target would reinforce the reputation of the new government in showing leadership in “getting ahead of the curve” in responding to Ireland’s deep fiscal and economic crisis.”

Disagree here. I agree with Eamon Moran. Do stuff because it is substantially the right thing to do for which you’re mandated to do. Don’t do stuff because you hope that you’re sending a message. The message I hear is: these suckers will do anything they think the market wants to hear. And we don’t even know what that is. If you want leadership, say, ‘no Irish person is going to die needlessly because of the economic mess left by the international crisis and the last government’.

It can also be described as less, not more, ambitious by the way.

“The final part of the Troika agreement is to boost growth in Ireland and, in particular, take measures to bring down the high rate of unemployment.”

Yes, and I know I’m starting to be a bit odd, but I don’t get why the commitment to more, bigger, faster EU structural funds is not part of this.

“to quickly obtain”

Split inifinitive. Steady now Philip: quality counts.

“low-­‐skilled workers.”

AKA people.

“While there is no magic bullet,”

Thank you for that, this is why you’re worth listening to.

@ JtO

“Ireland Inc is solvent – it is in surplus.”

Fair enough. If you listen to the interview with LBS his rationale for why sovereign bondholders shouldn’t be hit is because what they invested in is solvent. On a previous thread, insolvency was described as not having the money for a known debt when it will fall due, but still attempting to borrow without the expectation to pay. On those grounds I would say Ireland is insolvent. The state is only solvent due to the word of honour of our EU partners. Itchy.

@ Jagdip

Your contributions are top.

@ Mr Bond

“that people don’t want to live in the middle of nowhere” hey, go easy on Donegal. JtO will rightly be upset.

@ Shay Begorrah

I agree. Very good.

Cyprus downgraded by Moody’s , may join the PIG club

http://www.ft.com/intl/cms/s/0/5bce85e4-b82b-11e0-8d23-00144feabdc0.html#axzz1T6VZwM00

@Mike
You are wasting your time with JTO and his Bangladesh style population driven demand economy.
He will be proposing creating a Delta in the Shannon estuary nest so that we can grow rice in genuine authentic Paddy fields.

Very good paper, and drawing consensus and approval all round.
So when will we see action? Many other EU governments are already well advanced in the preparation of their budgets for 2012. I see no benefit whatsoever in leaving the very hard and painful decisions to late in the year, or the following years. This I noted at the same point last year and the year before. Both 14 Oct 2008, 9 Dec 2009 and 7 Dec 2010 all proved most unfortunate in their design and timing (I can’t but that Ireland’s fate might have been quite different if it had been July 2010 instead of Dec 2010). July 2011 is too much to hope for at this stage, but worth keeping in mind for 2012. Indeed I’d hope the European Semester will inject some preparedness and dedramatise budgeting, like in most other eurozone countries.
Last year, we unusually saw a commitment to discretionary cuts in the budget deficit expressed in billions in the autumn, NOT to a budget deficit as a % of GDP in 2011 and subsequent years, or a narrower funding requirement. But the expectation at the time was for a firm commitment to sizeable cuts in the latter, not one off and hard to monitor discretionary measures.
Targets remain all the more credible if expressed as budget deficits as a % of GDP and a net funding requirement. Philip here still talks in terms of “discretionary adjustments”. These can be hard to translate into bottom line progress that is visible to everyone. And we’ve yet to see a substantial reduction in the deficit as a % of GDP despite repeated announcements of supposed stringency.
And targets of course are all the more credible if a multi-year credible strategy is laid out to achieve them. That would include containment of contingent risks and the certain growth in liabilities. I presume that the “downward wage adjustment” includes adjustments to benefits (sometimes very costly ones, such as pensions).

Interesting article on the profession…..

A great divide holds back the relevance of economists.

http://blogs.reuters.com/great-debate/2011/07/26/a-great-divide-holds-back-the-relevance-of-economists/

@OMF,
On the issue of raising income taxes, the Government faces significant constraints. Marginal taxes on income (taking account of all compulsory deductions) for those on incomes significantly above average are already high. They are high enough so that it is likely that the Government has concluded that they are damaging economic incentives, functioning as a modest disincentive to inward investment and entrepreneurship, and pushing a proportion of transactions over into the untaxed grey economy. They have gone from being a bit below average for Europe (tax avoidance on very hgh incomes aside) to being above average. It is likely that the Government has decided that further increases in marginal tax rates at the higher end would be counterproductive.

Viewed in terms of total take as a share of income, taxes on income in Ireland are low relative to other EU countries. This is purely because Irish taxes on low and middle incomes are very low. This is a legacy of changes to taxation during the boom, when taxes on low to middle incomes were cut hard, when tax shelters for people on very high incomes cut their effective tax rates to a relatively low level, but where the net impact of all the tax changes on people on professional type levels of pay was marginal. Lower marginal tax rates for this group were offset by replacing tax allowances with tax credits.

Changes to taxation on income since the onset of the crisis mean that very high earners are now broadly paying their share, and people on professional type levels of pay are paying at a level that must be close to the maximum consistent with avoiding serious economic damage. People on low to middle incomes are paying significantly more than they were, but still far less than their counterparts in most other European countries.

Under these circumstances, the Government is in a tough position. It has to raise the tax take, and the increase in the take has to come mainly from people on low to middle incomes because it can’t come from anywhere else.

One of the most straightforward ways to achieve that is to narrow tax bands, an approach which has the political benefit the the Government can claim it has honoured its commitment not to raise taxes on income. Another is to impose stealth taxes, which by their nature tend to be flat, taking a greater share of income from those on low to middle incomes than from those on higher incomes. It is not surprising that those are the strategies we are seeing.

@Bond Eoin

Not sure where you are getting your assumptions from but a vacancy rate in Dublin (North or South isnt as important as it used to be) at 8.7% from my calculations based from
http://irelandafternama.wordpress.com/2011/06/30/2011-census-housing-vacancy-data/

Of course this is a high rate by comparison to housing markets that are more advanced in their correction
http://www.bloomberg.com/news/2011-04-27/home-vacancy-rate-drops-in-first-quarter-as-u-s-foreclosures-are-stalled.html

O f course we have no idea of actual demand, emigration is in full flow, NAMA property on the south side is being sold in a fashion that does not inspire confidence in demand on your precious southside
http://namawinelake.wordpress.com/2011/07/27/nama-sells-58-foreclosed-beacon-south-apartments/

So in brief the Dublin market in my opinion has a vacany rate in the double percentage figures as a disproportionate number repossesed houses will be in Dublin and their occupants may well be exiled to outside the M50 ring perish the thought!

The Government’s stake in Bank of Ireland is set to fall to 15.1% after a successful rights issue and a €1.1 billion private investment.

http://www.rte.ie/news/2011/0727/boi-business.html

Bank of Ireland said in a statement this evening that the investors are long-term value investors. It said they have recognised how the bank has faced up to and focussed on dealing with its challenges, have endorsed its strategy and share its view that the economy here will come through a difficult period of adjustment and return to growth.

JTO:

Did any one actually predict a figure as low as 15.1%?

Offhand, I think fewer predicted this than predicted the census results.

As the old Chuck Berry song says: “It goes to show you never can tell”

It is about time we heard from the Government as to how they allowed this sorry state of affairs to come to a situation where Vulture funds gains control of the Pillar.
Some Banking strategy…two Pillars.
Let us see the numbers Enda.

@ The Dork

Cheer up. Class will tell in the end.

PS The euro systems balance sheet is finally over 2 trillion – my guess is that they can respond to the likes of Unicredit but are happy to leave us out in the cold.

Gregory Connor:

the video of the session Philip and I spoke at is available:

http://www.donegalcoco.public-i.tv/core/portal/webcast_interactive/62080

@ Dom K

“That increase in wages automatically means more demand is a common misconception.”

I made no such statement, nor would I, so why introduce a straw man argument?

Again you make the same mistake as Mr Lane in transferring a micro assumption to the macro.

There are two problems with your statement. (And Lane’s proposal) The first is that if all the wages drop and prices fall, no more goods can actually be afforded in the agregate. Even in the micro situation those workers may not even want to buy more even at a lowered price.

There is also no certainty that companies will pass on lower costs in lower prices.

If you really want to understand this read Pro Steve Keen’s work ‘debunking economics’.

Prof Keen was one of the few economists to pridict the bust and had a prior stated sound methodology to enable him to do so. We are living with the empirical proof of Keen’s assertions.

We still await full statements from economists like Philip Lane as to why they +failed+ to see the bust coming. Many of whom even lauded the financial system up to weeks before it collapsed. They continue to approach economics & the monetary system in the same failed way they did before.

I believe it was Einstein’s definition of insanity – to repeat the same mistakes over & again & expect different results.

@ Dom K

It’s really difficult to understand how after three years of deterioration the answer can only be more of the same. At what stage do they change their minds?

There are two things going on at the moment. One is a transfer of wealth from the periphery to the core, the other is a transfer of wealth from the masses to the few (and not just here). It used to be called trickle down economics, but in reality it’s trickle up! All this stuff about rational consumers and perfect information is nonsense, even the basics such as the law of supply and demand are subject to so many caveats that one can barely call it a law, for it has more resemblance to faith. It is inoperable in a debt laden environment. But hey if your model only includes one consumer and one product and completely ignores debt well then you’re going to have an idiotic view of the world.

Okay, a real world happenstance. We have a supply-sider in enterprise, aka Mr Bruton. He cuts the costs for restaurants and services, cuts VAT, cuts employers social contributions, abolishes the JLC’s. Says this will enable employers to hire more workers and/or reduce their prices. Did either of those things happen? Did they what… So where did the money go? Perchance to landlords? Or if there’s a margin being made into the owners pocket?

You know it would be funny if it wasn’t so serious. When they give policy makers sound advice such as don’t join the euro no-one listens to them. When they give them terrible advice, everyone’s all ears. They spreak of reform all the time, but what about reform of their own ideas?

ceterisparibus:

+ Yes thanks I saw that Thoma piece.

The problem I am concerned about centers on the disconnect he and other academics have with the other side of this science which is the Austrian view point. He notes the disdain that certain academics show for the “data grubbers” in the business community (non academic economists?). An even greater disdain is shown towards the Austrians. I feel however that some of the Classical/Keynesians etc are beginning to feel the heat these days as they desperately try to conjure some formula that will extricate the world economy from the debt trap that they assisted in setting.

The Austrians have never strayed from their basic axiom set out by Menger way back, that value is a function of the human consciousness and not something which can exist outside such as an overall interest rate or a notional level of demand which Government needs to support. The Austrians understood money, banking and the fractional reserve from the start and everything they believe appears to be born out in reality.

The Austrians have long ago debunked the Socialists. Ludwig von Mises and F.A. Hayak demolished the Keynesian mythology only for Academia to swing in behind Keynes as he offered a justification for a big State and thereby expenditure on such as their own institutions. I believe that to be it. A simple case of knowing which side your bread was buttered. To hell with the truth.

Thoma is just another one. The dicotomy (between academicians and jobbers) is of little interest. More important is the real schism between the Austrians and the others. Who is right? I think the proof as to whose interpretation of the realities of Economics is correct is staring us in the face. Our misunderstandings about money, State and everything can be laid at the door of the economists who decided they would do better with a career than with truly understanding what is happening in the real world economy. Truth has nothing to do with academic careers. If people like Thoma had not chosen to leverage a delusion (that he and his profession have the wit to predict and manage the vagaries of something so complex as an economy) into a high paying career, then we might not be in the parlous state we are in.

Why doesn’t the entire country just take up golf? It worked here?

http://sports.yahoo.com/golf/blog/devil_ball_golf/post/Darren-Clarke-was-8216-almost-broke-8217-bef?urn=golf-wp4042

@ Mike Hall

‘The first is that if all the wages drop and prices fall, no more goods can actually be afforded in the agregate. Even in the micro situation those workers may not even want to buy more even at a lowered price’

+1. Richard Koo talks a bit of sense here
http://www.youtube.com/watch?v=OWGDWYB5KZ0&feature=player_embedded

Philip’s paper is very rational in many respects, but it refers to a ‘reduction in uncertainty’. If that is meant to mean that we are now sure that Spain and Italy are going to get into the doo doo along with us, fair enough, but it’s hardly good news. I doubt if the announcement of future VAT increases will make anyone rush to the shops, unless it is to stock up on drink.

Employment is not an unalloyed good, as the folk in Chinese sweatshops will tell you. The issue is the quality and security of that employment, and the reality, as Krugman has shown in ‘The return of depression era economics’ and elsewhere, is that this has been steadily declining in the western world, as a consequence of globalisation.

While I hold no brief for the gouging that goes on our professional circles, or the carry on over public procurement, it is hard to read this paper as anything other than a message that there is no escaping the race to the bottom.

Philip says: ‘ the main challenge now facing the government is to restore Ireland to long-term fiscal sustainability’ As Ciaran ‘O’Hagan’s comments above indicate, this line meets with the approval of the financial sector.

I am sorry folks. The main challenge facing any government is, and remains, to govern the country in the national interest. A broad view and a long view at all times. Fiscal consolidation is not necessarily a good simply because it is is ‘optimal’ for powerful creditors. Plutocracy is as deadly and dangerous as terrorism. As the saying goes, we need to wake us and smell the coffee here.

I don’t wish to target Ciaran personally, as his views are often very enlightening, but the financial sector simply cannot expect to continue to have their cake and eat it too. It is horribly corrosive of our global social fabric that big players can massively enrich themselves by inflating credit bubbles, and then cling to the swag by po-facedlly preaching promoting austerity when their bubble bursts. JCT is just the official face of the Greenspan put.

If the issue is about the elimination of wasteful spending, then the taxation of unproductive sectors of the economy, such as financial services and the hype machine which surrounds them, needs to be up front and centre. After that comes the necessary state investment to reflate the mess they have left behind. That’s real conditionality.

@Paul Quigley

I don’t wish to target Ciaran personally, as his views are often very enlightening, but the financial sector simply cannot expect to continue to have their cake and eat it too. It is horribly corrosive of our global social fabric that big players can massively enrich themselves by inflating credit bubbles, and then cling to the swag by po-facedlly preaching promoting austerity when their bubble bursts. JCT is just the official face of the Greenspan put.

+1

Austerity for everyone except the banks, for whom the Irish economy is to bent into such a shape as to allow their continued existence.

Any thoughts, Philip or Ciaran, on when exactly the state might get its hand outs back from the productivity shy international financial system?

Could it be that you think Western democracy in general and the Irish state in particular exist basically just to offer a comfortable framework for the operation of free market capitalism and the extraction of profit?

@ Shay Begorrah

Snap. And you said it better. Blast.

@JtO
“The census showed that the populaton was 200,000 greater than ESRI were saying pre-census. That equates to around 120,000 houses.”

How do you work that one out?
Using the data from the Census, population 4,581,269, occupied properties 1,709,973 would equate to 2.679 people per household.
That would equate to 75k houses

So the census indicated that an additional 75k more properties were needed than anyone, bar yourself, predicted but still leaves 294,202 vacant properties around the country.

And after the results of the Census if developers feel there is a market they can now ramp up production now.

Don’t see how or why the government should get involved, just step back and let them get on with it if they think there is demand.

@Dreaded_Estate

I’ll accept your figure of 75,000 in one sense. It is 75,000, not 120,000, if one simply applies the new reduced (from latest census) figure for average household size to the number of extra persons the census revealed, as compared with ESRI pre-census estimates. That is still a hell of a lot of extra houses, as compared with what you and everyone else thought was the case pre-census. My rough 120,000 figure includes, in addition, the fact that, pre-census, most posters on here and on other sites were disputing that household size was falling, and were using the old higher (from previous census) figure for average household size. Put the two together, and the number of households is roughly 120,000 higher than pre-census estimates. But, if you want to exclude the ‘falling household size’ component, and just go on the basis of the size of the ESRI population under-estimation, which gives 75,000, then I have no problem with that.

@Tim O’Halloran

Correct me if I am wrong. But, were you not posting here a couple of years ago that net emigration was allready then running at 200,000 annually, a figure apparently derived from mobile phone records by an outfit called TASC. Quite the dumbest thing I ever heard of. I have no idea if you were involved in that calculation, or merely repeating it approvingly here. It must irk you that I got it right, while you got it so wrong. Show some dignity in defeat.

@JohnTheOptimis

I have no recall of that. No-one can predict emigration, it depends so much on how other people’s economies are going.

Population cannot generate growth, it can only generate strain on public finances.

Where are all these people going to get money to buy ghost-estate houses, most of which are miles from any economic centre.

I know many people wh parrtotted to me tht NCB created meme about how the ‘demographuis’ of Ireland would guarantee ludicrous Irish house prices forever. Most of them had never heard the word before , but are now 100,000s of Euro in negative equity because of their faith in such magical thinking.

Find a cummann meeting to peddle this rubbish, if you FFers can still bear the sight of each other.

@Edgar Morganroth

As is clear from reading the ESRI Quarterly Bulletins, all their estimates and forecasts are for NET migration. Therefore, it is immaterial whether they were wrong because of higher-than-estimated immigration or lower-than-estimated emigration. The facts are: ESRI claimed at election time that a NET 180,000 had emigrated from Ireland between April 2008 and April 2011, the annual breakdown being NET emigration of 50,000, 70,000 and 60,000 respectively in the years to April 2009, 2010 and 2011. These became a major issue in the campaign. One side benefitted greatly from the universal perception, repeated in the media daily, that the ESRI figures were accurate. A whole Prime Time special was devoted to them. While the precise annual figures are currently unknown, indeed it is currently unknown whether there was a small NET outflow or inflow between April 2008 and April 2011, it is absolutely certain that the ESRI estimates for NET emigration of 50,000, 70,000 and 60,000 respectively in the years to April 2009, 2010 and 2011 were ludicrous claims. I said that here at the time on numerous occasions, but only ever got the brush-off until the census proved me correct.

I have sent a polite email to the Director of ESRI, requesting her to apologise for ESRI misleading the electorate in this way. So, until I get a reply, I do not intend to raise or discuss the matter further here.

@Tim O’Halloran

Very well. If you say you didn’t, I will most certainly take your word for it. But, there was a TASC report in or around September 2009, debated on here (I am sure it can be found in the archive and I will look for it next week if I find time), which estimated (rather than predicted) that net emigration in the preceding 12 months was 200,000, and their method of analysis was mobile phone data. I remember writing a post here, rubbishing it at the time. But, as I say, if you say you had nothing to do with it, I unreservedly accept that.

@ Paul Quigely

Good post, +1 !. And as others are alluding too, the mainstream narrative is one that is limited by the assumption that the out of control financial sector (that caused this mess) must be preserved at all costs. And yes, it is a system that funnels surpluses, productivity gains etc, disproportionately to the few. It inherently does this in an unsustainable manner, seeking yields to a financial sector that cannot be met indefinitely by the only source of wealth creation – the real economy. Temporarily maintained by ever increasing debt, the bubble has to burst sometime. These are the irrefutable empirical +facts+.

What is particularly insidious this time is that the system has contrived to insert mechanisms where normal capitalist correctives, specifically debt write off, threaten to collapse the banking/credit part of the system that the real economy requires to function. I believe it is arguable that the widespread use of CDSs was, in major part, to provide such a mechanism.

When one looks at the work of people like Prof Steve Keen, and MMT economists like Professors Randall Wray, Bill Mitchell & others, and excellent proposals such as positivemoney.org (for UK), one can only conclude that the mainstream monetary & economics narrative is deeply flawed & heavily skewed to the interests of very few.

It would be unfair to accuse mainstream economists of malice, tho’ such doubtless exists at the higher levels of the financialised economy. But the lack of intellectual curiosity, and, yes, honesty, four years into a global crisis that still simmers, is appalling in my view. A lot of ordinary citizens, who had no part in creating the mess, are suffering badly & many more are set to join them. This is not acceptable.

There is is also another urgent and important job to do. Humanity needs to transform its economy away from unsustainable use of natural resources. It should be obvious that a system dominated by private interests running a financial casino on the back of the real economy will not solve this problem in a way that doesn’t leave a significant proportion of citizens to fend for themselves with little or no source of adequate resources.

There is an obvious synergy at present in the opportunity for the public sector (governments) to step in & both stimulate the growth we need & growth in the direction of ecological sustainability. Energy is the key. We only have so much energy ‘capital’ left to bring about the transformation we need.

A currency issuing authority such as the eurozone can create as much money, debt & interest free, as it wishes. That’s not to say this should be done irresponsibly, but more than enough funds could be provided for governments to spend free gratis on carefully designed and targeted programs. Programs aimed to avoid crowding out the private sector, but giving a longer term payback in supporting the energy (& efficiency) transformation we need to make, and maximising take up of unemployed labour. They need to be flexible, such they can be wound down or transferred to the private sector as the economy recovers. This is broadly the ‘qualitative easing’ that Richard Douthwaite has already proposed.

Of course, in a currency union, the politics of this would be challenging, but it’s not really too different from the decision making in disbursing things like EU structural funds.

Obviously, such programs & the associated reforms to monetary system & fiscal management would be much easier if we had our own sovereign (fiat) currency. And if the eurozone insists on continuing with the current non solutions & legacy neo-feudal, neo-liberal policies, our long term future (with the the reforms suggested) would be far better if we left.

The kind of monetary reforms, full reserve banking, & MMT derived fiscal management that I’m referring to are put forward in a NEF/University of Southampton/positivemoney.org proposal to the UK Independent Commision on Banking.

http://www.positivemoney.org.uk/wp-content/uploads/2010/11/NEF-Southampton-Positive-Money-ICB-Submission.pdf

I cannot avoid the conclusion that the reason such proposals as ‘qualitative easing’ are not taken more seriously is because the banking sector do not want the wider public to realise the rediculous ‘free lunch’ privilege they enjoy in their present exclusive right to issue all money as interest bearing debt. A privilege they so richly no longer deserve. Any more than their gambling losses deserve to be made good by ordinary citizens. However, if such reforms as positivemoney.org & others propose were to be implemented, I, for one, could accept the current debt burden transfers as a price worth paying to ensure such a mess as now can never return.

@Eamonn Moran

They will have to revise up the total population figure by 100k.

They give a figure of 4,480 for Ireland’s population in 2011.

That was the CSO estimate pre-census.

But, the census revealed it to be actually 4,581 in 2011.

Obviously, the eurostat release was compiled pre-Ireland’s census, or the Ireland census results were published too late to be incoporated in the eurostat release. That would be normal. Ireland’s census was only published on 30th June. These sorts of releases take months to prepare.

Be clear: I’m not saying the migration figure will be revised by 100k for a single year. But, the population figure for 2011 will be.

I’ve posted a hundred times and bored everyone silly as to what that means for the pre-census migration estimates, so I dont want to repeat it yet again.

But, briefly.

It means that the total migration figure for the 5-year period, April 2006 to April 2011, will most definitely be revised by 100k. That is, the total inflow minus the total outflow will be revised up by 100k. There is no dispute whatever about that. The census tells us that definitively. But, we won’t know for some time how that 100k will be distributed over each of the 5 individual years from April 2006 to April 2011. It could be 20, 20, 20, 20, 20, OR 40, 40, 20, 0, 0, OR 100, 0, 0, 0, 0, OR 10, 20, 40, 20, 10, OR 10, 10, 10, 20, 50, – in fact, anything, as long as the total adds up to 100.

@Ahura Mazda

That chart is interesting, particularly the Dutch figure of 280%. I thought they had the German frugal streak…obviously not. Makes us look reasonable at 200%.

@ CP

I think the Dutch also have massive pension assets on the other side of the balance sheet, thats the missing context in that graph. Danes are similar.

Edited version in today’s ‘Irish Times’.

http://www.irishtimes.com/newspaper/opinion/2011/0729/1224301562355.html

@ Philip Lane

Sorry to come late to this, but this is one of the strangest sentences I’ve read in a long time,

“However, the vitality of the banking system ultimately rests on the fiscal health of the Government. Accordingly, the main challenge now facing the Government is to restore Ireland to long-term fiscal sustainability.”

Surely this is wrong? The vitality of the banking system ultimately rests on the health of the economy. Likewise the health of government finances. But this formulation – which seems central to the entire case – turns the world upside down. If the banking system is dependent on Government, which is currently the case, it has no ‘vitality’.

So, before recommending either €3.6bn or €4.4bn in further fiscal adjustment, would it not be a useful exercise to examine the effect of likely pay cuts, job losses, emigration, mortgage defaults and business bankruptcies on banks’ balance sheets. Perhaps the effects of the preceding €20.6bn in fiscal adjustment might be a guide?

@beeceetee

“One of the most straightforward ways to achieve that is to narrow tax bands, an approach which has the political benefit the the Government can claim it has honoured its commitment not to raise taxes on income.”

I recall a post on here some time ago that explaining a narrowing of bands as not being a tax increase was something that even the Jesuits would run from. I think the Jesuits have started running.

Now I’m sure that someone on here can go back and provide a link to a quote from one of the current incompetents in government promising not to increase the rate of tax but it’s that sort of guff that did for the last government. Youmight as well piss on my head and tell me its raining.

@Robert Glynn
“I feel however that some of the Classical/Keynesians etc are beginning to feel the heat these days as they desperately try to conjure some formula that will extricate the world economy from the debt trap that they assisted in setting. ”

Like the last part. I don’t see them conjuring up anything of the sort. Some kind of non-human controlled gear or speed limit on the amount of share transfers allowed per day, and on the magnitude of policy change affecting trade and commerce per day across some form of unified time-zone – meh, that might have some stability to it… We’re still in Rome!