The Macroeconomic Challenges Facing Ireland

My talk at the MacGill Summer School yesterday was based on this paper.  Core point: I argue that last week’s European deal calls for an acceleration in the pace of Irish fiscal adjustment.

Update: The webcast for this session (also featuring David Begg, Brigid Laffan and Colm McCarthy) is available here.

Update:  The Irish Times carries a shorter, edited version of my talk in this article.

102 thoughts on “The Macroeconomic Challenges Facing Ireland”

  1. One basic step is to commit that the savings from the lower debt servicing
    cost should be fully passed through into a lower fiscal deficit, rather
    than seeking to increase spending or cut taxes.

    Are the politicians that bad ?

  2. 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 or have the mob on the street following his every twit, as is the case with some economists. In today’s dumbed-down word, intelligence is often a barrier to success.

    The basic facts are simple:

    (a) Ireland Inc is solvent – it is in surplus. The US Inc and UK Inc are not – they are in deficit. Ireland Inc is spending less than it is earning.

    (b) Within this, there is an imbalance in spending. The government is spending too much – consumers are spending too little. Measures to reduce the former need to be matched by measures to increase the latter. Philip seems to recognise this by suggesting that VAT changes be timed to increase consumer spending, and that the cuts in government spending be done in such a way as to increase consumer confidence and, as a consequence, consumer spending.

    The only small criticism I have is that it made no comment on the recent census results and their implications for the house-building industry. Quite simply, as the census showed, the number of households in Ireland is increasing by about 40,000 annually minimum. Add in obsolescence and holiday homes, and the long-term annual requirement for new houses in Ireland is near 50,000. It looks as though both this year and next, Ireland will struggle to build 5,000 new houses. The surplus is melting. At some point it will disappear. Therefore, at some future point, the precise timing of which I am unable to predict right now, but certainly before Easter 2016, the house-building industry in Ireland will have to be revved back up, from a current rate of completion of around 5,000 annually to around 50,000 annually, a tenfold increase. When that happens, the era of the anti-construction-industry anti-developer celebrity economists will be over, Property Pin will go pop, and Messrs Sean Dunne, Sean Mulryan, Johnny Ronan and the Bailey Bros will be back in fashion and once again flaunting themselves around the racecourses and nightclubs of Ireland. Oh happy day! Unsavoury as many of us find these characters to be, they do create tens of thousands of jobs, which is more than can be said of the celebrity economists.

  3. 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.

  4. To talk of Ireland as if it exists as a seperate entity is deeply flawed.
    There is no monetory control , no control of our borders , and now no fiscal control.
    And yet the euro masters want us to shoulder the losses of free moving capital throughout the Euro jungle !!!!! – its taking the piss to a extreme level.
    Indeed this narrow anylasis is insane.
    I hope you caught Lorenzo’s little chat with Steve Liesman & friends yesterday.
    That company man was somewhat surprised to say the least by Lorenzo’s final remarks of Famine & pestilence to any Euro transgressors.
    This is not some tertiary figure – he represents the interests of a psychopathic brotherhood.
    http://video.cnbc.com/gallery/?video=3000035173
    Its obvious that these power hungry vampires need greater & greater shocks to the socio-economic fabric so that complete assimilation of the Euro continent can be achieved.
    The consequences of being good little boys over 40 and especially 20 years should have thought us something don’t you think ?
    They rightly regard such servitude as a act of weakness that needs to be ruthlessly exploited to gain the maximum advantage.
    I never thought I here myself say this but we need to consider rejoining the union as Edinburgh has more power over its own affairs then Dublin has over its.
    We never had any real monetory control anyway so it would not be a regression.
    Perhaps a Hollyrood type parliament is what we need here now – maybe our Unionists brethern can join us in Leinster house and maybe a more commercial use for the absurdly grandiose Storment can be found.
    Maybe M Lowery could change his development plans somewhat – its certainly more Gaudy then the White House.
    But seriously the juvenile euro servile attitude of the petty elite here is shocking to the core.
    We must seem like retarded children to the Brussels & financial elite – they may be right.
    For God sake grow up Ireland.

  5. @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?

  6. @ DE

    the ever amazing Jagdip reckons we need 17k pa just to take account of changing family sizes (ie smaller families, stable/growing population = more homes required).

  7. 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?

  8. @Eoin
    I would agree with that estimate however the few years of building almost 100k properties might keep that area covered for a few years.

  9. @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.

  10. @Eoin

    My position is indeed that we need 17k homes per annum just to accommodate what appears to be an overwhelming trend in smaller family sizes since the foundation of the State.

    These 17k of course may not be newly built homes, after all we do a vacant overhang. We’re building around 7k homes a year, but all research into national vacancy (of which 33k Ghost Estate vacancy is a subset) appears to conclude that we have a vacant overhang of 100k+ homes.

    In addition to smaller family size, we need homes for population growth and obsolescence. The latter is probably minimal in Ireland which has a very new housing stock and we are a nation of fixer upppers.

    So what will population growth be? It will be a high birth rate that sees no sign of declining less a low death rate plus/minus adjustment of migration.

    And it is on this last point on which there is much debate. Plainly we had 120k of net inward migration in 2006-2011, but because the annual net migration figure is not captured, we don’t know if the net 124k is, to illustrate extremes and the argument,

    2006 80
    2007 70
    2008 40
    2009 0
    2010 -10
    2011 -56

    or
    2006 20
    2007 20
    2008 10
    2009 10
    2010 20
    2011 54

    If it’s the first scenario and it continues then our housing demand for overall population growth might be minimal (or indeed zero or even a negative which would contribute to the vacancy overhang)
    If it’s the second scenario and it continues then our housing demand for population growth might be 50k per year which when added to family fragmentation 17k and obsolence might mean overhang is used in 1-2 years.

    So let commence battle on what the recent migration stats are! (Anyone ever seen that 1970s film “The Duellists”?)

    @Philip

    I heard the presentation yesterday was very well received. Look forward to studying it later.

  11. 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?

  12. @Dreaded_Estate

    but are you sure that it was true in 2009 to 2011?

    JTO again:

    I am sure it was NOT true in 2009 to 2011. It was almost certainly significantly less in 2009 to 2011. The figure is the average for 2006 to 2011, which, thanks to ESRI et al, is much greater than what was thought to be the average for 2006 to 2011 until a few weeks ago.

    But, why should we assume that the figure for the period of deepest recession will be the norm for the post-recession future?

    It wasn’t in 1955-58.

    It wasn’t in 1983-86.

    All the evidence from the past is that population growth in Ireland slows down in Ireland during recessions, then accelerates again post-recession, with a time-lag of maybe a year or two. Failure to understand that is why Colm McCarthy’s DKM forecasts in 1991 for Ireland’s population growth up to 2011 turned out to be such rubbish. They forecast that the population would fall from 3.5m in 1991 to 3.3m in 2011. Out by a trifling 1.3m. The amazing thing during this recession is just how strong population growth continued to be, in comparison with the recessions of 1955-58 and 1983-86, even if it was not as strong as 2002 to 2007.

    The period 2006 to 2011 is reasonably representative, consisting as it does of a period of growth and a period of recession. In fact, it is biased in favour of recession because recession years took up about half the period 2006 to 2011, whereas, over the long-run, recession years are only about one-tenth the number of growth years.

    So, I think taking the average of 40,000 for the period 2006 to 2011 is a reasonably conservative estimate of the long-term future average, even if it turns out to be below that average from 2009 up to, perhaps, 2012, even 2013.

    At the moment, the policy of the FG/Stickie government in relation to housing shows a total lack of forward thinking, which has not been affected at all by the census results, and seems to be as follows:

    (1) We had huge growth in population and household numbers from 1996 on, requiring a huge number of new houses to be built to house them, a number much greater than ever required previously during the century and a half of population fall and subsequent slow population growth.

    (2) The construction industry rose to the challenge and, not only built enough houses to house the extra 1m persons living in Ireland since 1996, but more than enough, resulting in a significant (but greatly-exaggerated) surplus.

    (3) During this period of surplus, we shall sit back and enjoy no new houses at all being built, and live off the surplus, and revel with wild delight in the spectacle of all those companies who were previously engaged in building new houses going bust. Because they are evil and fully deserving of their fate, many of them having been identified as FF supporters, guilty of abominations such as sipping champagne in a tent at Galway races. And, we shall have a media and celebrity economists dedicated to showing how evil and corrupt they are, because the surplus of new houses will last forever, and we will never ever again have need of those who built the surplus.

    to be replaced in a few years time (I can’t predict exactly) by

    (4) Oh Dear! We seem to have run out of houses. The surplus has just been used up. We didn’t expect that. And new house-building has fallen to zero. And all the house-building companies are bust. And all the construction workers are unemployed. And still around 40,000 new households are coming on stream annually. What shall we do? Yes, we must phone Mr. Crooked Developer at his island retreat in the Caribbean, where he has resided since 2007, and plead with him to come back to Ireland, because we need lots and lots of new houses to be built after all, some 40,000 to 50,000 annually. But, what with planning permission taking a few years, and it taking another year or two to build a house once commenced, the public must accept a large housing-list and long waiting-period for a new house in the meantime. Deja-vu. Its 1995 all over again.

  13. @ 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.

  14. @JtO
    What government policy is preventing developers from building houses?
    Unless you count the tax incentives can’t think of any government policy that directly encouraged house building in the past.

    If developers felt there was a market with a likely shortage in a few years why do you think they wouldn’t exploit it now. Surely new developers without any existing “problematic” assets would move in and start building.

  15. @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.

  16. @Mike Hall

    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.

    JTO again:

    Plenty of evidence. We know that the number of occupied houses in Ireland increased by over 200k between 2006 and 2011, an average of over 40,000 annually, excluding obsolesence and holiday houses. We don’t know how the 200k was distributed between individual years. Any ideas on how the 200k houses went from a state of non-occupiedness to occupiedness?

    @Mike Hall

    Really, the nonsense spouted by Philip Lane jumps …

    JTO again:

    I am delighted that you think Philip Lane is spouting rubbish.

    But only because, since you think that I am spouting rubbish also, it is an honour for me to be grouped with someone so eminent as a ‘rubbish spouter’ in the same post.

  17. @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.

  18. @ Mike

    i think you’re missing a lot of the nuance of the problems in the Irish housing market – there’s still demand for housing, but a lot of the vacant houses are in the wrong place. We have finally realised that people don’t want to live in the middle of nowhere, but they do want to live somewhere. Therefore we’re going to see houses continue to be built in the right places, albeit not at anywhere near the same rate that we saw back in the peak years.

  19. @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.

  20. First Mr. McCarthy, now Mr. Lane – it’s getting crowded on the looner rover…

    It is a shame, I think, that economics works so much from current conditions with the benefit of hindsight. It would be nice if there was more attention on future conditions and foresight (less extrapolating from current conditions, more imagining a series of near term positions and working from them).

    This is not to say that the whole profession should move to it, as being mostly wrong most of the time is not conducive to a healthy mental state, but with economics being mostly right most of the time, except for the really big awful things, it is possible that economics is already in the depths of madness.

  21. @ 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

  22. “Turning to the labour market”

    Our labour market problem is fundamentally one of demand, not supply. Increasing the number of capital projects would create jobs for the present, and the infrastructure we need for the future.

    “While labour costs are just one element in the wider matrix of factors that determine the overall level of economic activity, the wage levels that emerged during the 2003-­‐2007 boom are clearly not appropriate under current conditions.”

    I think its very important to look at the sectors. The sectors that are coming under most attention at the moment are retail and catering (due to JLCs), but even in 2008, hourly labour costs in these sectors were in line with the Eurozone, about the same level as in Italy, and far below those in France.

    In the paper Philip Lane chops and changes between referring to labour costs and wages, without giving a reason why. I think this will just cause confusion. While wage rates are very important when discussing issues of aggregated demand, when it comes to competitiveness it is only Labour Costs that matter.

  23. @bond

    the point you make is that thee aren’t enough houses to accomodate those wishing to live in urban centres or that there wont be in the near future on jto’s wild assumptions?

    this is a very generous interpretation of the census data to serve your own spin cycle

    While it is true that a smaller percentage is vacant in urban centres the absolute numbers still point to a significant number of vacant dwellings, while we dont know the demand as we dont even know the current trend in migration and the consensus on the ground to my knowledge still indicates a growing stockpile of properties for sale and rent indicating that sales and rentals are taking longer to clear
    http://daftwatch.thepropertypin.com/county-breakdown/dublin/
    – an excess still exists in Dublin just not as disastrous as elsewhere but clearly a very large overhang

  24. The reduced size of the households will have an impact. Part of it is pent-up demand as people couldn’t afford to pay the bubble prices and had an aversion to or couldn’t afford renting. Part of it is probably a long-term trend.

    A couple of years ago the premium paid for the privilege of not living in shared accomodation was prohibitive. The improved affordability makes it easier for two friends to share something good instead of being forced to find a third or a fourth friend (& the resulting complications of sharing with more people).

  25. @ 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?

  26. JTO
    ‘In today’s dumbed-down word, intelligence is often a barrier to success.

    The basic facts are simple:

    (a) Ireland Inc is solvent – it is in surplus. The US Inc and UK Inc are not – they are in deficit. Ireland Inc is spending less than it is earning.’

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

  27. @ 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).

  28. @Eoin Bond

    Daft.ie right now shows 55950 Houses & 5286 apartments for sale in the whole of ROI. That’s a total of 60236.
    I’ve seen the 91k figure quote here before, and daftwatch shows it as its current total too.
    Any idea where they (and you) are getting the other 30k from?

  29. @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.

  30. @Dermot
    Britain has nearly always been in defecit – at least since it had its empire , and now as then a financial center which produces / exports paper for goods that people somehow still respect.
    Colonies are generally countries with vast trade surpluses – Ireland has always been a colony and it seems always will be.

  31. 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.

  32. Surplus is not solvent. It may lead to solvent over time, in Eoin bond terms having longterm ability to have assets over liabilities. And much of the putative solvency aka surplus comes from the mnc sector where the ability to extract tax is very constrained.

  33. @ 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.

  34. “While the projected bank losses are indeed
    horrendous and the domestic component of GDP continues to shrink,”

    So again, why bail out these banks?

    “However, in terms of the overall level of public services,
    such reforms only partially offset the impact of the reduction in the numbers of public sector workers, in view of the labour intensive nature of many types of public services.”

    Its not the labour intensive elements of the PS that cost the most. Its the high levels of pay in middle and upper management that skew the PS pay bill into untenable territory. We need to lose about half of our public sector payroll. Any ideas as to who goes first?

    “However, it remains the case that the aggregate scale of wage adjustment has not replicated what would be achievable under a traditional mix of a nominal currency devaluation plus an economy wide incomes policy to ensure that devaluation is not simply offset by faster wage growth.”

    You mean a traditional Keynesian mix of devaluation + wages policy. Completely failed ideas that belong to 70’s Britain. Where is the free market?

    It is true that the States are going to be stuck with the costs of the recap of our banks. So again, why bail them out? The question is a philosophical one centering on whether the Capitalist system is to be allowed to function properly or not. My own view for what its worth is that Capitalism has been fatally undermined by a combination of grotesque State sponsored banking fraud and a Socialist “mixed economy” model supported by our tenured intellectuals such as your self Sir. You are as much to blame for the plight of our country as the property speculators and the Government(s).

    Bankers exist in their own nether region and I would demure from classing you economists as as bad. But you still peddle this Socialist line. Do any of you realise how damaging you inadequate understanding of economics has been?

    Do you or any of your colleagues wish to recant your Socialist/Keynesian dogma and start out on the correct path, that of free market capitalism?

    The idea is a joke.

  35. Personally attacking Philip Lane for his blogs is not acceptable. It really is using a Gatling gun on an unwelcome messenger. In any case, as I said a long time ago our whole establishment – FF/FG/Lab – have had the same policy for years. The change of government has not fundamentally changed this. Many of us will completely disagree with some, many (my case) or all of their policies but there really is no point in raging against someone for telling you honestly what the establishment are going to do. For one thing he’ll just stop telling us.

    On income tax I would be interested to see how our rates compare to Scandinavia. It is the government’s intention to produce a more social democratic society with comparable service levels so similar tax rates would be justified.

    On a speedier deficit reduction this may well be a good idea. On a weakened punch drunk nation a very good case needs to be made for it though.

  36. @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.

  37. @ Seafoid

    pls see my earlier (last week) forecast on here that Cyprus would be the next one into the EFSF… 😀

  38. 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).

  39. @Paulr

    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.

    JTO again:

    The geography of north county dublin isn’t my strongest suit, but is that the area known as Fingal? If so, the census figures (cut and pasted) for vacancies in Fingal are:

    Fingal
    Housing stock 2006 (Number) 89,909
    Vacant dwellings 2006 (Number) 7,878
    Vacancy rate 2006 (%) 8.8
    Housing stock 2011 (Number) 103,295
    Vacant dwellings 2011 (Number) 7,453
    Vacancy rate 2011 (%) 7.2
    Actual change in vacant dwellings 2006-2011 (Number) -425
    Percentage change in vacant dwellings 2006-2011 (%) -5.4

    Vacancy rate of 7.2% and falling is somewhat different to your estimate of 1/3.

  40. @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.

  41. @BeeCeeTee

    Actually the change from the Income Levy to the Universal Social Charge resulted in a significant decrease in the levels of tax payable by rentiers.

  42. @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!

  43. @BeeCeeTee
    Good points and good predictions. I would be very surprised though if the income tax take on all higher earners have hit Swedish levels yet, given our establishment’s cultural similarities to Greece. If they haven’t we surely shouldn’t be ruling out further increases when we are trying to avoid default. I think it’s the estabishment that has reached its limit.

  44. 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”

  45. 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.

  46. I truely don’t understand this obsession with income taxes on this blog – whats the objective of this higher income tax ? , yee won’t be getting Swedish like services me thinks.
    Once again – he who owns the paper makes the rules , we don’t own any of our friggin paper – the ECB including our very own cuckoo is gaming this country into oblivion.
    We truely are a sad bunch.
    Whats the point I guess – its time to stop howling at the moon.
    We are dead meat.

  47. 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.

  48. JTO you are like a broken record on the census figures. Nobody cares; they are absolutely meaningless. It doesn’t matter how many houses the country needs. None are going to be built if there is no money to build them with, and there won’t be money until people have jobs and the Zombie banks have been properly buried.

    But carry on being cheerful if you like. I suspect most of your analysis is really being applied to Northern Ireland anyway, so at least we’ll all have one extra place to emigrate to.

    Cheer up. Class will tell in the end.

    http://www.youtube.com/watch?v=zv3mO4A6zOw

    They might as well play this one on the boat over to Holyhead.

  49. @Mike Hall

    You assert that reducing the cost of labour will not increase demand. You seem to forget that the reduced cost of labour will feed into cheaper products which leaves more money in the pockets of the purchaser to spend elsewhere. That increase in wages automatically means more demand is a common misconception. If that was really the case, the government could easily legislate E20 / hour minimum wage and the problem of demand would be solved.

  50. @ 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.

  51. The thought of Brigit Laffan managing anything including this Dork fills me with dread – I remember the Euro referendums.

    There seems to be a misunderstanding here – lets take a simple example – If I have 100,000 in the Post office and reley on that to live I may withdraw 10,000 a year to eat & drink , I quite honourably refuse any state aid – the goverment would lose my funding over time and reach zero in 10 years if they don’t pay interest.(where do they get the money for interest ?)
    If I am unemployed and reley on 10,000 a year from dole to survive – 10,000 a year is subtracted from the goverments account.
    There’s essentially no difference.
    I don’t get this type of austerity – please explain.
    So now these people are increasing income tax on workers to service interest – the sov debt is held externally so the domestic money supply must decrease.
    Increased efficiency in production generally reduces employment and in a environment of static money & increased efficiency unemployment will rise.
    We have a falling money supply………
    So yee guys want to tax people who generally want to save – Hmmmmm , you have to provide cash into the system so that people can save – otherwise they can’t save baby.
    Tax must be used to prevent imports (cars come to mind) in such a environment as it will redirect the existing money stock on home consumption. – yet EU dogma will not allow such blasphemy.
    Colm you will have to learn to divorce your understanding of the money supply from bank credit – bank credit is useless in this environment and I hope it will never come back.
    Money is a symbolic construction – its present design is simply not working

    Its time to leave me thinks – unless the ECB produces a massive amount of high powered money , they know Gold needs to go to 10,000+ under their monetory system but are bluffing treasuries.
    David Beggs idea of a collective Euro bond will not work in Europe as there is not enough money to service the interest on this debt – its simply a poltical device used by Euro integrationists in a time of crsis which they feel will further their strange ideology.

    Colm fiscal “consolidation” only makes sense when you have a credit money supply – when only goverments can produce money they must produce high powered money.
    Otherwise all commerce will break down – as people need money tokens to trade.
    You don’t want to pay people or tax people who work in the physical world so that people who reley on interest income.
    Its a intellectually bankrupt proposition that will destroy the physical economy to service a artificial one.

  52. @ 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?

  53. @ colm

    Very educational presentation, very much a public service of significant quality in my opinion, it could be even more insightful if you would be kind enough to briefly describe how do you see this crisis resolving itself ie will the ECB write off the loans to Irish banks and if not how else might the situation evolve.

    It really is compelling stuff and with children the stake held is even greater

    My vision is of a second world economy propped up by Eurobonds unable to cut costs while competing with Poland for call centres, I have already been privy to the fact the IDA are down scalling their target quality and going head to head with Prague, not on corporate tax but on employment costs for companies that are employment intensive

  54. 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.

  55. @Robert
    I would advise caution with the Austrian view although it is very legitimate – Austrians can become a bit too obsessed about the precious for their own good although the precious is needed for international trade in my view perhaps something like under the Bret ton woods system but under a truely transparent international exchange to prevent surpluses, defecits , sov wealth funds , pension funds etc. from becoming destabilising.
    Hayek was a major influence on the Euro after all.
    No if God does exist he must look like this man.
    http://www.economist.com/node/17363435

    Although the rational aesthetic part of my brain tells me he is just trying to reposition the banks tack so that it can survive the gathering storm.

  56. Production total labour costs are competitive but keep in mind that this positive situation relates to the fact that the majority of private sector workers have no occupational pension and those who do are likely to have a defined contribution system where the employer funding costs would typically be 50% lower than in the guaranteed payout system.

    Total economy unit labour costs rose 33% in the period 1999-2007 compared with 11% in Finland, 5% in Austria and 13% in Belgium.
    The recession has had an impact in the interval as had the big jump in exports without any rise in employment in pharmaceuticals for example.

    So in 2008, if the advice of the long-finger advocates had been taken, would we be in a better place now?

    An interesting little fact is that the 3 countries with the highest dependence on foreign buyers of their sovereign debt, Greece, Ireland and Portugal, are now in intensive care?

    Demand would always be the solution but small economies in a currency union do not have many choices.

    We did have a bubble economy over a decade when the tradeable goods sector was stagnant; looking forward from now, over the next decade, can we expect booms in the big developed countries to give us the basis to return to a comfortable existence for all people while maintaining a dysfunctional system at home?

    The vested interests of the left and right have coalesced against reform.

    A half a billion paid out to lawyers annually; another half billion on the factory gate prices of drugs and on it goes, built on the ephemeral income of a property bubble.

    As for taxes, many in the US are obsessed about taxes and for Ireland, US FDI is the only market that matters. So the ‘high tax’ tag is not one to aspire to.

    Recently, Twitter on a threat to leave, forced the city of San Francisco to give it a six-year payroll tax break.

  57. @ 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.

  58. @ObsessiveMathsFreak

    JTO you are like a broken record on the census figures. Nobody cares; they are absolutely meaningless. I suspect most of your analysis is really being applied to Northern Ireland anyway.

    JTO again:

    You are a nut. Therefore, I can’t be bothered to debate with you. Anyone who thinks that the recent census figures apply to Northern Ireland or interprets the census figures as indicating that net emigration is running at 500,000 annually is several bananas short of a picnic. I am happy to debate with those who disagree with me (e.g. the one below), but only when their level of intelligence is slightly below, equal to, or higher than my own. And you certainly don’t fall into any of those categories.

    @Dreaded_Estate

    If developers felt there was a market with a likely shortage in a few years why do you think they wouldn’t exploit it now. Surely new developers without any existing “problematic” assets would move in and start building.

    JTO again:

    You don’t seem to have changed your analysis one iota from before the census. Perhaps you haven’t heard about it? Totally understandable if you were ill or out of the country on 30th June, as all mention of it has been dropped from the Irish media since.

    Pre-census, you were one of those unquestioningly accepting ESRI’s population and migration estimates. To be fair, 99 per cent of people did. The census showed that the populaton was 200,000 greater than ESRI were saying pre-census. That equates to around 120,000 houses. I would have thought that would trigger a radical re-appraisal of the future need for houses in Ireland. But, you don’t seem to have altered your estimates one iota from when you (and, to be fair, 99 per cent of people) thought that the ESRI estimates were accurate.

    Regarding what developers feel, you forget that it is still under a month since it became generally known that the population and, more importantly, the number of households, was still increasing at a very rapid rate. Prior to 30th June, nearly everyone thought that the population was in freefall. Imagine a group of developers holding a meeting back in mid June. The Chairman announces: “ESRI estimate net emigration is running at 70k a year; the new Taoiseach, Enda Kenny, says it is running at 100k a year; the new Minister, Joan Burton, says it is running at 500k a year; all the academic departments of our universities are backing them up with meticulous research. Based on the estimates of these distinguished people, we have concluded that there will be no need for any new houses in Ireland for several years, so we have stopped all house-building”. Round of applause. Then, someone pipes up from the back: “But, what about that peasant from Tyrone, goes under the name JTO, he keeps saying on a blogsite that they are all talking sh*te. Should we look into?”. Do you really think that would have changed the outcome of the meeting and that they would have altered their plans on the spot? Even though, as the census showed, they were all talking sh*te.

  59. @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?

  60. @ paul quigley

    Very good post as ever.

    “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.”

    I was going to write a long reply, but just for now – that’s my part 2, of part 1 ‘get Irish economy back on track’. Any offers on how it could be done?

  61. @Paul
    It seems impossible to get through to economists with the 80s in their formative years.
    They contracted fiscal spending so that the private sector could hyper inflate credit using a oil surplus created partially by 1970s energy policey that was a response to the oil shock and they magically experienced “Growth” – the fact that it took a credit hyperinflation to drive this highly inefficient growth seems to be lost on them.
    This all goes back to a change in policey amongest western central banks when they targeted interest rates rather then the base using extremely flawed monetarist dogma during the late 60s.
    Koos graphs show how inefficient the private sector is in generating GDP gain relative to debt – the banks are extremely dysfunctional.
    They are pre programmed to lose wealth as most of their chosen investments are net energy negative.
    The longer the banks do not give out credit the more time we will have to recover in my opinion .(once enough goverment money tokens are available of course) When their private debt is paid off again they will start their wealth extracting programme again.
    Its a very sad but strangely funny situation also.

  62. @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.

  63. @JohnTheOptimist

    How can you derive demand for houses from census figures? You could derive a need (though you couldn’t forecast emigration).

    Need is different from demand, which implies people have money to pay or borrow for houses. As has been pointed out endlessy, if population growth produced economic groth , Africa would be rich.

    Voodoo economics, McCreevey economics , FF economics.

    Stop wasting peoples time. Its long past time for this Bertieist-Bullsh-t-.

  64. @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.

  65. @ Dreaded estate @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?”

    Here is a eurostat release from today.

    http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-28072011-AP/EN/3-28072011-AP-EN.PDF

    It makes for interesting reading.

    I think you have left one important variable in your calculations JTO. Migration.
    we certainly did have a very healthy natural change last year of 46,000 (by far the best in Europe) but we also had migration of 33,700.
    I presume these people lived in houses before they left.
    Also the thing about babies is that they don’t buy houses very often.

  66. @JTO etc.

    This debate about housing and population appears to be missing a few points.

    Firstly, JTO, the preliminary Census report suggests that there will be very substantial revisions to the CSO Migration Estimates (as I had predicted, to use one of your favourite phrases). If you take the implied net migration over the intercensal period (118,650) and subtract from it the cumulative net migration as published in the migration estimates you end up with a big hole to fill which can’t be made up in the year ending April 2011. Of course the census tells us nothing about the numbers who arrived after April 2006 and left before April 2011.

    Secondly, it usually a good idea to make a distinction between the short-run demand for hosuing and the longer run as well as the underlying potential demand. In the short-run the is a lack of confidence and finance coupled with a belief that prices might fall further (e.g. see the CSO release yesterday). In such circumstances the demand will remain depressed until some of these factors change.

    Given the demographics there is significant underlying demand. Of course the level of net emigration is important here, particularly in the short to medium term as many of those who are emigrating would be at household formation age and thus would under the right circumstances consider purchasing a property.

    In terms of the actual functioning of the market it is important not to focus on the national aggregates since the demand is likely to occur in areas with lower excess supply (Map 7 in the CSO release is very striking). Even at very low prices the potential demand other than for holiday homes will be very limited in some areas as job growth is likely to be focused in the city areas (and realistically commutes from Leitrim to Dublin are not practical). In other words once the economy picks up there will be areas where the excess supply will be exhausted more quickly and where house building will resume, while in some other areas house building may not resume for a very long time.

    Finally, in relation to the boom/bubble there is no doubt that nationally more houses/apartments were built than were needed (you can go back and look at the estimates of what was needed). More important than that though is the cost of all this (to individuals and collectively to the country as a whole).

  67. @Edgar Morgenroth

    Firstly, JTO, the preliminary Census report suggests that there will be very substantial revisions to the CSO Migration Estimates (as I had predicted, to use one of your favourite phrases).

    JTO again:

    Yes, I agree with that.

    The problem is that the revisions will be in the opposite direction to what ESRI and everyone else (sauf moi) predicted pre-census. Just going from memory, as I haven’t access to the internet data right now; if you add up all the annual CSO estimates pre-census, it comes to net immigration of about 20k between April 2006 and April 2011; if you add up all the annual ESRI estimates pre-census, it comes to net emigration of about 80k between April 2006 and April 2011. All we know from the census, is that both were wrong, but ESRI’s more wrong than the CSO’s, and that there was in fact net immigration of just under 120k between April 2006 and April 2011. So, the CSO’s annual figures will have to be revised by approx 100k in total, and ESRI’s by approx 200k in total, over the 5-year period, but, until the revisions are done, we really have no idea how they will be distibuted over the individual years. I won’t even dream of attempting to calculate the revisions that will be necessary to TASC’s and Joan Burton’s pre-census annual estimates. My calculator can’t handle such large numbers.

    @Edgar Morgenroth

    Secondly, it usually a good idea to make a distinction between the short-run demand for hosuing and the longer run as well as the underlying potential demand.

    JTO again:

    Yes, I agree with that.

    Underlying demand is determined by population growth and falling household size. Financing problems are temporary. If the worst came to the worst, people could rent. But, unless people are making a surprise change in lifestyle choice to live in tents, rather than houses, or young married persons have developed a sudden urge to live in the same house as their mother-in-law, the best indicator of likely future demand is likely future population growth, combined with an assumption of continuing falling household size, and the best guide to how these will develop is the latest census. It is up to Saint Enda, when he takes time off from whipping up the mob, to fix the financing problems but, until someone informs him of the census results, he may not be aware of the scale of likely future demand, as revealed by the census.

    Finally, an aspect of all this, which may not be directly relevant to this site, is the assault on the democratic process. The fact is, at the recent election, the electorate were misled by ESRI and others into thinking a mass exodus and new diaspora have been under way in Ireland for several years. The census showed these claims to be false. But, the universal perception that they were was massively beneficial to one side in the election and massively damaging to the other. The potential for corruption of the democratic process here, whether it did or did not occur this time, is blindingly obvious.

    I would like to make it clear that I am not blaming Edgar Morgenroth for any of this. As far as I know, he had nothing to do with the ESRI migration forecasts. Perhaps they would have been a lot more accurate if he had.

  68. @JTO – of course immigration might have been significantly higher than estimated, so the circle might be squared that way (I suspect that is what actually happened and that the recent net-emmigration actually happened). One way or another the numbers highlight the problems involved in estimating migrantion numbers. It is important to note the health warning the CSO issue on page 12 regarding the numbers.

  69. @Gavin Kostick Says:

    @ Shay Begorrah

    Snap. And you said it better. Blast.

    You are being too kind Gavin. I spend all day waiting with a prewritten post and then tack on something relevant to the threads subject. It is my five point plan.

    There seems to be a problem with our respective questions, however nicely or delicately we try to turn a phrase.

    No one is interested in answering them.

    All the apostles of the free market remain strangely muted on what exactly the point of the international financial casino is if the public has unlimited liability for its increasingly frequent, appalling malfunctions. Ask not what financial capitalism can do for you….

    To cheer everyone up:

    There was a hilarious opinion piece in a recent Financial Times by Lord Greenspan of the Put. The piece itself is dry Randian rubbish but its title deserves a prize:

    “Regulators must risk more, and intervene less”

    It works on so many levels, unlike neoclassical economics or modern financial capitalism.

  70. @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.

  71. @ Eamonn Moran

    “Also the thing about babies is that they don’t buy houses very often.”

    Hey, that gives me a great idea for a new financial service – mortgages for babies!

    We could saddle them up with debt from the day they are born, and….

    Oh wait we already have. Damn

    And they don’t get a house for it. Double Damn.

  72. @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.

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

    Why Mr. O’Halloran, they will get it from building the houses in all the new estates that will shortly be mushrooming up around the country to house all the squalling babes born over the last 5 years.

    This is boomtime logic of course, but my suspicions are that–having faced no real consequences for their actions–have gotten bored enough to stick their heads above the parapet again.

  74. @ 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.

  75. @Eamonn Moran

    Here is a eurostat release from today.

    http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/3-28072011-AP/EN/3-28072011-AP-EN.PDF

    It makes for interesting reading.

    JTO again:

    The eurostat figures are clearly out-of-date since the census results were published.

    They are basically just the CSO pre-census population estimates.

    They will have to be revised up by approx 100k when the census results are incorporated. This often takes eurostat months.

  76. @JTO – You are wrong. If the immigration figures were underestimating the actual number then the net-immigration numbers for the early years of the intercensal period would also change i.e. they would be larger. If the base numbers are wrong then all derived totals will also be wrong. There is a lot of evidence that there has been significant net-emigration, primarily of ‘foreign nationals’ but also of Irish people. In general the Census numbers have huge significance not just for the total population but also for the labour force etc.

    Again I need to draw your attention to the difference between forecasts, estimates and actual outturns. If you (and others) want to treat estimates and forecasts as actual definitive numbers that is your problem, but please spare us your crazy conspiracy theories from now on.

  77. @JTO
    “They will have to be revised up by approx 100k when the census results are incorporated. This often takes eurostat months.”
    What figure will have to be revised up by 100k?
    The figure they gave for outward migration for 2010 was 33,700. That cant be off by 100,000 surely?
    Birth rate was 73,000. That cant be off by 100,000 either so genuinely not sure what you mean.

  78. @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.

  79. @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%.

  80. @ 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.

  81. @Rothbard
    Whats so wrong with defecit spending when the interest flows back to the treasuary ? – how do you differentiate between drones & working bees when the wasps have taken all the honey creating a systematic crisis ?
    Do Austrians even care ?- or do all the spoils flow underground to the Golden caterpillars.
    Honestly some of this Austrian stuff is clearly a fallback postion when the monetarists moths can no longer eat anymore of societies fabric.

  82. @ ceterisparibus,

    “That chart is interesting, particularly the Dutch figure of 280%.”

    yeah that’s high. I suspect the reason for this is tax related. In the Netherlands there’s a tax advantage in keeping the LTV of a mortgage high. It is common to have a ‘pledged deposit account’ linked to the mortgage. This deposit account effectively acts as the principal repayment vehicle. My guess is that these charts don’t net off the deposits. I’ve seen similar products in German co-op banks (though a good whack of savings history is required before the mortgage is offered).

  83. @ 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?

  84. @disgruntled observer

    “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? ”

    How exactly can you prove that these measures have had no effect on employment / prices in the sector? And secondly, why do expect that these measures yield results in a short space of time? And finally, even if all this fed in to the margins, what exactly is wrong with that? Isn’t profitability of companies one of the key problems that result in lay-offs and closure of businesses?

  85. @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.

  86. @MH +PQ: Nice ones. Ye got to the substantive issues, instead of the usual low-density waffle from the Helium Heads that is passed off as intelligent analysis.

    National Interest: => Macro stuff! Not sectional, special interest (micro) stuff. These latter are the sole concern of our legislators – at the moment!

    Thanks for reminding me about Koo. Spookily similar to our existing predicament.

    Have a Travis Bickle day! 🙂

    Brian Snr.

  87. @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!

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