24 thoughts on “New IFAC Report: Strengthening Ireland’s Fiscal Institutions”

  1. This is an impressive report which sets out a vision for the fiscal council. It seems eminently sensible. I hope the fiscal council is placed on a formal footing without delay, it has now been six months since members were appointed and the council has yet to issue an assessment of Budget 2012 (or the preceding spate of announcements). The council seems to be in Limbo until the fiscal responsibility bill makes it into law in Q2, 2012, which is a shame because there is a lot going on which would benefit from an independent assessment.

    It’s a lengthy report and I have not studied it yet, but a quick perusal lost me as to how the 120% debt:GDP is to be reduced to 60% and a quick perusal seemed to suggest fiscal contraction for a decade whilst our debt remained elevated. Which was worrying but if the fiscal rules are going to cap debt at 60% of GDP and our debt maxes at 120% then what else can we expect.

  2. It looks like we’ll have a magnificent fiscal stable…let’s hope we’ll be able to catch the fiscal horse soon so that we can put him back in to it.

    It’s wondrous to observe the amount of effort that is being put into getting things right after they’ve gone so horribly wrong…and when paying even a fraction of this attention to these matters before they went wrong might have prevented them going wrong – or at least ameliorated the impact – ….and when the chances of them going wrong in the foreseaable future are exceedingly slim – and will be almost zero if the EU’s Grand Panjandrums have their wicked way on fiscal governance.

    And it’s equally wondrous that so little effort is being put into resolving the problems that seriously damaged economic performance previously and continue to hinder and retard economic recovery – or, conversely, that so much effort is being put into avoiding tackling these problems.

    It seems that something that is damaging economic performance is never seen as a problem until so much damage is caused that it can’t be ignored any longer. And the response then if often disproportionate to the scale, and inappropriate given the nature, of the problem.

    But if the damage can be ignored or concealed it seems that all parties involved either have sufficient incentives to keep ignoring or concealing it or fear retribution if they were to speak up or a combination of both.

    This is probably part of human nature, but better-governed polities seem to be able to develop ways of dealing with it. And it seems to require that government and its agencies do not have total control of the scrutiny and assessment of economic performance that impacts on policy design – and that bodies genuinely independent of government and its agencies have the resources and capability to perform, and publicy report on, this scrutiny and assessment of economic performance.

    However, when it comes anything like this Ireland remains in ‘optical illusion’ land – and seems resolved to stay there.

  3. “Appointments ─ members, including the Chair, should be appointed by the Minister for Finance, with the approval of the Government. The Minister would seek the names of potential nominees from the existing Council and would also consult, as appropriate, the relevant Committee of the Oireachtas in advance of making appointments.”

    This is an aspect that is very dependent on the minister not wanting to appoint people who are not too likely (given past record) to confront or embarrass the government. It is also dependent on the Chair and existing members to be willing to seek out people who might offer different perspectives. Human nature tends to make this happen rarely. The report notes a rationale for the Committee as being a force opposing “cosy consensus”. The committee itself should be vigilant to avoid any suspicion of being biased towards any such cosy consensus itself. This would seem to be largely down to the existing members to go out of their way to avoid, since few would expect ministerial input to be motivated to do so.

  4. What absolute nonsense.
    I see no mention of the word banking leverage in this paper.

    Goverment Debt to GDP ratios have no relevance to the Irish malinvestment episode beginning in 1987 – its a flawed metric as it is only the amount of money & not loans in the economy or unfortunetly chiefly outside this economy as we are clearly a colony.
    Look here is the most important data :

    Y1986 : Central fund services : 12% or over 8 to 1 leverage
    Y1986 : Gross Domestic physical Cap. Formation (houses current) : 1,168 M

    Y1995 : Central fund services : 8.1 % or over 12 to 1 leverage.
    Y1995 : Gross domestic physical Cap . formation (houses current) : 2,649 M

    Y2007 : Central fund services : 2.4% or nearly 42 to 1 leverage
    Y2007 : Gross domestic physical cap. formation (houses current) :20 ,056M – peak in 2006 at 22,626M Euros

    Thats it , thats your Rosetta stone – you prevent banks from reaching out into the future to steal enormous wealth and you internalise the domestic money / goverment debt supply.
    Nothing complicated lads.

    I must say I find these local Vatican councils very scary – you are merely reinterpreting dogma for local consumption via the high priests of Europe.

    None of yee are sentient critically minded beings.
    All yee want is to keep your place withen the churches peeking order.
    Nothing ever changes in Ireland really – the Druids always remain.
    Just the changing of one religion to another – from Paganism to Christianity & now credit consumerism through the valley of austerity.

    What a sick joke.

  5. Any sensible economist will admit to a HUGE problem with ‘top down’ interventions – namely time lag. By the time it is realized intervention is needed (e.g. monetary policy)…things are often too late (and ironically interventions intended as counter cyclical may end up as pro cyclical by time they have effect)

    The Department of Finance’s own accounting, and standards they promulgate for rest of CS/PS/Semi State are AWFUL. Stone Age stuff, lacking in detail, timeliness …or worst of all: link to ‘business’ goals. (e.g. Health spend bears no relation to clinical outcome).

    A Fiscal council cannot be built on a shoddy foundation staffed by duffers with Arts degrees who haven’t a rashers how to run anything. Reform of PS Financial control+Performance management is a predicate of a Fiscal Council. Dep Fin has hundreds of PO’s, most of whom need to be moved on.

  6. @Desmond
    It the monetarists Holy Grail thinking that has infected their brains – they think just because credit money has a asset on the other side of a commercial banks balance everything is all right and thats GOOD money.

    Goverment money as a token is BAD money…… must keep that to a minimum
    Thats their stupid dogma – & it really is that stupid.
    Because most people don’t own the money they can’t buy things………………….

    They seem to have no idea (?) that the credit assets value is based on the continual increased extraction of finite resourses.
    The real capital base is depleting so that this pointless dogma / class struggle can continue.

    Anyway where will the safe asset be in the European Monetory system ?
    The only way this Euro stupidity is to work is if Gold goes to 10,000 + – me thinks thats their plan because maybe they ain’t that stupid.

  7. When I see 3.3% growth (sez the IMF) up to 2016 then extended to 2060 I feel slightly uncomfortable. This is from people who have not been able to see past the next quarter for the past decade.

    Improvements in Ireland have to be made where the rubber hits the road. The quality of the people in responsible positions has to be improved. Starting with the Dail, fewer lawyers, footballers and teachers and more people who know how to add and subtract. Accountants, economists and book keepers with foreign experience in DOF, the banks and large corporations. Cronyism, cliques, claques, nepotism and sociable drinkers should be reduced. I do not say eliminated because in Ireland that would not be possible. Just try not to make it so blatant. Get rid of all the agencies producing feel good papers. I expect that the people producing them must be feeling some discomfort. That fine woman who heads up the NCC and who produced what the system demands is in the same boat as the people who produced the IFAC. It is cruel to force people to produce the kind of pap that keeps them employed in the present circumstances.

    Papering over the cracks is no substitute for remedial action.

  8. Looking at historical Gross domestic physical capital formation figures at current prices and only in the mid 80s did it slightly decline – nothing compared to the more recent staggering falls.
    Y1982 : 4912M (peak)
    Y1987 : 4646M (through)
    Y1989 : 6127M (credit recovery ?)

    Even the fiscal stuff services the bank “investments” through road infrastructure although even the road capital improvement was tiny compared to dwellings at about 2 billionish a year compared to 20 billionish a year for houses during the naughties.
    No core organic domestic wealth generators exist such as the French Nuclear industry – everything is dependent on outside credit / oil flows for its existence

    Something is radically wrong with our banking system lads – we have austerity to bail out bad credit investments.
    The fiscal stuff is tiny when compared to this credit monster.

    Yee are not dealing with the problem – you are merely feeding it, hoping against hope that it will not move up the food chain and gorge itself on the upper middle class & local elite.
    A cowardly act.

    It seems capitalism through the mechanism of monetarism has completly divorced itself from wealth creation – a truely astounding turn of events although sadly predictable since at least the mid 1980s.

  9. @The Dork of Cork

    I agree with you.
    During the Regan era it became obvious that the US’s comparative decline that stared in the mid fifties was accelerating. It was dawning on people that the US could not compete with Japan in applied research, design, production and distribution of consumer goods. Decisions were made by governments and individual companies to withdraw from the production of goods and cede the ground to the Germans, French and Asians. America would confine itself to high value added activities such as banking and their companies would contract out the grunt work of manufacturing goods using US designs (patented). And so it came to pass that working with one’s hands while it was good enough for Mexicans, Germans, French and Asians was beneath the education level of Americans. As the bright people went into finance they built fantastical structures that would have gotten them jailed a couple of decades earlier. Then the structures collapsed in 2007. Now the manufacturing jobs are gone along with the engineers and technicians that could revitalize manufacturing in America. A society built on intangibles lacks the stability of bricks, mortar, steel and is highly vulnerable to being blown away internally as in 2007 or externally which is the next blow as China eats the US lunch by out competing them in goods production. In non English speaking countries what has happened is referred to as Anglo-Saxon disease due to the fact that the UK followed suit immediately. For a while the over educated classes in Germany toyed with the notion of establishing financial casinos it was the strength of the trade unions that stopped it. I remember telling Germans who should know better that edifices made of paper are not enduring and that London and New York would crash and burn.

    Ireland carefully watched money being made out of nothing hence the IFSC and went on to build a financial mountain of debt underpinned by overpriced property and lubricated by kick backs, fraud and plain old fashioned corruption. Again, as in the US and UK the manufacturing jobs became over priced and moved to China and elsewhere. Ireland had no institution large enough to stand up to the Gov’ts irresponsible behaviour. The unions were just a useless claque and the population as a whole were every bit as helpless as they were during the Cromwell campaign. Even today there are many people who are frightened at the level of incompetence they are experiencing, some go as far as to suggest we should rejoin England and Wales now that Scotland is leaving the Union. With 2016 coming up the history books could refer to the 100 year failed Irish independence experiment.

    At some point we will decide that the shop on Kildare Street is there to govern in the best interest of all the people. As it stands now the shop is there to dispense goodies to those who “contributed to the cause”. Those who contribute the most benefit the most.

  10. @Mickey
    Yeah I just watched a interesting debate on BBC parliament between Alex Salmond & a conservative representative about who controls monetory policey (I don’t think she was a MP as the joke is there is more Pandas in Scotland then Conservative MPs)
    It was certainly a more lively debate then our pitiful gatherings.

    I consider the Sterling debate a different circles of hell argument although that limbo would be much better then this inferno as I don’t think we did that bad in the 70s when we were in trade defecit and almost fully integrated into the British economy.
    I think what integration meant back then was that London had all our money supply but we could get the scraps and send it back home via Irish workers in Britain – hence our higher GNP relative to GDP.
    We are now in a situation that sure Edinburgh & London still own part of this place but also there are also money claims from the non English speaking world that we cannot easily recycle back into this bog.
    Hence the decline of our domestic money supply.

    And yeah ,I think much of the retoric about Full Home Rule with control of defence & foreign affairs still residing in London is directed as much towards Hibernia as it is to Caledonia.

    The local elite here are still holding on to the Euro in the belief that it will provide a reliable wealth base for their fortunes – if or when that belief goes they will probally go for Sterling either as a currency link or as a Scottish like note system.
    I would prefer a full defecit spending ejection but I concede we never really had a CB – “Independence” in 79 was only given on condition we integrate with continental Europe after Sterling was taken out by the banking labour elements / IMF men in the 60s & 70s.

    Anyway I have said from the start we are being directed into this corner by hidden forces – we will just go with the flow I guess.

  11. Interesting stuff.

    For something like this to work well it needs to be well designed and have good people.

    I share grumpy’s concern that the appointment bit is too firmly in the gift of the Minister for Finance.

    I also think that the appointment bit could address some of the concerns addressed in the discussion above by having something about variety of voices (eg the likes of R Koo, S Keen, Bill Mitchell, L Randall Wray – or feel free to insert from differing areas).

    There should be a gender requirement, at least stating that both genders be represented.

    Overall, the framework feels like soft Keynsianism. Keynsian as in it talks about ‘counter-cyclical’ policies (in the context of perma-growth Mr B Woods), but soft in that employment is discussed in terms of fiscal impact, not as a prime goal or core issue for an economy.

    One appreciates it is a ‘fiscal council’, but in the new economic architecture emerging, the country could end up with a central banking system that only looks at inflation, and a council that only looks at G*P/Debt type figures, and nothing (like the Fed), that has employment at its heart.

    And again, whilst the whole thing is about fiscal rules, Bryan G’s point about the power of principle based systems is good, and perhaps the principles could be spelled out more clearly.

    Finally, the whole is couched in the context of a changing European environment, but I would very much like to see the government asking the IFAC for an independent assessment of the economic impact (shot, medium, long) of the new European “fiscal Compact” before the country signs anything.

    PS “In order to secure low interest rates on its borrowing, a government may wish to commit not to default on its debts, but potential investors may realise that such commitments are not binding.”

    You mean the bit where all the EZ nations got out their sovereign pens and gave their sovereign signatures that they would never, ever default wasn’t binding?

  12. These local rules are useful but let us not delude ourselves.

    The underlying culture hasn’t changed.

    In a decade or whenever and in the absence of external control, a bit of a recovery, fading memories of the bust (it happened before – – Arise and follow Charlie) and a government back offering some sunshine and a chicken in every pot, warnings from the the council could be easily brushed off.

    Even doing something strange in Ireland, such as resigning on principle, would not likely have much of an impact – – after a week.

    There will never be iconoclasts appointed to such a body and what has really changed at the universities?

    However, the council has the opportunity to be more than a fly in the brew.

    Produce reports with realistic scenarios such as a decade of slow growth and for the first time at policy level in Ireland, give serious attention to the new world economic order – – not the BRIC fantasy stuff of viewing the likes of Microsoft as Irish companies.

    There is room for serious debate rather than wondering what Europe can do.

    Soon the government will publish a laundry list of job creation aspirations; there will be some ‘schemes’ here and there that will create some jobs but the underling theme will be based on fairytales.

    The council is expected to be polite and timid – – if it doesn’t prove otherwise, it will be redundant – – that sounds like some dreamer from a past age who did become redundant?

  13. @ Mickeyhickey

    ‘Ireland had no institution large enough to stand up to the Gov’ts irresponsible behaviour. The unions were just a useless claque and the population as a whole were every bit as helpless as they were during the Cromwell campaign’

    It’s bit more complex. We were given a food production role in the British economy, and were never really industrialised. Our domestic industrial base was mostly a ‘tail’ of UK industry and got hit hard in the Thatcher era. Our union leaders lost their roots in manual labour groups, became more focussed on PS employees, and through partnership, ultimately became absorbed into the state bureaucracy.

    The Church lost influence, leaving the field entirely to Mammon. The banks became our most powerful institutions and drew the economy firmly into the great Anglo American credit bubble. Far from ‘standing up to the government’ our eilte professional corporations led the rush to cash in. Self regulation meant little or no regulation, and the senior ranks of the PS were thoroughly suborned.

    The MNCs were engaged in a high-tech, transfer pricing game, and the manufacturing sector was never going to deliver mass employment. A carefully limited engagement with Ireland.

    Jobs had to be found for hundreds of thousands of manual workers, the government party was in bed with developers, so the property/retail game was inevitable. The media, including the state broadcaster, rang the tills merrily for as long as they could. Product placement is awesome.

    The Bubble era was a bit like a travelling circus. The tent went up and the lights went on, and a little bit of magic was created. The Great Wild West Show. Now the tent is folded, the bills have come in, and it’s raining on the bog.

  14. @MH: Lovely interview. Music was cool also. If I had not seen the credits I would have assumed that the questions were being put by Frederick Soddy* FRS (Nobel Laureat in Chemistry 1921).

    * “Wealth, Virtual Wealth and Debt: A Solution to the Economic Paradox” First published in 1926, then re-published in 1933.

    Some things do change – for the worse! Thanks again.

  15. @Mickey
    Lovely man – its a shame we are poxed with bankers but they have created such a mythology over the generations it is very hard to deprogramme people.
    These isles need a Henry 1rst to take the bastards on but it will be a cold day in Hell I imagine.
    Besides its more then just banks that now tell goverments what to do – its the corporations that feed off the cheap bank money created.

    Witness the hapless Alex Salmond and his “independence” movement – the SNP remind me so much of Fianna Fail , its a kind of hamster wheel politics of constant activity that they must project as the truth is they have even less power then the parties closer to the banks.

    This comment from rail.co was bang on the button in my view.

    “This is an absolute debacle. Stena held the Scottish Government to ransom saying either we get what we want or we pull out of Lochryan altogether. Stranraer Port will be dead, it’s rail link consisting of mostly ferry passengers will die soon because of the coach transfer set up from Ayr. Travelling from Glasgow to Belfast will take one hour longer using this method than it was getting a train to Stranraer and boarding the ferry there, plus the environmental impact of herding an extra 32500 ex-rail passengers onto the goat track known as the A77. Stena proposed that Stranraer harbour will be given over to the town for free on condition they don’t attract another ferry company to use it because they also know that the town can’t afford to buy the harbour. Also airy-fairy plans have been drawn up to woo the locals turning Stranraer harbour into hotels, housing, shops and a light industry complex but who exactly will come to a now dead end town of 10,000 population? Disgraceful! ”

    Whats has happened and what will happen is that these Privateers have been given the goverment letter of Marque – not to pillage foregin lands & ships but to reduce the collective capital base of the domestic country & express this as a profit.
    The now Dud Stranraer rail link is now a capital write off yet everything is fine & dandy because the privateer has expressed a higher profit.

    There is no holistic book keeping on these isles – we are poxed with the Ryanair model of capital reduction that expresses a false profit through this mechanism.

  16. Interesting observations on recent machinations of IMF wrt austerity. Heading: IMF -The Height of Hypocrisy

    bilbo.economicoutlook.net/blog/?p=17906

  17. I was looking for information on Mikhal Kalecki the gifted Polish Mathematician/Macro Economist when I came across an interesting book in Google Books.

    A Biographical Dictionary of Dissenting Economists

    books.google.ca/books?id=Gi1-hW3cfo4C&pg=PA352&lpg=PA352&dq=michal+kalecki+oxford+university+press&source=bl&ots=V2KVbuyriI&sig=kr2yWJhmYNDLwSjKASrJhPaPX40&hl=en&sa=X&ei=a9okT-_OLsTUgAe2x-SGCQ&ved=0CFUQ6AEwCDgK#v=onepage&q=michal kalecki oxford university press&f=false

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