Brian Cowen Speech

Former Taoiseach, Brian Cowen, delivered a speech at an event in Georgetown University in Washington last Wednesday.  His prepared remarks entitled “The Euro: From Crisis to Resolution?: Some Reflections from Ireland on the Road Thus Far” can be read here.

Financial Repression: Then and Now

Kirkegaard and Reinhart highlight how financial repression is often employed by highly-indebted governments in this vox article.

Exercise: Discuss the various proposals in Ireland that might be classified by these authors as financial repression.

The Self-Defeating Fiscal Adjustment Debate in a Depressed Economy

The paper “Fiscal Policy in a Depressed Economy” by Delong and Summers (from the BPEA conference linked to by Philip) is hugely relevant to the Irish fiscal policy debate.   While the paper ranges more widely, it provides a useful framework for thinking about the question of whether fiscal adjustment could actually be self defeating in terms of lowering “long-run debt financing burdens” in a depressed economy with interest rates constrained by a zero nominal lower bound.   Indeed, the analysis would seem to have even more general relevance for a small economy within a large monetary union, where the nominal policy interest rate is effectively a given.    A key message is that “hysteresis effects” – whereby today’s output level could have long-lasting effects on future output – could make higher deficit spending today pay for itself over the longer term.   In such a world, a slower pace of deficit reduction need not have an adverse impact on creditworthiness. 

There is a kicker on page 40, however, that is very relevant to the Irish debate. 

There remains the question, on which our analysis is mute, of whether temporary fiscal stimulus is inconsistent with a perception of long run fiscal consolidation. There is no necessary inconsistency. There is experience with temporary expansions, and also with phased-in long-run deficit reductions (e.g. The 1983 Social Security bipartisan agreement of the Greenspan Commission). But it is possible that short run fiscal expansion undercuts the credibility of long-run fiscal consolidation. It is also possible that, in a world with limited political energy and substantial procedural blockages, that effort towards one objective compromises the other.  On the other hand, as Cottarelli (2012) warns, if countries that have committed themselves to short-term deficit reduction as a down payment on a move to long-term sustainability find that “if growth slows more than expected… [they are] inclined to preserve their short-term plans through additional tightening, even if hurts growth more” then: “my bottom line:… unless you have to, you shouldn’t.” His fear is that fiscal austerity will be counterproductive because “interest rates could actually rise [even] as the deficit falls” if “growth falls enough as a result of a fiscal tightening.”

We do not see a good way to address this issue analytically or empirically. Clearly, the risks of short run fiscal stimulus having adverse effects on long-run credibility will be greater in settings where government debt already carries a significant risk premium. Clearly, it will be larger when there is evidence that deficit fears are impacting on stock market valuations and on investment decisions. But even in the absence of such evidence, there is always the risk that market psychology can change suddenly.

The Cottarelli VOX piece is available here.   See here for a related and much discussed blog post by Olivier Blanchard.  This post by Simon Wren-Lewis is also complementary. 

I would be interested in people’s views. 

European Commission Bloggers Conference

The European Commission Representation in Ireland is supporting a special one day conference in Galway for social media practitioners entitled “Challenges facing the Irish Economy “.

When: Saturday 24th March at 11.00 am, with registration from 10.30 am

Where: Aras Moyola Building, National University of Ireland, Galway

This conference is aimed particularly at social media practitioners and will bring together journalists, academics, politicians, and business people with an interest in web-based technologies to look at some of the complex issues facing Ireland’s economy.

The internet is a powerful tool in communicating the economic challenges Ireland is currently facing. Social media and special web based tools all have a role to play in communication between the public and key decision makers. The general public has become much more economically-literate and informed since the beginning of the crisis – how much of this can we put down to increased accessibility of economists and their ideas online? And has it changed how academics and the world of politics interact?

These and other questions will be put on the table and some well-known economists have kindly agreed to kick off the discussions:

Professor John McHale
Professor and Head of Economics at the National University of Ireland, Galway

Presentation Slides 

Dr Aidan Kane
Lecturer in economics at the National University of Ireland, Galway

Presentation Slides

Seamus Coffey
Lecturer in economics at the University College Cork

Presentation Slides

Ronan Lyons
Economist at daft.ie, DPhil candidate at Balliol College, Oxford & adjunct lecturer at Trinity College, Dublin

Presentation Slides

 
Margaret E. Ward, financial journalist and author will host the conference.

Moody’s on Promissory Notes

Eamon Quinn reports on an interview with a Moody’s analyst here.