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Year: 2012
Philip asked me to comment on the recent media coverage of my person (1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17).
The background is as follows. I have regretted that I never wrote my memoirs of my time in Hamburg. I plan to write a multi-media text “book” and tweet the key messages. To hone my book-tweeting skills, I decided to tweet my memoirs (under the hash tag #cuimhnícinn). The chapter on the ESRI was tweeted early on January 1st. I had assumed that all Irish twitterati would be asleep, but Colm Keena was not. And then RTE called, and nothing much had happened that day, and so on.
All this is ironic for someone who has repeatedly warned against celebrity economists. And yes, the Late Late Show called too.
Among our reasons to leave are the economic prospects of Ireland, and particularly of families like ours with a triple exposure to public finances: two salaries and kids in education. I called that “10 more years of austerity”, where “10 years” really stands for “a long period”. This was apparently news to some. Although really not my area, the facts are simple. The programme for government and the deal with the Troika have that the primary deficit will be reduced to zero by 2014-5. Public debt will reach 125-135% of GDP by then, pension reserves will be depleted, and valuable state assets will have been sold. That means that, after 2015, a large share of tax revenue will go towards interest payments, debt reduction, and rebuilding of reserves – rather than to things that make life worthwhile. If debt is to be reduced to 60% GDP, then 10 more years of austerity seems fairly optimistic. I do expect, however, that the ECB will monetize part of the debt.
I also said a number of things about the ESRI. I enjoyed working there, and hope to pass to my students the things I’ve learned while there. However, I also think the ESRI should work harder on transparency and quality management. ESRI data and models should be in the public domain.
There has been no independent investigation of the accusations of racism against some ESRI staff. Indeed, ESRI management has repeatedly denied the possibility that there could be any truth in such allegations.
The ESRI is not as independent as it should be. The ESRI does not have a budget to pursue issues that no one in government wants to hear about. That is, government departments and agencies set the research agenda. That is fine in a way. Blue skies research belongs at university. The ESRI does policy-relevant research – that is, answers questions posed outsiders. However, it would be better if part of the ESRI budget would be reserved for projects identified by the opposition, by the public, and indeed by ESRI researchers (who often come across major and minor public policy mishaps but lack the resources to pursue them).
Funding agencies do not influence the conclusions that the ESRI draws.
Funding agencies do influence the conclusions that the ESRI draws attention to.
The grant-in-aid is about 1/3 of the ESRI budget. About 1/3 is international and corporate money. And about 1/3 comes in through competitive tenders from the various parts of the Irish government. The funding agencies often have a clear idea of the desired result, and award the contract to the bidder who is most likely to obtain that result. Can a bidder uphold her integrity and be loyal to her employees at the same time? One solution is to have a specialized government agency to manage research contracts. Tenders would tend be awarded on merit, recalling that pliability is not a merit.
That agency could also keep an eye on the output: Some projects never seem to reach a publishable result.
This does not require a new government body. The research managers (and their budgets) in the various government departments and agencies could be transferred to, say, Science Foundation Ireland.
As to academic freedom at the ESRI, the chronology of my contributions to this blog tells it all.
Jean Pisani-Ferry has written a useful essay.
Summary:
The search for solutions to the euro crisis is based on a partial diagnosis that overemphasises the lack of enforcement of existing fiscal rules. Europe’s leaders should rather address the euro area’s inherent weaknesses revealed by the crisis.
At the core of euro-area vulnerability is an impossible trinity of strict no-monetary financing, bank-sovereign interdependence and no co-responsibility for public debt. This Policy Contribution assesses the corresponding three options for reform: a broader European Central Bank (ECB) mandate, the building of a banking federation, and fiscal union with common bonds. None will be easy.
The least feasible option is a change to the ECB’s mandate; changing market perceptions would require the ECB to credibly commit overwhelming forces, and the ECB is simply not in a position to make such a commitment
The building of a banking federation, meanwhile, involves reforms that are bound to be difficult. Incremental progress is likely, but a breakthrough less so.
This leaves fiscal union. It faces major obstacles, but a decision to move in this direction would signal to the markets and ECB a commitment to stronger Economic and Monetary Union. One possibility would be to introduce a limited, experimental scheme through which trust could be rebuilt.
Last summer, the Dublin City Centre Business Association commissioned Felim O’Rourke and myself to examine how Dublin’s tourism product could be rejuvenated. Our report is at www.dcba.ie. If short of time, skim the 33 pages reviewing existing tourist attractions, since each was afforded one page, regardless of its attractiveness. Among the conclusions and recommendations are,
- The Irish Government may not be able/willing to burn the bank bondholders, but it should liquidate Treasury Holdings, rather than allow NAMA to keep it alive. This would cause the 25 year PPP on the Irish Convention Centre to lapse, and save the Exchequer €0.7bn.
- My colleague and I are retired, and thus our recommendations are not modified by the expectation of future work. But in 80 years of commercial activity, neither of us has ever come across such a combination of overspending and underperformance as is exhibited by the national tourism organisations (NTO’s). We did not make specific recommendations for organisational change, but your respondents may wish to take up this baton!
- The Irish national tourism organisations (NTO’s) perform poorly when benchmarked against Scotland, Edinburgh and Amsterdam. In 2009, if Scottish rates of attracting tourists were applied to Ireland, the budgets of Irish NTO’s would have been reduced by two-thirds, or by c. €100m. p.a.. Amsterdam attracts eight times the tourist numbers per employee of Irish NTO’s, at just over one-half the cost per employee. Within Ireland, there is a mismatch between visitor numbers and NTO spending: Dublin accounted for 32% of tourist revenue in 2009, but only 6% of current spending by NTO’s was spent in Dublin.
- This is sectoral stuff, microeconomics. At the micro, micro level, Dublin tourism is going to have to function in future with lots of ingenuity and with little finance. For example, the municipal food market should maintain cleanliness standards with frequent water sluicing on tarmacadam floors, rather than by (much more expensive) investment in ceramic floor tiling. Again, where a tourism product is space-constrained, such as the Book of Kells or the Anne Frank house, it is cheaper to extend visiting hours, rather than to invest in expanded waiting areas. Let’s have similar cost-constraining initiatives in other major areas of social expenditure, such as health, education and social welfare.
This industry and this report are too important for Ireland’s future to be consigned to the neglect of the authorities.
In today’s Sindo Colm puts the context around Willem Buiter’s comments earlier this week that Ireland might need a second bailout and should negotiate one in good time.
From Colm’s piece:
Economists who work for banks have acquired a bit of an image problem, well-deserved in many cases. Buiter is not one of these. Before joining Citicorp last year, Willem Buiter held economics professorships at Yale, Cambridge and the London School of Economics, three of the top economics departments in the world, and served a term on the Bank of England’s monetary policy committee. Along the way, he has built a reputation as a thoroughly competent analyst of the international monetary system, one of the best around. He did not come over to Dublin to shred his reputation with some off-the-wall comment about Ireland. With all due respect to Mr Noonan, Buiter’s comments are not “ludicrous”. They are consistent with the behaviour of interest rates on Irish bonds in the secondary market and with the arithmetic of debt sustainability.
It is difficult for politicians to stick with an unavoidable fiscal adjustment programme in the secure knowledge that it may not be enough to deliver its declared objective — an end to reliance on official lenders. That, unfortunately, is the position in which the Irish Government has been placed. The budget deficit needs to be eliminated, in any plausible scenario, and as quickly as possible. The small print in the Memorandum of Understanding with the EU and the IMF says that the temporary period of emergency lending will be over at the end of 2013 provided only that the budget tightening stays on track. Ireland will, according to the programme, be able to finance itself in the markets by 2014, without any support from official lenders. You either believe this or you do not. Most Irish economists do not, so Willem Buiter is not saying anything you have not heard before. The Government may well privately agree with this assessment, and their efforts to secure burden-sharing on the massive bank rescue costs suggest that they do. But they can hardly be expected to persist with tax increases and cutbacks while openly admitting that the planned deficit reduction will not be enough.
This is where Kevin O’Rourke’s work on the political trilemma is so useful. We have to consider the economic situation (and sets of constraints) at the same time as the political situation, with its attendant sets of constraints.
This is worth a thread on Irisheconomy: do commenters feel that a second bailout may be required? If so for how long? What conditions would you think might be attached to such a bailout? One really useful reading to think about this is the Fiscal Council report, pages 22-24 especially.