Three things all serious people know are true

A holy trinity — or perhaps a troika? — of beliefs has guided policy since 2010. These are that austerity is expansionary; that the sky will fall in if ever the debt to GDP ratio exceeds 90%; and that the way to do austerity is to cut expenditure rather than raise taxes.

All of which is very convenient if what you really want to do is shrink the state.

We know how well the first two nostrums have performed when confronted with empirical evidence, so you might think that people would be just a wee bit cautious about stating the third as gospel truth. But no, here is Mario Draghi:

First, fiscal consolidation should be based on reductions in current expenditure rather than increases in taxes. Unfortunately, many of the fiscal consolidation measures were implemented in an emergency situation, with most governments choosing the simplest route, which was to raise taxes. And here we are talking about raising taxes in an area of the world where taxes are already very high, so it is no wonder that this had a contractionary effect.

Paul Krugman helpfully reminds us where this belief came from, and what happened next. The ECB is constantly telling us that it has a narrowly restricted mandate, with its primary concern being inflation. In that case, then surely the least that we are entitled to expect is that it keeps its views about the composition of fiscal adjustments to itself?

126 replies on “Three things all serious people know are true”

@Kevin O’Rourke
If the ECB remit is inflation control does this mean it must also keep a wary eye on possible deflation?

I asked on the other thread..
This report has me somewhat perplexed…..
“As part of the liquidation of the bank, the Central Bank exchanged promissory notes previously held by IBRC for €25 billion in Irish government bonds.
As a result Ireland’s total outstanding long-term government debt increased by €25.1 billion, or by 27.8 per cent, from January to €115.4 billion in February, according to latest figures from the Central Bank.”

If we have GDP of about 166b then a total indebtnesss of 115b would give a ratio of about 70% rather than the 120% widely quoted. Have I got it entirely wrong?

From the above report in the Irish Times it would appear that we are in safe territory …..or is that an illusion or mistake.

The empirical evidence remains pretty clear that debt to GDP of 90%+ has an appreciable and negative correlation with growth – in the order of 1% – even the UMass paper that supposedly debunked the R&R analysis showed that (

There are also papers from the ECB and the BIS that came to exactly the same conclusion and found turning points around the 85-100% debt to GDP mark. (The google-able papers are The Impact of High and Growing Government Debt on Economic Growth, An Empirical Investigation for The Euro Area by Checherita and Rother and also The Real Effects of Debt by Cecchetti, Mohanty and Zampolli).

While I don’t think its useful to be prescriptive about about whether an economy might start to spiral out of control 80% or 100% debt to GDP, the empirical evidence remains crystal clear that high levels of debt to GDP are associated with lower growth and this has been supported by more than just one line in one table in the R&R paper.

The trinity is very off kilter. A country like Spain can successfully meet the criteria of the trinity and get away debt at an affordable level while still having 27% unemployment.

If we deconstruct that impossible trinity we have to then also ask who pushed for it in the first place because its hard how even attempting to adhere to it is in our interest.

Draghi maybe becomes the new R&R / A&A by providing intellectual cover for austerity: Austerity works but unfortunately the European govts. lack the courage to implement it correctly.

If only Europe tried austerity – not a keynesian form of austerity then we’d be okay and so on and so forth

@ Edward v2.0

That is the common sense conclusion which most would arrive at even if they were unaware of the data that backs it up.

What is also being overlooked is that Draghi almost certainly had the unfortunate experience of Monti in mind in relation to Italy and his decision to go the taxation increases rather than cutting expenditure route.

Furthermore, it is difficult to see how cutting wasteful state expenditure is ultimately harmful in the long term even if it has an obvious contractionary impact in the short term. This is being increasingly recognised in the return to the old-fashioned emphasis on borrowing only for productive purposes where the investment can carry the cost of it.

It goes without saying that “fiscal consolidation”, whether by way of tax increase or expenditure reduction, is a balancing act in terms of assessing the impact on the real economy.

Apart from the experience of Italy, that of France is now most in the limelight with the decision of the Commission to grant France an extra year to reach the 3% deficit margin.

So we can solve our debt and growth problems by raising taxes? Why don’t we simply use a Harry Potter spell?


Arguing with the right is a pointless exercise but with May day coming up I suppose it is an international duty.

@Edward 2.0

The empirical evidence remains pretty clear that debt to GDP of 90%+ has an appreciable and negative correlation with growth – in the order of 1% – even the UMass paper that supposedly debunked the R&R analysis showed that (

<Splutters with amazement.>

You are reversing the sense of the UMass paper, which you know.

From the abstract:

That is, contrary to RR, average GDP growth at public debt/GDP ratios over 90 percent is not dramatically different than when debt/GDP ratios are lower.

In the UMass reevaluation of the R&R study (the implications of which R&R now partially disown) the average historical levels of growth at 90% debt/GDP were 2%, or about 2.5% better than the Eurozone achieved in 2012 under the austerity agenda. It always seemed more likely that the correlation was that low growth (ie: the kind of thing you get from deflationary policies) led to high debt and not the other way around. Public debt is not the root of the problem. The structure of EMU and austerity are (among other things).

The UMass study (Reason bless ’em) is now the gold standard (except actually useful) for debt/GDP versus growth studies and either you know nothing of their work or this is more of the same old dishonest wingnut noise making in an attempt to confuse the public and muddy the debate.

Speaking of which….


That is the common sense conclusion which most would arrive at even if they were unaware of the data that backs it up.

Given that it is the “the data that disproves it” and not “the data that backs it up” how is this common sense? What do you think common sense means? (In my experience “common sense” is usually shorthand for “a reactionary position I am unwilling to expand on”).

Furthermore, it is difficult to see how cutting wasteful state expenditure is ultimately harmful in the long term even if it has an obvious contractionary impact in the short term.

Now no one could disagree with cutting wasteful state expenditure but maybe you like to spell out what is a waste and what is not? Did you think the state bail out of Anglo Irish Bank’s bondholders was wasteful? What do you mean by long term (J M Keynes wants to know)?

Do you realize that the damage being inflicted by austerity has so far outweighed any benefits from it and that neither the theory of economics or the history of the twentieth century supports the policy having a net benefit over any useful time frame?

The third ‘nostrum’, that expenditure cuts are less contractionary than tax increases, is regrettably an idiotic statement by Draghi.

In simple terms, a person earning €300pw must of necessity spend every cent to survive whereas a person earning €3000 per week saves a considerable portion of their income. That saving, at present, is of no help whatever to the general economy but definitely helps to lower the interest rate of bunds etc or sits in bank deposit accounts or even under mattresses.
As for the idea that high taxes discourage investment, I would be rather sceptical. The biggest factor discouraging investment if fear of losing the investment, an outcome virtually guaranteed by the continuance of austerity by the recessionistas.

Again the question must be asked. Who benefits from the proposition. Clearly the better off benefit and the people making the policy and promoting are clearly the better off.
For five years now, policy has been dominated by the interests of banks and creditors. A creditors agenda. The euro has become, and is being forced to remain, a gold standard for creditors.

The idiocy of a creditors dominated policy is perfectly visible every day in SMEs. Any business owner will tell you that it is better to have a continuing business and high and some doubtful debts than to have all your customers close. Maybe you get the debts collected, but in the end that’s it; you shut down too.

Accepted nostrum’s often see to fit the agenda and pockets or the promoters. The doctrine of cui bono should be rigorously applied to all such ‘nostrums’.

Draghi, after a wonderful start, appears to have lost direction. He now looks drawn and haggard. He proposes that he will do what it takes, but he has been fought at every turn by Germany.
Whatever moral standing he had, he lost it in Cyprus. He facilitated the Schaeuble Plan to destroy that country.

The ECB was a rouge institution before he arrived. Apparently it did not have a mandate to do what should be done. Yet, it seems to abrogate for itself a mandate to change governments, to save certain favoured creditors and allocate those creditor losses to countries, to determine within countries how those debts should be spread amongst the population.

Draghi, for all his undoubted ability, has failed to change the rouge ECB. The question is does he want to change it.

@Joseph Ryan

“In simple terms, a person earning €300pw must of necessity spend every cent to survive whereas a person earning €3000 per week saves a considerable portion of their income.”

1. CP II is another way to do this – targets highest paid PS workers who presumably have the option of saving.
2. We have already had large tax increases on high earners in Ireland. The proportion of income over 100k that is retained by the State is well north of 50% at this stage. This is income ie related to effort – should be the very last thing that is touched given the amount of freeloading that still hasn’t been dealt with.
3. How many people earn more than 3k a week in Ireland and how much money would a tax hike on these people raise?
4. People don’t want tax rises. We still live in a democracy although most economists would prefer if tax and spending decisions were made by their models.

If there is to be any let up in ‘austerity’ (although how a country can run a deficit of 7.5% and pretend there is austerity is beyond me – it’s other people’s money we are spending) it should be by eliminating the USC. This would have a dramatic effect on domestic demand. How to pay for it? Deal, for once and for all, with the remaining sacred cows in public procurement. The non-salary component of State spending is full of waste directed towards professionals and other insiders – it’s ripe for attack.

The US Fed has a dual mandate to keep inflation below around 2 percent and try to encourage full employment.

So the ECB has a singular mandate just to fight inflation? Why is that? Because Germany doesn’t give a **** about periphery countries? If my central bank said they didn’t care at all about unemployment I’d be heading to the exits.

There is an element here of the kettle calling the pot black. The output of economists should come with the warning caveat lector (let the reader beware) or ‘it depends.’

Commonsense and wisdom can make the difference in the real world.

In countries with a long tradition of large shadow economies, pushing VAT rates higher may not be the wisest thing to do. Friedrich Schneider, of the Johannes Kepler University of Linz, who has been researching this area for many years, reported on a rise of the shadow economy in Germany when the VAT rate was increased from 16 to 19%.

The standard rate in many countries is typically treble US sales tax rates; US gas tax has been unchanged since 1993 and taxes generally are at a 50-year low. In 2001, the NYT estimated the US gas tax at (inc local taxes) at 43 cents per gallon compared with $4 in the UK.

When Berlusconi added 1% to the rate to 21%, Italian VAT receipts fell to the lowest level since 2006 — it may have happened anyway but who knows? IMF economists? Monti had planned an additional 2%.

In the real world, if insider/ vested interest plundering of public funds is not tackled during a recession, when would it be likely to happen?

Generic medicines now fulfil over 50% of the demand for medicines in Europe and 5% in Ireland; meanwhile the public drugs bill has risen 25% since 2008.

This week, the big story for the headline Irish economy as distinct from the real one was in London where Google was trying to split hairs on whether its UK operation was involved in just marketing and the selling was being done from Dublin.

Most of the news on the real Irish economy continues to be grim but for services PMI (purchasing mangers’ index) survey data in April! However that is for the believers in leprechauns as the big services company data e.g. Facebook, can include sales/orders in Australia, India, Germany etc. Magic indeed.

So the politics and personalities of the crisis continues to generate most interest while at home the Central Bank and ESRI seem to be producing most of the papers dealing with real world problems such as the jobs crisis.

@ Shay Begorrah

The UMass study showed that growth was 1% lower in situations where debt was above 90%. You might think that 1% is not `dramatically different’ but in an environment of negative EU growth, as you point to, that looks a sizeable difference to me. Given that long-term GDP growth is about 2%, I would also call slicing that in half to be ‘dramatic’.


re Debt /GDP

I am given to understand that Japan has a Debt/GDP of approx 200%.
I am not clear what the Japanese growth rate is like, but their unemployment rate is 4.3%.
See how their unemployment rate compares with EU rate on chart EC link posted on previous thread.

Still in Europe, for whatever reason, debt reduction is taking absolute priority over everything, up to and including the stability of the EU itself. Why?

@Johnny Foreigner

I have no problem with cutting back on excess expenditure or excess incomes. The damage to individuals, the economy or society would be miniscule. In fact there would be many political and societal benefits.

That brings me back once again to the tribunal lawyers. Five years into the Great Recession is the State still filling their golden coffers? I suspect it is. Contracts must be honoured, legitimate expectation etc etc.

Italy and Belgium have had gross public debt GDP ratios of 100% or more for most of the period since 1993 but their growth records are different.

Both have low household debt: Italy 44% of GDP, Belgium 51%, UK 101%, Netherlands and Ireland 128%.

Excluding construction, Ireland had no real growth in the past decade; Italy only managed 3% in 2001/2010  – – 0.3% per year; Belgium 13.9% – -1.4% average; US 16% (worst since 1945); UK 15%; France 12%; Germany and Japan 8%. Japan had a per capita annual GDP of 1.6%; US 0.7%; France 0.6% and Germany 0.8%.

There are several factors that are important growth influencers besides debt; demographics; firm structure; output mix; ease of doing business; FDI attraction; education, skill levels etc

At least Mario Draghi has an indepth knowledge of Italy.

The economists in Massachusetts were number crunching.

@ MH

The really interesting figure is, of course, that in respect of Germany, the economy supposedly powering ahead.

Germany, however, having built up enormous credits abroad, and continuing to do so, while the periphery did the opposite, remains the key player in rectifying the crisis in the euro. Derek Scally has a good summary of their situation in today’s IT under the heading “Germany has made many concessions” which, indeed, she has. He concludes, as most reasonable observers do, that some element of mutual liability will have to ultimately be accepted if the euro is to survive. The real fly in the ointment is the incapacity of France under Hollande to deliver its side of the required “grand bargain” cf. The Economist.

The fact that France has now been cut some considerable slack by the Commission with regard to the pace with which the deficit is reduced suggests that something is cooking. What, exactly, remains to be seen.


There is a palpable sense of excitement in downtown Kuala Lumpur tonight about Sunday’s general election. I have a regular companion with me, my iPad. Chickens of course should only be counted after they have been hatched!

I wrote in 2011 on what was for me the most striking German statistic in recent years and the article below is presented in full as it is behind a paywall online.

The evidence from the former Soviet-controlled East Germany suggests that Communism is toxic for sex!

Germany reported last August that 13.1m minor children (up to 14 years of age) were living in German households in 2010. Ten years earlier – – in 2000 – – this number was 2.1m higher, amounting to 15.2m. The plunge of almost 14% is a vivid illustration of ageing and likely reflects another example of risk aversion among the population, similar to the experience of the Japanese.

This and other results on the living conditions of children in Germany were presented by Roderich Egeler, president of Destatis, the federal statistics office, at a press conference, where he stressed that in the former West Germany, the number of children dropped by about 10% to 11.0m between 2000 and 2010, whereas the drop was much bigger in the former communist East Germany. “Even more dramatic was the decline in Eastern Germany where the number of children fell by just under 29% in the ten-year period to 2010,” said Roderich Egeler.

Deutsche Bank Research said that some of the reasons, such as insufficient childcare facilities, are currently being addressed by politicians. However, the Germans’ generally low propensity to take risks probably plays an important role as well.

Stefan Schneider and Jonas Sobott, economists at DBR said that the realisation that there are too few children in Germany, i.e. that the population is ageing and shrinking, is not exactly new. Nonetheless, every new indication of this fact almost automatically triggers a debate about the reasons.

According to Destatis, 33% of all single-parent families rely on government transfers as their main source of income. Hence, these families – – or more precisely, the children – – have an above-average risk of living in poverty. Given that almost 40% of all marriages end in divorce, this could be a relevant factor when couples consider whether or not to have children.

However, the economists say that people frequently fall victim to the “over-confidence effect”, which in this case would be a “better-than-average” effect. This means people grant their own marriage a much better chance of success than suggested by the statistical average. True, Germany’s divorce ratio has risen noticeably over the past decade. In a European comparison, though, Germany still has one of the lowest risks of child poverty. This suggests that other factors, such as availability of childcare or the compatibility of kids and careers, seem to play a more important part.

However, the decision to have children – – as most parents are likely to agree – – is one that is subject to considerable uncertainty which goes way beyond any probability of divorce. So, it is quite possible that a society’s general propensity to take risks plays a part as well.

Schneider and Sobott say that anecdotal evidence such as the Germans‘ reluctance to move – – from either their job or their home – – as well as the large significance attached to formal qualifications in the hiring of staff points to a general risk aversion (if one disregards some serious and wrongful deviations from this general trend in Germany’s history). The rather extreme reaction in Germany – – at least compared with the rest of the world – – to the Japanese nuclear catastrophe in Fukushima also points in this direction.

However, the economists say that there are also proxies for the degree of risk appetite which allow an international comparison despite some methodological reservations. Ownership of equities, for instance, can indicate a degree of risk appetite.

In a group of 9 OECD countries, Germany boasts a share of direct shareholders (shareholder ratio) of only 5.6%, compared with a ratio of roughly 25% in the English-speaking countries. The correlation between the shareholder ratio and the fertility rate comes to 0.39 (the deviation from the mean, respectively). If Japan, which has an extraordinarily high shareholder ratio because of its institutional peculiarities, is excluded from the analysis, the correlation rises to 0.65.

Schneider and Sobott say national risk preferences are a topic addressed in the World Values Survey which asks almost identical representative questions to participants from more than fifty countries. Among other things, people are asked to compare themselves with a person “to whom adventure and taking risks are important.” For 18 OECD countries, the answers to this question (ranging from “very much like me” to “not at all like me”) show a correlation of 0.65 with the fertility rate (respective deviation from the mean)

Japan and Germany show the lowest propensity by far to take risks and also come in at the lower end of the fertility scale, together with Russia.

Of course, such monocausal explanations can only capture half the truth, the economists say. Nonetheless, they confirm the assumption that 1) Germans are highly risk-averse in an international comparison — and are unlikely to identify with the “no risk, no fun” concept – and that 2) their strong aversion to risk at least contributes to the low fertility rate. Hence, the slogan could run “no risk, no fun – no kids” and then even be turned into “no kids, no fun” – – given the rather gloomy prospects of an ageing society.

@ Michael,

that we have today fewer kids in Germany, is the results of the anti baby pill introduced in 1965. That means we have today a lot fewer moms to bear childrens.

Normally you should be able to see a population pyramid at:
(nice feature, added in 2013,but it doesnt work for me in the moment)

The fertility is actually up from 1.39 in 2002 to 1.42 in 2012.
And these numbers are not unusual in many countries like Poland, Korea, China, please take a look around, not to talk about rich role models (cough) like Hongkong, Singapore .

A selection of just 9 OECD countries sounds pretty biased to me, for such standard numbers like fertility and stock holder share.

the “33% of all single-parent families rely on government transfers” is caused by pretty generous subsidies for families with kids, some 27k for a family of 4, which means, that it makes little economic sense to be too eager to find a job, in which you make not significantly more than that : -)

Childcare facilities are actually pretty good in East Germany, some leftover from socialism, when every hand was needed to work.

Please be careful with numbers like “childs in poverty”. These are often statistic gimmicks. Your “germany the lowest risk” was trotted out here about one year ago with “the highest”, until they found some calculation mistake.

“poverty” is defined at somewhere around 40% of median income in the US. The European definition is 50% of median.

Now you put the social minimum at 55 %, poverty problem solved?
Naaah, can’t have that, that all the busybodies, who love to be indignated and outraged about the social problem would be out of business.

Soo, you invent “at risk of poverty” at the 60% median income level, and all those with the 55% official income + undocumented moonlighting are below. And here we go again with huge numbers of people who deserve our attention, channeled and guided by some “social consciousness of the nation” : – )

Yes, next Saturday at 9. Gavin and Philip coming in for a chat. 3rd guest TBC but looking forward to it.

That name above was generated by the iPad of its own volition. Is this thing getting clever as well as useful?

There was an apt comment in a Bank Credit Analyst report in 2008.

“A quarter-point cut in interest rates will prove to be no more than a squashed bug on the windscreen of the world’s runaway deflationary train,”

Let’s raise taxes so that:

(a) we can give more money to the HSE and have a world class health service;

(b) we can give more money to R&D so that we have world class research facilities and researchers working in Ireland;

(c) we can give more money to Enterprise Ireland and the IDA as they are doing brilliantly creating jobs;

(d) we can give more money to FAS who spend their money very carefully and created a world class apprenticeship system.

Having lived abroad and seen the advantages of high taxes and efficiently-spent public funds there’s no doubt I would be a socialist if I lived in Sweden or Norway (for example). But, living in Ireland and working in the HSE …


Brian Lucey has it right. My bet would be that the tax take will be closer 40% than 28.9% by the time the fat lady sings.

May God have pity on our poor populist politicians, elected to please but now thwarted by events of their own making. Some of them will jump ship with their hands over their heart proclaiming undying devotion to the peeple (sic) in order to avoid acting responsibly.

The main reason Ireland can return to the bond market is the tax headroom.

One more thing of those „all serious people know are true”,

Is that the income distribution is unjust, inequality is rising, and the Americans are one of the worst.

which is also important to some general discussions we have, not only here, so often.

When people look on income distribution, “social inequality”, many look at the Gini coefficient, like

Then the 2 countries I know in general in quite some detail, Germany with 27 looks so much better than the US with 45, Ireland 34, Finland 27.

We Germans oh so good, and those heartless Americans, stern indignation warranted : – )

Many of these numbers are generated from (pre) tax return statistics. When you take a look at net numbers, after tax and all government transfers, I think there is actually a pretty universal and remarkably stable picture:

The lower 10th percentile has 0.5 of the median, and the 90th 2.0 twice.

And you can interpolate that pretty well on a log linear plot, often up to the 95th percentile as well. Some 10 – 20 % of the total income go to the upper 1 -3 %.

What net income the lowest 10 – 15% really get, that becomes somewhat murky in most countries and especially in comparisons.

This pattern is actually pretty constant across the nations, I looked on, especially US and DE, over the last 100 years, and I do even have data from ancient Rome, where that looks the same, within the significant error bars of these estimates.

And when you look at what happens for the upper 1 %, the data after WWII for Germany are at constant 11%, and the US rising from 13 – 15% pre Reagan to 23% now (from the top of my head).

But beware the details!

@Mickey Hickey
You may be right. The worrying trend raised by Dr. Somers may also entail an eroding tax base…not to mention employment.
If Goldman have pulled out then that is very worrying. Elderfield obviously saw what was coming down the track.

In France, public expenses are 56.2% of GNP ,taxes 48.5% .In that particular case ,it seems to me that lowering public expenses is vastly preferable to increasing taxes ! I understand that the problems of the peripherals are very different but it seems to me that going from 7.5% to a primary surplus in the case of Ireland , only with taxes ,would entail such an enormous tax increase relatively to the very low level of taxation (in comparison to the rest of Europe) that it does not seem politically possible ,regardless of the effects on growth (which are bound to be extremely negative in all cases). Mr. Draghi or Madame Laguarde opinions do not come from particularly astute economists, they should stay within their mandates.

@ Bunbury

This is, of course, the point. We have low levels of taxes but little willingness to pay more because of the evidently inefficient and inequitable – the more important point – manner in which they are spent; combined with a seemingly endless variety of restrictive practices in both the public and private sectors which keeps the cost of living high which, in turn, reduces still further the desire to pay more tax.

The article by Brian Lucey is factual and well-presented. But it is only one side of the coin. Examining the other is the single most important challenge facing the country. Only repeated prodding by the troika is making it happen. If we exit the “programme”, it seems likely that the pressure will ease in the broader context of “austerity” having reached its limits, as Barroso put it (who, incidentally, is singing a somewhat different tune, and the praises of Merkel, in Welt am Sonntag this weekend).

@ francis

For some reason, the article by Derek Scally is proving impossible to link to, although another article in relation to Merkel’s recent TV interview is easily accessible!

It appears to me that that the loopholes provided have already substantially eroded the tax take.

Tax Justice Network

My own take on low taxes is that it is like competing by lowering prices which in business is seen as the product of a bankruptcy of ideas. Any eejit can lower taxes leading to competing cuts leading to the bottom. At the bottom lies chaos.

We are in the company of many responsible countries that do not resort to short term, self defeating tax gimmicks. We got our level playing field and immediately we resorted to sleazy tilt tactics. Time we decided to play the game honestly so as we can enjoy the kind of life enjoyed by the Irish living in responsibly governed countries.
Haughey ideas are alive and well and still thriving in Ireland of 2013.

Truth be told we wait with bated breath for the next gimmick to emerge from Kildare Street.

@ rf

I agree! The interview could be qualified as a tour de force especially in terms of (i) the historic record with regard to the divisions on the left in a variety of countries and (ii) the inability of trade unions to represent labour, broadly defined, as against the narrow interests of their often divided membership. (The three main unions in France held separate May Day demonstrations).



But apparently I was this time not verbose enough. LOL. My second, the GARP (a risk manager association) provides the article, with the copyright permission of Irish Times. Interesting publishing strategies, these days.

@ all
I dont think many of you are that interested in details, what investing strategies of the upper few percent in the US looked. So, I don not fill up the space here with it.

What I wanted to say, that at least under the Golden Clinton times, the after tax income distribution in Germany and the US actually looked very similar, despite the huge differences in the Gini coefficient.

Shocking Income Statistics from Richest End of Private Sector
In reply to Johnny Foreigner who said:

@Joseph Ryan
“In simple terms, a person earning €300pw must of necessity spend every cent to survive whereas a person earning €3000 per week saves a considerable portion of their income.”
1. CP II is another way to do this – targets highest paid PS workers who presumably have the option of saving.
From Minister Noonan’s Reply to PQ from Roisín Shortall, May 2,2013
The reply shows that in 2012, 751 earners had a gross income of 1.36 billion or 1.8 million each
The number earning over 1 million increased from 723 in 2011 to 751 in 2012
The 751 earners paid 374 million in income tax- Effective Tax Rate 27.5%
The 9,352 personal tax units(individuals or jointly taxed couples) earning over 300,000 had a gross income of 5.358 Billion Euro or an average annual income of 573,000 each
There are almost no public sector employees in this group. (Salary Cap in public Sector is 200,000 Euro per annum)
As incomes in “private sector” extend from c 12,000 euro pa(USC threshold) to over2 millionEuro per annum, counter position of private sector as a whole to public sector as a whole is at best meaningless and at worst mischevious.
Arguably there is no part of the private sector which is as productive as the education system. From primary teachers to supervisors of PhD students, teachers produce the most productive “commodity” of all–educated and skilled human beings. An effective health service and garda force is essential to ensuring an effective work force. This is in addition to ensuring a discerning, healthy, and law abiding citizenry which is even more important to all our existences as human beings.
Joe Ryan is clearly correct. The extraction of a sizeable sum from the 5.38 billion Euro per annum of the top 9,352 earners would provide a significant increase in demand while cutting low and middle incomes in the private or public sector would further depress the economy.

@Kevin OR

I’d suggest K-dude is having us on if we are to think that he thinks this started post some paper in 2009 by a bloke called Alesina .

Here is Alan Greenspan in testimony in 2001 (the q&a s to these was also illuminating but there doesn’t seem to be a readily available record). Some readers will need to be wary not to be confused by the Topsy-turvy ‘reality’ at that time, in which sustained budget surpluses were projected to wipe-out the US Treasuries market – and something had to be done!

“In general, as I have testified previously, if long-term fiscal stability is the criterion, it is far better, in my judgment, that the surpluses be lowered by tax reductions than by spending increases. The flurry of increases in outlays that occurred near the conclusion of last fall’s budget deliberations is troubling because it makes the previous year’s lack of discipline less likely to have been an aberration.

To be sure, with the burgeoning federal surpluses, fiscal policy has not yet been unduly compromised by such actions. But history illustrates the difficulty of keeping spending in check, especially in programs that are open-ended commitments, which too often have led to much larger outlays than initially envisioned. It is important to recognize that government expenditures are claims against real resources and that, while those claims may be unlimited, our capacity to meet them is ultimately constrained by the growth in productivity. Moreover, the greater the drain of resources from the private sector, arguably, the lower the growth potential of the economy. In contrast to most spending programs, tax reductions have downside limits. They cannot be open-ended.”

Those last two sentences are worth reading twice. And not the use of the word “arguably”.

Here is the link, do read it all if you didn’t follow this stuff at the time. The context now has a slightly surreal touch of the umbrella-turned-inside-out-by-storm about it.

AG’s take on the tendency for spending to be open ended in comparison to tax cuts is traditional among ‘grown ups’ in economics. You can argue though that tax cuts can at least be politically almost impossible to reverse.

Brian L points out Ireland’s positioning on taxation. It is in the equivalent situation to a country attempting the reversal of tax cuts. It is also a country that took big spending decisions during the boom. They are looking rather ‘open ended’ and the politics of reversing the inflationary effects in some sectors is obvious.

TBH super mario with his infallible economic logic is very like Cardinal Brady and his theories about women. Real human relationships are messy. So is economic life in the real world. Denmark is back in recession. France is headed there in q4. The ECB is not Ronseal.


Correlation is not the same as causation. As many economists have argued, it’s low growth that causes high debt. To whit, we had an expensive financial crisis, in itself a drag on growth. On top of that European austerity is causing economic contraction, which lowers tax revenues and increases social outlays, which in turn makes closing deficits a long drawn-out process. Debt keeps piling on and a shrinking economy also means the existing debt’s ratio to GDP increases. In R&R’s research this would show as contraction during a period of high debt. One of the major failings of R&R is that they didn’t even attempt to analyze the reasons for high debt and the policies dealing with such debt.

In terms of policy implications there’s a huge difference between slight contraction and modest growth. Contraction means no growth at all, while at somewhat above 2% the economy still doubles in size every three decades. If you think the economy will stall for a long time then that’s a powerful argument in favour of painful corrections now. If it’s really just slightly lower growth, then stimulus sure looks preferable to causing an economic depression.

Sure, stimulus also piles on debt but it revs up the economy, so you achieve a balanced budget through growth, less welfare and eventually cuts when the economy is humming along again. This is why the US has managed to shrink its deficit faster than the UK while real GDP has surpassed the pre-crash peak.

So for the indigenous sector: low corporate tax; low social security costs and for many SMEs no need to provide staff with pension coverage coupled with a raft of public incentives but only 7% of them export. Why the poor performance despite the costs advantages?

Denmark does well with high costs.

This is a link to an Irish Times article on exports. The writer doesn’t seem to know of the alchemy that produces an services export miracle:

@ Finfacts
Your (rhetorical?) question: “…Why the poor performance despite the costs advantages?

Denmark does well with high costs”

This is perhaps the ‘money question’. For every Dromone Engineering (95% export), Openet (biggest indigenous software company), S3 Group (experienced solutions developer), Combilift (a major indigenous employer in Cavan-Monaghan), Wright Bus, ACT, Design Partners, Creganna, RCSI and TCD (training international students) etc – all generating export income – there are at least ten businesses of similar turnover who subsist on ‘box-shifting’, retailing and local services.
It is not for non-stakeholders to be critical of the business choices people make, but the passion to build ‘mittelstand-style’ businesses who aspire to own their niche globally, does not seem to burn as brightly in Ireland. There are consequences of every decision, and those who are mainly dependent on the local market in Ireland are clearly paying a price. It might seem callous to say this, but one aspect of the fallout of the Irish depression is the recycling of some of the more energetic people out of unsustainable businesses who subsisted in a protected Irish market and into new export focused businesses. Given the step-up in skills, financing and technology needed to do this, and given the strong competition between Ireland, the UK and other states for experienced entrepreneurs, I see features such as the Irish R&D tax credit as very necessary elements.

Brian Lucey refers to the low corporate tax regime as our ‘business model’. It has certainly come to dominate our economic profile, and has been critical to the construction of of ‘Ireland Inc’. As Michael Hennigan regularly reminds us, the model is steadily being emptied of real economy, and thus employment, content. It has served its profiit shelter purpose for the MNCs, and it has primarily benefited served the domestic elites who service it. There is still substantial employment, but the anticipated linkages to the domestic economy are much less than anticipated.

One way or another the low corpo tax arrangement is going to be wound up, and it seems to me that we are swimming naked. Absent the sorts of financial flows generated by FDI, Ireland is going to look and feel like a much poorer place. The consumer debt model of economic ‘development’ is as broken as the banks that promoted it.

Michael H has thoroughly demolished the ‘knowledge economy’ myth’, and much of the vaunted third level investment may turn out to have been as ill-advised and ill- managed as our construction boom. The tightening of domestic credit conditions is very likely to represent a New Normal, and its hard to see how future governrments will be able to evade heavy external constraints. The legacy of Ireland Inc is going to be as tough a problem as the legacy of landlordism.

The various contributions, and links above, are most interesting. Leo Panitch (h/t rf) has a very interesting and broad take on the various ways in which employers, workers and states have managed their interactions in Europe. While there seems to be agreement on the facts of Irish taxation, as set out by Brion Lucey, what the ordinary citizen experiences is a deepening regime of financial burdens, of which only some are payable to the state, and shrinking benefits. The middle class is being hammered, and not just in Ireland.

We have had many very useful contributions in relation to energy pricing, and its relationship to the workings of the ESB. The power relationships involved include both trade unions and private entities with stakes of various kinds in the monopoly. The same is true for professional services to the state and to the public. Digging out that tangled nest seems well beyond the compass of any conceivable govenment, and the Troika seems to happy for it to remain untouched.

Energy costs are a tax on business, but the UORR takes the biscuit, as John Corcoran points out 🙂 It is ironical, and truly Irish, that business must go to wall because their landlords have to be protected, and that a good proportion of the same landlords represent the pension funds of workers. This is another tangled web which governement prefers not to address.

These various arrangements have all resulted from democratic choices. While we all make choices, we do not always get to choose the circumstances in which the decisions have to be made. Joe Lee Ireland 1912-85 gives a nice flavour of the serial crises, and the tough realpolitik, which was entailed in forming and managing our state. We are again living in interesting times.

As Pierre Bourdieu might put it, the state is a creation of the jurists, a sometimes oppressive agency, but also a repository and a guradian of the freedoms which have been hacked out so painfully over the centuries. When the corporate interests of the jurists, and the servants of the state, take precedence over the general good, the state has been usurped.

Reclaming it means looking at of our powerful institutions, our supposedly benign and neutral guardians, and identifying the conflicts of interest and the golden circles. Without a cleaning of the stables, sovereignty is just a Game of Thrones, and as the US Supreme Court Justice put it back in 1914, ‘sunlight is the best disinfectant’.

Quis custodiet custodiantes ?

One world government is here, but not yet announced. The Kleptocrats have achieved their aim.

But, they may not be as evil as they appear… time will tell. A credit boom naturally, inevitably produces malinvestment. Over building of third rate housing for example. Revenues naturally fall once the boom ends. Reinstating revenue to the required level will only encourage stupid policies. Such as banking…

Cutting expenditure and preaching morality is therefore the first stage of restoration. The second is two parent families, one of whom is working outside the home. Much smaller economy, but savings occur naturally and the banking weapon can be properly disposed of by our new masters ….

Interesting article by Dan White on why Irish banks will need at least another 30b of taxpayers money.
Seems Blackrock were too optimistic.

@ Fiatluxjnr
Interesting link – thanks for posting it.
I think that the really serious people know that we’re in an absolute pile of s**t. But here’s what’s going to happen I think…..

There will be another stress test before the end of this year. But it will go along the lines of:
“…with the upturn in the economy (haha) and the passing of the (draconian/progressive) insolvency bill we are confident that much of the outstanding mortgage debt will be recouped….”

And with that the Troika will hoist their sails and pretend that they have a boat capable of moving somewhere. But the serious people know that this is all a load of utter cr..

@ Fiat

The Dan White article uses some interesting maths. It appears to do some triple counting at times. Also, provisioning 20% against fully current mortgages? Eh, goodbye banking system everywhere. Also, is he aware the banks have chunky capital buffers as is? It’s a hack of an article.

@ Bond Eoin Bond.
I wouldn’t beso quick to disparage Dan’s analysis. I don’t think he meant it to be an in depth analysis of the state of Irish banking. Using Danske as a template would appear to be a reasonable basis for his calculations…we all know the result of relying on the pillars self assessment early in the crisis. Fiona Muldoon pointed out the dangers regarding SMEs…this must be the worst default rate anywhere. And the consequences will flow into other areas such as mortgages, employment etc.

@Eureka is likely that the Troika will go the way you suggest. The Greek experience suggest this. The latest projections there confirm this with the finance minister saying yesterday that they have turned the corner…again.
It appears that the modus is to stall for as long as possible.

@Paul Quigley
Many thanks for the plug.
Is this distinguished Paul Quigley you?


It is fitting that the University of Limerick should honour Paul Quigley, distinguished public servant, businessman and in a real and practical sense, patriot. In his career, in his public and in his personal life he has always pursued and has created development – at regional, national, and international levels. He has done this on the basis of personal service, commitment, and dedication from himself, and the motivation of idealism and commitment in others.

Paul Quigley was born in 1923 and qualified with an honours degree in Civil Engineering at University College Dublin in 1942 when he was 19. But even before that his sense of service to society and to the nation came to the fore. He interrupted his university studies and enlisted in the Irish Army in 1940. After basis training, he was released to continue his engineering studies; on qualification, he returned to the Army. He was commissioned, assigned to the Corps of Engineers, and posted to the School of Military Engineering.

During his years with the School, he developed a lasting interest in education, an interest which was to manifest itself in various forms throughout his distinguished career.

There followed a series of important appointments which spanned over 40 years and which saw him contribute to corporate, to regional, and to national development in many different ways.

Paul Quigley joined Irish Ropes in 1946 and during the next 7 years pioneered the first applications of both scientific management and work study in Ireland.

In 1953 he became the first Director of the newly formed Irish Management Institute and held this position until 1960. Under his management and direction, the IMI’s position in Irish business life was developed and consolidated. Its premises were acquired, changed, and enhanced; its operational style of annual management conferences and management development courses was created and took shape; its important Management journal was launched. In short, the foundations of the Irish Management Institute were firmly established and the operations of the Institute were launched soundly by his vision, his zeal, and his commitment.

From 1960 to 1985 Paul Quigley devoted his professional career to the Shannon Free Airport Development Company – first and early on as General Services Manager, and then as General Manager for over 24 years. His talents, sense of public service, and sheer professionalism knew no bounds in this role. Innovative development in the Shannon and Mid West Region; targeted developments in tourism and for small, medium, and large industry; the linking of aviation, tourism, and town building; cooperative endeavour for regional development; industrial and clustered industry linkages – all of these and many more were carefully orchestrated by the man, Paul Quigley, who could and did – with seeming consummate ease – operate at the regional, national, and international levels, but always to a clearly focused goal.

Paul Quigley was then, and is, a man of vision, of leadership, and of service. It is not surprising that a man with these qualities was asked to take on other public and international tasks. He served as Chairman of the National Institute for Higher Education, Limerick, as Chairman of AnCO (now FÁS), the Industrial Training Authority, as a member of the Public Service Advisory Council; and he undertook many consultancy assignments for agencies of the United Nations in fields as far apart as Iran, Sri Lanka, Egypt, and Costa Rica. One could give details of the important contribution made by Paul Quigley in each of these roles; suffice it to say that his contribution shaped, for the public good, the destiny of all those activities with which he was associated.

In honouring Paul Quigley today, we honour a man who has contributed much to our society, and to the economic and social well-being and welfare of our country. It is fitting that the University of Limerick should honour this man by awarding him an Honorary Doctorate of Economic Science

Simplistic rules should have no place in economic affairs. The idea that a rule that applies in Japan also applies in Latvia is patent nonsense in any sphere other than economic thought.

So what of the Irish experience? We know the markets closed to us when our debt levels rose about 90%. We know, from the 1980s, that increasing tax rates is not always an approriate response to a deficit. We know that there was growth last year – we are told we had austerity… personally, I think more economists should take lessons in correlation vs causation… or, indeed, figure out what is coincidental.

That the ECB should keep its trap shut and its nose in its book unless it is prepared to do something about it is uncontestable.

@ Joseph Ryan & paul quigley

The ability of paul quigley to remain mysterious – to hide in plain sight – is a matter of intrigue. I have taken it that he is not the paul quigley described above but the medical doctor paul quigley, but I have taken it that it is up to him to disclose himself. The largeness of his contributions is much appreciated. He has no need to explain himself further.

@ yoganmahew: “The idea that a rule that applies in Japan also applies in Latvia is patent nonsense in any sphere other than economic thought.”

True. But it appeals! “Quick thinking good, slow thinking bad!” And it matters not a whit what the empirical evidence shows – the idea appeals because refuting it requires a careful exposition of the concealed convoluted logic and baseless assumptions that give it virtual support. Basically the idea MUST be right. Hence any evidence that refutes it MUST (axiomatically) be incorrect and thus rejected. Its brilliant!

“… I think more economists should take lessons in correlation vs causation… ”

Er, they do quite a bit of that staty stuff as part of undergrad courses. The theory side is fine, it just gets a tad messy on the practical side. Best leave that alone! Thinking about the Arrow of Time and a causal process is somewhat tiresome.

Bad and all that some econs seem somewhat lost in the stats sphere, their ignorance of the basic laws of chemistry and physics (which govern how a physical system operates) and a full appreciation of the nature of exponential functions – is worse (if that’s possible!).

In Spain the party in power is right wing.
The Prime Minister Mariano Rajoy was born in Santiago De Compostela (Coruna) to a well established Galician family. He is as cute a hoor as our own well educated off spring of political families. The party AP operates at the level FF operated under Haughey.

So, Rajoy declines to accept assistance from the Troika for reasons that appear obvious to me.

Do not blame the EC, ECB, EU for Spain’s continued suffering. That will not change until the Spanish public puts a fire to the governments feet. Why this has not happened yet is one of the great mysteries of the current crisis.

A few major rows brewing in the Eurozone ….

German Vice-Chancellor Philipp Rösler lashed out at the European Commission over the weekend, calling it “irresponsible” for undermining the belt-tightening agenda.
The Franco-German alliance that has driven EU politics for half a century is in ruins after France’s Socialist Party hit out at the “selfish intransigence” of Mrs Merkel, accusing her thinking only of the “German savers, her trade balance, and her electoral future”.

What is going on in France is the usual political posturing. The Socialist Party is maneuvering to get ahead of the members who will hit the streets in time honoured French fashion as soon as austerity starts to bite. Frau Merkel made us do it will not cut it. Hollande has written off Merkel as being part of the solution, if she loses he can deal with her left of centre replacement and if she wins he can play hard ball with her because France will back him whole heartedly.

The havoc that austerity has wreaked on the European periphery is now biting the centre such as France/Nederlands. This is where it ends and if Germany does not like it they can pick up their marbles and go home to Mutter.

Talking about marbles, the 4 year old came home from Deutsche Langschule singing Sexy Lady using suckey lady taught to him by a five year old called Ingrid. Even his mother thinks it was hilarious. The more one is around Germans the more you realise they are unique. The teacher is the wife of a Lutheran Pastor.

I know I should not watch RTV but it offers comic relief.

Early in the sixth minute there is an amusing vignette on Ireland.

Gavin and DOCM

His new book the making of global capitalism is pretty interesting aswell, (if not a political perspective I, personally, generally agree with)

The Dan White article establishes that I was accurate in my estimation of total cost of 100,000,000,000 shekels. Adding in the same amount for loss of lives, pensions, etc we get my other figure of twice that, give or take.

Powerful weapon, that banking!!! No one wanted to know that there was a secret deal between banks Revenue and Government, all large pol parties…. Well, now you do. Expensive knowledge? Priceless!

Population of Ireland: declining …..

Ireland seems unable to appreciate Strategic threats and opportunities. Odd… They view those who offer riches as friends and those who point out that short circuiting their own laws is weakness as enemies!!!

You will have to suffer for two more decades. Taxes will again approach 77%…. Crime and suicide rates will rise to unheard of figures. Lies will be exposed and trust eroded even more. I wonder how well property prices will fare in that scenario? It is all baked in, due to simpleton gombeen greed. The price of everything and the value of nothing….

Frauds at the very top make reform impossible. Not difficult, impossible. Continue ignoring my posts, because that will make it all go away……

@ Marc E

Can you point me to any evidence-based analysis to support your belief that there is no chain of causation between debt levels and GDP growth? I’ve pointed to four separate papers that have found a correlation using different data sets and have variously identified the transmission mechanisms. I’d be happy to bin them all if you can demonstrate to me that the correlation is spurious through stronger reasoning than “as many economists have argued“.

As an aside, the reason I don’t buy that high debt levels are primarily caused by low growth is because it takes quite a few years of deficits to get debt/gdp to 90%+ (absent large banking bailouts, which have not been prevalent in the data) while recessions have usually lasted maybe 1-2 years so the norm has not been to go from low/medium debt levels to very high levels as the result of one business cycle and you don’t suddenly end up at 90%+ because you’re in a recession (at least not prior to 2007, which the bulk of the analysis applies to). I could be wrong on this point, but again, if you can show a data-based analysis that proves the opposite I’m happy to bin this also.

@ Mickey Hickey

Hollande has written off Merkel as being part of the solution, if she loses he can deal with her left of centre replacement and if she wins he can play hard ball with her because France will back him whole heartedly….The havoc that austerity has wreaked on the European periphery is now biting the centre such as France/Nederlands.

So Hollande will demand a bailout from Germany? He’s the leader of the second biggest economy and is helpless!

You miss the point that it’s in Germany’s interest to see a strong French economy. France is its No. 1 trading partner.

The havoc that austerity has wreaked…

Italy said last month it cut current spending in real terms by 3.8% in 2008-2012, capital spending by 24%.

Warren Buffett, billionaire and Obama supporter, said at his annual ‘Woodstock for Capitalists’ event at the weekend that any country running a big deficit is providing a stimulus. Not a revelation but it’s often forgotten.

Cross-border flows of $900bn out of peripheral countries dwarfed anything governments have done. The ECB is now responsible for 50% of cross border flows in Europe.

Setting aside who was responsible, in 2006 in Spain, they built as many housing units as the US — more than the combined total of the UK, France and Germany.

When the bust came, the Socialist government pretended it could manage the fallout and it won reelection.

A bubble of that magnitude is bound to have triggered a lot of damage…

European Commission economists have estimated that a 1% rise in German domestic demand would mainly boost domestic production, its effect on the trade balance would be 0.2% of GDP. Because of trade patterns it would only benefit Spain, Italy and Portugal by 0.02% of GDP.

They maybe wrong but lets see alternative data.

@ Edward v2.0

France had a debt GDP ratio of 22% in 1974; it has had a budget deficit every year since 1975 and the debt ratio this year is expected to be 94%.

Even though it’s able to borrow cheaply today, it would be a lot happier with the flexibility that a lower debt rate would give it.

Angela is not the enforcer of financialism in Europe – it’s the ECB.
Dragging just has to threaten to stop backstopping the bonds of wayward governments and they’ll all snap back into line.
It’s financialism – not austerity

@ All

FYI article by Lawrence Summers in the FT on the original topic of this thread.

It seems that he has the reputation for not being particularly modest. He has a lot to be immodest about.

Europe is made up of nation states. Those running major deficits are providing a stimulus, relatively speaking. None can allow debt levels to rise indefinitely. Some – including Ireland – have no choice because no one will lend them the money. ICTU please note!

@ All

From the article;

“In future, authors, academic journals and commentators need to devote more effort to replicating significant research results before broadcasting them widely.”

Amen to that!

As to whether there has been a sudden conversion to ending “austerity”, this article by Wolgang Munchau, suggests that appearances can be deceptive, at least as far as Italy is concerned.

His last sentence is as ominous as it is true.

“And it [austerity] will last for as long as the euro exists.”

Of course, it all depends on how you define “austerity”. Is it sensible fiscal consolidation i.e. governments getting control of their budgets a la Merkel or the draconian opposite, and fundamental major policy error, of cutting expenditure at precisely the wrong moment in the economic cycle?

@ Michael H, all

one more thing which deeply scares me about Spain is that they imported 15% of their population in the last 10 years.

In Germany some folks also thought for a while, that mass immigration could be the answer to probably somewhat insufficient birth rates.

But our experience is, that in total you import more problems and needs for social benefits than net contributors, at least with our standards. Did we screw it up, somehow? I don’t really see this, at least as long as we don’t go to some much meaner American “illegal immigrants without benefits” model.

@ seafoid

Kuttner points out correctly, that it was private debt, which triggered the collapse in AD.
There is this guy, Warren Brussee “The Second Great Depression, Begin 2007, Ending 2020” who made this prediction in 2005, based on data until 2003, in comparison to the Japanese data peaking in 1990. The guy is still alive, has some blog.

It is hyper simplified, but I see this aspect as much more important that all these central bank models.


re May 3rd
“I asked on the other thread..
This report has me somewhat perplexed…..
“As part of the liquidation of the bank, the Central Bank exchanged promissory notes previously held by IBRC for €25 billion in Irish government bonds.
As a result Ireland’s total outstanding long-term government debt increased by €25.1 billion, or by 27.8 per cent, from January to €115.4 billion in February, according to latest figures from the Central Bank.””

That statement is not a good summary of total govt debt.
The NTMA link gives a clear and useful update for March 2013.
Gross debt ~200BN. (Cash ~32bn).

As GDP (I think) is forecast at approx 163BN?, that should give a debt /GDP of 123% at present.
The figures in the quoted statement above probably ignore the ECB/IMF/EC loans. Maybe that is what we should do!

As mentioned above Japan has 200% debt/gdp and 4.% unemployment, but as @Edward has pointed out no growth for 20 years.
The conclusion that I draw from that is that the Japanese put a higher value on the necessity and dignity of work for people than they do on the imbalanced output statistic.

The biological clocks of the underemployed and unemployed middle classes has been ticking silently on now, for the last five years, unable to afford to have or rear a new generation.
But who cares.

@ Joseph

given the substantial US bond assets Japan has, their net debt is more like 130%, but since they can not really sell the US bonds, what does it mean.

I had once an argument with Paul Krugman about the balance sheet of the Bank of Japan, because he counted the assets differently than the cash flows.

The US had a stock bubble in 2000, a house bubble in 2007, and probably we will see 2014 as the peak of a bond bubble. But one thing at a time, each triggered by the reactions to the bubble before.

I remember the times, when many here admired Japan and his MITI.

But they created one hell of a triple asset bubble in 1990, stocks, real estate, bonds.

Look at the Nikkei 225, that was 40000 in 1990, and at 10000 twenty years later, to get suitably scared

Some folks call the present abenomics a financial Pearl Harbor decision, a high risk gambling, borne out of deep desperation.

Would you want to go there?

@ all

Initial comments:

a) My sermon is pretty lengthy, but I do not see, that I interrupt other discussion here with that, there are 2 newer posts here

b) I do not give references for numbers, anybody can easily obtain from wiki, or other sources, like World Fact book, OECD, etc., please ask me, if you find something difficult to get

c) I either sober you up, or you can poke efficient holes into my argument, and actually cheer me up with it!

Here it goes:

1. Productivity perspectives, a closer look
2. No GDP growth to be expected
3. Debt must be paid down, or fiasco
4. Quick turn around from 120% downwards extremely important

1. Productivity perspectives, a closer look

The recent excellent postings of Michael Hennigan, e.g. the Herengracht index, and the falling number of kids in Germany (10% over 10 years, stylized) made me realize, that the mid term ( 20 – 40 years) outlook of most people here in this Irish blog, and mine, and many others on the continent is pretty different.

Some folks say we made a factor of 100 in GDP per capita over the last 230 years (2.0% per year). Others like Gordon a factor of 13 over 200 years (1.3%), and the Herengracht basically nothing (0.0%) , just a recent factor 2 bubble in the price, but not the rent derived, in the last 2 decades, for the folks living there, with the hedonic inflation accounting used for that.
The US, after WWII did not pay down their debt in nominal terms, but relative to their GDP, from 120% in 1945 to 40% in 1975 (before the oil price inflation run, exact numbers differ by who accounts what).
Growing their population from 140 to 210 Mio, factor 1.5, or 1.35% per year.

Inflation at 2.0%

The “3 factors” over 200 years
a) Getting people of the farm (factor 2 in productivity)
b) Getting most of the women into paid, counted, and taxed labor (factor 1.5 in productivity)
c) Getting the people educated from a very few years to standard K-12 years (factor 2 in productivity)

Make for 2 * 2 * 1.5 = factor 12, or 1.24% per year

1.35 +2.0 + 1.24 = 4.6 % growth, over 30 years, gives factor 4.0, easily explaining the factor 3 in debt ratio reduction

Typically we assume we have an intrinsic, pure technology driven productivity increase of 0.5 – 1%, beyond the 3 factors, and I am afraid this is more towards 0.25 – 0.5% per year in the future, if we separate out the 3 factors.

Most GIPSI countries were late comers to the industrial revolution, so you enjoyed real GDP / hour growth per year of 3% or so, while “catching up” (Greece coming from 26% in 1985 to 93% EU in 2007) making you believe that you can “grow your way of the debt” just like the US after WWII.

I don’t think so.

The 3 factors are used up, mostly, the “catch up” is done.

2. No GDP growth to be expected

The Herengracht folks were certainly of the farm, the wife probably contributed some to the business, my gut feelings are that there life expectation was 55 +/- 5, at least around 1800, and the effective school years 8 +/- 2, I didn’t look it up so far. If anybody has any information, especially to the contrary, I love to hear it!

This explains most of the difference between Herengracht and Gordon or McCloskey / Maddison.

The difference between the Factor 100 (e.g. Rosling / Gapminder) and the 13 / 16 is the technical productivity increase of 0.75%/year, and the different hedonistic inflation accounting.

Soo, where does this lead us?

The EU fertility is 1.55 vs 2.07 for “stable” in the most simple calculations. Over 30 years -1.0%/a change of population, longer effective work life + 0.4%, some immigration + 0.2%, makes for minus 0.4% of hours worked. Getting some folks back from 35 to 40 hours/week, as in Portugal now, and in the near future in France, obviously helps somewhat : – )

Extremely simplistic, linear, rough estimates, mostly just mentioning relevant factors, I know!

The bottomline is, there is NO significant increase in GDP to be expected.
And we have some likely deteriorating factors:

In the past, 300 mio western Europeans, 300 other anglo sphere, 100 Japanese provided most of the manufactured goods. Now we got some 1000 mio Chinese and , lets say effectively 300 Mio Indians, and 200 mio others competing in most areas for the same exchange in commodities/energy.

That worsens our competitive position, factor 3 in people. I see some 0.5% in long term yearly price declines as very realistic.

@Joseph Ryan
Thanks for clarifying. So the Irish Times is now reporting totally misleading figures for the national debt….
“As a result Ireland’s total outstanding long-term government debt increased by €25.1 billion, or by 27.8 per cent, from January to €115.4 billion in February, according to latest figures from the Central Bank.”

Ah’s only out by about 85b.

3. / 4. Debt must be paid down, or fiasco

I don’t believe in any magic 90% or 120% debt / GDP thresholds. It all depends on a lot more factors and circumstances.

But I am only aware of 3 documented instances in written history, where debt beyond 120% was paid down orderly. Some 250% for the UK, after the Napoleon wars and 1945, and 120% for the US after 1945.

In these 3 cases, the debt was run up for winning wars, and not for peace time consumption, the debtor was in a unique, ruling, and producing situation. And there were no alternatives to take your money to, really.

From my perspective a clear, visible, credible, systematic path to some pay down is detrimental for the one central factor: creditors believe / trust.
For quite some time Italy /Belgium argued, that their > 100% public debt are covered by much larger private assets.

Belgium did pay down 23% over the 7 years, after 2000. Italy not. And now it becomes crunch time.

The 120% are no magic number, what counts is the trajectory, in my view.
And we have a stability pact, with a glide path rule, which is not a black/wide picture, but a clear perspective, what people expect.

A bankruptcy would have in most european cases more severe consequences than for Argentina, and those are now at about 50% of GDP folks formerly considered possible.

ok, my very long sermon is now done. But I didnt see how to make this significantly shorter, and I see this as “very serious”

@Edward 2.0

Can you point me to any evidence-based analysis to support your belief that there is no chain of causation between debt levels and GDP growth?

This is how science (even the social sciences) do not work:

* Some right wing cranks publish a papers making outlandish but politically convenient claims with minimal evidence.
* No one bothers to waste time refuting these theories.
* The theories are therefore proved!

As regards the two papers you posted no one needs to waste time reading a BIS paper explaining how important it is to repay debts quickly (paging Mandy Rice-Davies) and the ECB has been on the losing side of intellectual and experimental battle on the effects of fiscal policy for four solid years – its credibility may never recover from the failed attempt to diminish the importance of the fiscal multiplier.

This is not snark, neither the BIS or the ECB has any remaining credibility left on matters of fiscal policy and the BIS has a very, very bad record, here they are, in 2010, right in the middle of the crisis, asking for more and faster cuts:

It mystifies me how, having failed to win any of the intellectual battles, the neoliberal right is still given even a shred of respect. Shysters.

@Kevin O’Rourke

All of which is very convenient if what you really want to do is shrink the state.

Paul Krugman said sometime in the last two years that the reality based community is not going to win the fight over the mix of monetary and fiscal policy we need to recover from the global financial crisis by appeals to reason because the opposition, the rough alliance of the political right and financial capitalists controlling western economic policy, are fanatical class warriors pursuing a narrow and short sighted vision of their own self interest. For this cohort of neoliberals and political reactionaries the European component of the global financial crisis is an excuse to take radical and democratically unsupported steps in reshaping acceptable economic policy. However the steps were unrelated to the either the cause of the crisis or its resolution – shades of the invasion of Iraq. (one could easily argue that the Eurozone financial crisis is being deliberately extended in order to further German policy goals).

Even with the evidence of the last four years of policy failure (or policy neglect) and the slow conversion of the IMF none of Olli Rehn, Marco Buti, Wolfgang Schauble or even Mario Draghi can be persuaded to change course because it is the course they are politically committed to and it serves their own class interests. None of these people would be in the positions they are without a commitment to a status quo that has utterly failed the European Union.

We will not force policy change without a purge of these individuals (and their remaining supporters in the field of economics) – the dangerous cult of neoliberalism needs to be investigated and broken up and polite dissension will not do it.


Perhaps you could consider getting your own blog, expounding on your theories there and then post links here with a short abstract?

They do not seem to be obviously relevant to the opening post.

@ Shay Begorrah

So your answer is no, you have absolutely no evidence-based analysis to bring to the table. Clearly you are something of an expert on not wasting time by reading papers.

I hope your vitriol-based analysis serves you well in life, if you don’t mind I think I’ll stick to examining evidence and updating beliefs as needed rather than dismissing any evidence I dislike as some kind of ‘right wing crank’ conspiracy.

@ shay

This is the Irish Economy FGS, where posting off-thread is a feature not a bug. Francis is the new Dork, weissen Sie, and he runs some very interesting numbers. If gets dissed in this parish, he’ll take his act to Naked Capitalism or some such. And good luck to him.

I’m inclined to the Russian perspective, which is that our situation is hopeless but not serious. Fow what it’s worth, the issue of debt cannot reasonably be addressed in isolation from the general problems of economic development, employment, social cohesion and social justice. What my kind of people expect is that the various leaderships address those questions. Seriously.

@ joseph ryan

‘The biological clocks of the underemployed and unemployed middle classes has been ticking silently on now, for the last five years, unable to afford to have or rear a new generation.
But who cares.’

It’s a tragedy my friend. Joyce’s Dubliners all over again, without the piety and social snobbery. This time it’s the contradiction between the bright world of Friends and the mucky reality of negative equity and rotten job opportunities. Art and literature matters, because the human drama has only so many themes.

@francis,hi francis enjoying your posts as always….from your fav. mag 🙂

“Whatever weaknesses one finds in the Reinhart/Rogoff paper, it does not follow that countries in recession should always disregard deficits and debt levels and focus on stimulus. That might be the right recommendation for the US today, but as a universal rule of thumb, it is just plain wrong.”

@ Francis

“I had once an argument with Paul Krugman about the balance sheet of the Bank of Japan, because he counted the assets differently than the cash flows.”

Can you point us to that argument online or was it not recorded?

@ Joseph Ryan

The conclusion that I draw from that is that the Japanese put a higher value on the necessity and dignity of work for people than they do on the imbalanced output statistic.

It is the wrong conclusion.

As permanent public sector workers retain their nineteenth century era state guarantee of employment in many countries, the number of temporary workers or ‘temps’ as they are often called has been rising in several countries over the past decade. The resultant dual workforce in Spain for example, has seen tens of thousands of temps, usually young, lose their jobs while older members of trade unions in permanent positions have been protected by very high severance pay and a long appeal process.

The rise of the temp has been particularly evident in Japan where about 35% of the wokrforce are in this category. They have few rights and high-profile companies such as Toyota, pay them less than the Irish minimum wage of €8.65 ($11.60) in a high cost economy.

In April 2011, a month after the devastating earthquake and tsunami in Japan with the resultant nuclear fallout at the Fukushima Daiichi plant, The New York Times reported that of roughly 83,000 workers at Japan’s 18 commercial nuclear power plants, 88% were contract workers in the year that ended in March 2010, the nuclear agency said. At the Fukushima Daiichi plant 89% of the 10,303 workers during that period were contractors.

In the year before the nuclear disaster, the contractors were exposed to levels of radiation about 16 times as high as the levels faced by direct employees of Tokyo Electric, according to Japan’s Nuclear and Industrial Safety Agency.

Another favourite of the small government brigade is that governments cannot create jobs, they can only create the environment for private business to create jobs.

This is trotted out as a truism without reference to history, and particularly without reference to state support for the development of industry in western countries inclusing western Europe. Granted, there is a serious risk to be dreadful waste and sysfunction if the government starts trying to replace the private sector.

However, in a time of economic crisis and including an unemployment crisis which is causing huge cumulative damage to the economy and well being of citizens, surely there is an argument for Governments to step into the void in a targeted and careful manner. There are risks involved but the risks arising from inaction are also huge.

Work-schemes for the unemployed are now necessary imho. Even the state cannot properly use the capacity our people and buildings provide, the state needs to preserve capacity so that it can be activated when the private sector has need of those people and faciities again.

@Edward v2.0

No one can prove there is not any kind of positive correlation between a high debt to GDP ratio and low growth, just as no one can prove there is not some link between chewing tobacco and being hit by lightening. Proving something is not true, outside of formal logic/maths, is not what science aspires to. It looks for a theory flexible enough to fit all the existing data and that makes testable predictions, if the theory can not be expressed in a simpler way then it is what passes for “truth” in science.

Which is to say you can present ten papers from the ECB arguing that debt and not austerity is the reason that the European component of the global financial crisis has gone on for so long and I can just laugh at you. Sneer even.

As a layperson you no more need to disprove that the ECB’s position on debt is false than you need to disprove some conspiracy freak’s theory that the moon landing was faked. You can simply say the ECB has a poor record on economic forecasting and is in disagreement on the issue of debt/gdp ratios and growth with other individuals and institutions who have a much better record (the IMF, politically attached as they are to neoliberalism, are not as willing to search for an out in the evidence as the ECB/DG ECFIN have been).

In short, the ECB does not need to be taken seriously, not by me, not by anyone. Anyone who takes the ECB seriously on the issue of the role of debt in the European component of the global financial crisis where it differs from the wider consensus places themselves firmly among the cranks.

You must understand this on some level – that deficit hawks are not taken seriously because they promised and threatened things that did not happen.

@John Gallaher

Thank you for that, I tried to read the WEO</a. before and found it heavy going. However the conclusion conformed to the general analysis outside the ordoliberal swamp of EU policy making. Debt is a symptom and not a cause of low growth, it is slow to drop even when well below 80%, deflationary policies have a bad record in dealing with economic crises where large debts are a factor.

For countries currently struggling with high public debt burdens, the historical record offers both instructive lessons and cautionary tales. The first lesson is that fiscal consolidation efforts need to be complemented by measures that support growth….support for growth is essential to cope with the contractionary effects of fiscal consolidation. Policies must emphasize the resolution of underlying structural problems within the economy, and monetary policy must be as supportive as possible.

Not exactly ECB doctrine (and well outside of the position of Marco Buti and Olli Rehn). And the IMF is politically and economically conservative.

What happened to the EU?

@shay heavy going is a bit of an understatement,but thanks for the link,having a look at it now.
@zhou the ‘luas’ extension appears to have been well received….have not studied the numbers on this in a while but looks interesting.


As a layperson you no more need to disprove that the ECB’s position on debt is false is true….

Duh. I made a real Rehn of myself there.

I will try (LOL) keep the length of my postings here down, at least for a while : – )
Especially when I look at the frequence of typos and ellipses, I gotta be more careful again.

@ paul Quigley

I know naked capitalism. There is a lot of word hurling like “neo liberalism” and often downright hate mongering against Germany.

Shay should love it : – )

@ John Gallagher

Thanks for your kind words.

I actually try to use more often simple, real world words, and refer less to macroeconomic concept names, because with people like Blanchard and his multipliers I have the very serious impression, that these folks have long lost contact to the real world, and just think in very questionable models, especially always thinking things from the US / UK perspective, who can get away with things, nobody else can.

The Hausmann paper points into that direction as well, and I am nowadays much more open to folks like him, or LuLa from Brazil, talking on the last metal worker union conference, putting a lot more weight towards the endogenous growth factors than the simplistic exogenous views of Goldman-Sachs and the likes. Not that I wouldn’t know the vocabulary and the models behind them : – )

When I remember this Osborne and his “blood bath budget”, and 4 years later they still run a 8 % government deficit, I am getting the creeps. Buth are apparently very afraid of more Tottenham riots.
There were a number of papers at that time, arguing that you get the revolution, when the consumption cuts go beyond 25%, and what other factors might be important.

Thanks for the zerohedge link ! I am gonna enjoy it.


For the net Japan numbers I can point you to

@ zhou_enlai

With respect to work schemes ( Beschäftigungsprogramme) I actually want to point out, why we are so skeptical in Germany. Not because of ideological rigidity, but we basically tried already everything extensively and expensively.

Wiki Zweiter_Arbeitsmarkt, with no translation into other languages. Always interesting.

Switzerland (!) :

What we avoided at least this time was stupid things like wiki/Smoot–Hawley_Tariff_Act. Please see the Figure 16.9 in “This time is different” for the death spiral of collapse of world trade

Probably most of you know the 1930ties Autobahnen argument. Hoover Dam, TSA, … But that was at a time, where there was a lot more manual labor and therefore wages involved. And that was new and useful infrastructure.

The GIPSI countries should now already have all kinds of roads and infrastructure, thanks to many years of EU programmes for that.

In the 1980ties a lot of German communities also went on a spending spree to built public pools, city halls, ice skating rinks, etc. , to “make ourselves attractive”, just to find out, that you later on also have to pay for the upkeep, and that there are not that many cultural highlights to host in every little town.

When Michael Hennigan pointed towards: what kind of real jobs could be created, I was tempted to say, lets do a MBA like SWOT analysis, and you can do it 2 ways:

a) defining a goal, where you want to be in 10 to 20 years, what jobs, education system, …, or

b) what kind of unemployed do you have now, and what can you do with them

But I think you have plenty of MBAs in Ireland, and don’t need me for the discussion structure.

One last thing, I want to say:

Sweden and especially Finland also went through deep structural changes in the 1990ties. Small countries, at the periphery. It should be really worth to look in detail at them.

@john gallaher

if you have not already…enjoy….later.

I am sure Karl Whelan must be quaking in his gold tipped slippers at the approach of Nick “Nasty taste for just so stories.” Taleb. It will be like having a really angry publicist who works for free.

It seems a bit of a shame. Taleb is great fun, and “The Black Swan”, despite its endless, endless, unnecessary, redundant, tautologously duplicated repetition was a useful book – important even. It is just that if you wanted to pick an economist who embodies all that is wrong with the profession Karl has to be number 19,238,133 on the list.

Maybe Mr Taleb can find some paper where KH has screwed up in a way not endemic to the practice of modern economics but I think it is more likely that Mr T will end up looking bitter and crazy over a minor twitter encounter.

Let it go Nick. Karl aint the bad guy.


Sweden and Finland had their crises when the rest of the western world was doing much better than it is now. The IMF pointed out a number of years ago that the idea that all western countries could export their way to recovery was foolhardy nonsense. They were correct.

Here in Ireland we are acutely aware that the economic policy prescription adopted for the EU as a whole will have way more impact on us than any policies our own Government seeks to implement. That is why our President, our politicians and our most reputable commentariat have their eyes firmly fixed on EU and ECB policies ahead of domestic policy.

@Shay…. jay…..sus ….the link is not about KW..ties in with r position viz a viz “math” conflicts of interest etc.

@ francis

To be clear it’s not Japan I’m asking about, it’s the argument you say you’ve had with Paul Krugman. It’s a sufficiently surprising claim that I have to admit that it sounds, well, unlikely. But unlikely things happen as both Karl Whelan and Nick Taleb inform us. In what forum did it take place? What was said?


it is for the discussion here not relevant.

I understand your curiousity very well, and I wondered this afternoon a little bit, how to satisfy it. But you will not hear one more word from me in this matter : -)

@francis hope you enjoyed the link…let me think now who was the first to suggest converting dodgy PN’s to sovereign debt,naturally complete with spreadsheet errors as one does:)
One doesn’t often have to look to hard…no not much difference at all:)

Arrgh. The 30 years is a typo. There had been a 30-year version before I made the 40-year version. Also, yes, 1/1.06 is better than 0.94 though it doesn’t make much difference. Changing both gives an NPV reduction of 43%. I’ve posted a new spreadsheet and changed the text.

Thanks for pointing these out.”

@Gavin Kostick

Exposing people’s credulity is a distinctly queasy, thankless and unsatisfying experience, but it needs doing.

@ zhou

we’ve got a new data toy: quandl

now look at global GDP

and subtract population growth

Globally, there was this shock year 2009, but that is over.

Some 5% of the global population have a problem with too much debt, as there is always somebody somewhere in trouble

in the long run you have to balance your current account and your budget.

Either raising exports of goods and services / taxes or cutting imports / benefits.

Or you go bankrupt.

Your recent 10 year bond IE00B4S3JD47 is trading at 3.4% . Most people believe, you will not do anything stupid.

@shay like Ed did above to you..perhaps some commentators use different “handles” or require anonymity oh like say shay!

@ francis

‘One last thing, I want to say:

Sweden and especially Finland also went through deep structural changes in the 1990ties. Small countries, at the periphery. It should be really worth to look in detail at them’

I tried to compare Ireland and Sweden on Wiki, but i found out that Ireland has no economy. Check it for yourself. Lots of art sport and culture though.

Sweden is the opposite of Ireland. Imperial history, marches its armies all over Europe, businesslike, makes aeroplanes for Gods sake. Our crafts were killed off by the 100 Act of Union, and our exclusively Protestant (!) industrial base (Belfast shipbuilding) was cut off by the 1921 Partition of Ireland. The current high tech FDI activity is a paste-on. Lots of us mostly dug ditches.

@ paul quigley

I just looked up my 1986 printed The World Almanach, with data from 1984/1985. I think your “cut taxes like crazy” period came after that, or ?

At that time Ireland had a balanced current account 9.6 b$ Imp = Ex, relative to 16.5 b$ GNP

food processing, auto assembly, metals, textiles,

Soros v Sinn..
“His accusation that Germany is imposing austerity is unfair. Austerity is imposed by the markets, not by those countries providing the funds to mitigate the crisis. By now the overall sum of credit via intergovernmental rescue operations and the ECB has reached €1.185 trillion (€707 billion in GIPSIC Target liabilities minus GIPSIC claims from under-proportional banknote issuance, €349 billion in intergovernmental rescue funds, including those from the IMF, and €128 billion in GIPSIC government bond purchases by non-GIPSIC national central banks; see, not counting the unlimited guarantees the ECB has given to the states of southern Europe through its OMT programme at the expense, and to the risk, of the taxpayers of Europe’s still-sound economies.”–the-german-question

@ francis

I only have the cartoon version of economic history, but our domestic manufacture was a ‘tail’ of the British economy, and was liquidated along with the rest of the periphery in the Thatcher era. We had domestic textiles long ago in the DeValera protectionist days, then we had some 70s US textile manufacture FDI, all gone now, AFAIK. FDI transfer pricing is smeared all over the current GDP figures, so it’s very hard even to see what’s going on domestically. As the mathematicians say, we have a strange attractor.

Food production is still good, especially beef, but, as the Dork of Cork has often pointed out, the diesel is a limiting input for the agro sector. We need ideas badly on this windy little island. Tony Owens seems to have a good handle on the movers and shakers in our real (as opposed to financial) economy, and I wish he would post more often.


Matching population growth to GDP does not tell the tale. The productive population has grown more than the simple growth. We are competing with far more people. It is a bogus analysis.

Lots of countries go bust. The UK has gone bust, Germany has gone bust. The reason we are in the EU is to avoid beggar thy neighbour policies, which Germany suffered form terribly in the past, and also to try and preserve European political stability, which has collapsed in Germany in the past after it was the victim of beggar thy neighbour policies, particularly on the part of France.

@ francis
“At that time Ireland had a balanced current account 9.6 b$ Imp = Ex, relative to 16.5 b$ GNP

food processing, auto assembly, metals, textiles,”

I left the state in 1992 for 13 transforming years. When I left, Apple were still making Mac II’s in Hollyhill – part of an FDI electronics manufacturing base, the medical device manufacturing nexus was in its infancy, there were plenty of engineering supply companies and the FIRE sectors were insignificant. When I returned in 2005 indigenous engineering manufacturing had switched from light engineering to construction materials and building products. The supply companies had been decimated. The (FDI-dominated) medical device side of things had flowered. The FDI sector was beginning to include the Web 2.0 giants while the call-centre operations were closing down due to cost pressure. The food sector had changed little. Some of my peers with university connections had built and flipped dotcom businesses then semi-retired. The public sector had expanded to include many new functions and activities.
While researching innovation practice among indigenous SME’s we discovered that many had switched their focus to property lettings.
Overall, the construction boom destroyed many Irish SME indigenous engineering and manufacturing businesses, crowding them out by offering higher though unsustainable rewards.
These distortions are being reversed, slowly but surely. But make no mistake, building export-focused business in Ireland still demands huge commitment, given the size and remoteness of the island and the preoccupations of Irish banks.

@ Tony Owens

‘While researching innovation practice among indigenous SME’s we discovered that many had switched their focus to property lettings.
Overall, the construction boom destroyed many Irish SME indigenous engineering and manufacturing businesses, crowding them out by offering higher though unsustainable rewards.’

That was a tragedy. Shame on the banks, banking regulators, and DoF, the leading (!) pols and the respected (!) professional firms who facilitated it. We had little enough by way of domestic enterprise , and still less by way of domestic manufacturing, to begin with.

In effect, SME owners were allowed, nay incentivised, by disastrous credit policies, to gamble away their businesses, without regard for the implications for their employess and the society more widely. On the property needle.

@paul quigley don’t forget the peddlers of property porn….and the “experts”

“One way to illustrate this claim is simply to count the number of references in the press to the notion of a ‘bubble’ in the housing market before and after the crash. The figure below shows this for the Irish Times, Ireland’s newspaper of record. It can be seen that before 2008-2009, there were comparatively few articles that even mentioned that the market might be in bubble territory. On average, the newspaper had 5.5 times more articles on the bubble per year in 2008–2011 than in 1996–2007. For the newspapers Irish Independent and Sunday Independent, which boast a high readership, it was even worse: they had on average 12.5 times more articles mentioning the bubble in 2008–2011 than in 1999–2007. And that doesn’t mean that such articles published before the crash warned of a bubble—very, very few did, and many only talked about it to attempt to reassure readers that in fact, it didn’t exist.”

@ john g

As Mark Twain said, it’s hard to get someone to understand something when their income depends on them not understanding it…plutocracy subverted democracy in this case, and the MSM are well and truly bought…

@paul g tks for the Charlie Feathers link,more a Neil fan myself but enjoyed it.
Not only the hacks that were bedazzled,quite a few leading economists in the US were too….Ireland?
The zerohedge piece is worth a read,there has been som discussion stateside over this,not sure if any work done in Ireland.
Aplos to KOR milles off topic.

I googled a little bit “dork of cork irish economy” and I take the hint : – )

@ Tony Owens

thanks for your description. Basically I thought like this, but you made me aware that it is significantly more severe.

A lot of countries are in significant problems, and taking the required steps will bring them to significant social conflict.

And many, especially the larger ones IT, ES, FR still think they can use this to break the maastricht treaty, no inflation, no wealth transfer via unrepaid loans in whatever form.

They either give up on this, or this will break.

We also learned the hard way, that one can not raise taxes beyond a certain point, and from that on it has to be cutting benefits and (public) wages, as far as needed.

All have made promises, they can not keep, and now think I should somehow pay them. This will not happen. They will have to tax their own rich, and it will not be pretty.

Even in Germany, the protestant church had their biennial congregation under the motto “Soviel du brauchts” a.ka. “All you need” dreaming up again that everybody just draws up his wish list, and then, somehow this is gonna be paid by somebody. All these “social”, “eco-friendly” hypocrites, who indulge in their “holier than you” attitude and damn the costs, and blame those, who say, 60 % tax rate will not work. We tried this, recently.

If we can barely hold the line in Germany, any further integration in Europe would just end in disaster.

@ John

To the mises link: it always amuses me, what different people interpret into our Erhard “Soziale Marktwirtschaft”. Some say “neoliberalism”, others “state socialism”.

Well, even my cutie communist leader Sahra Wagenknecht claims to be the true heir : – )

@francis I found the soros v sinn exchange-link above-fascinating with good well argued points from both sides…
This comment from Sinn on Ireland,does it reflect the “view” in Germany on Ireland ?
” Soros points to Japan’s unsuccessful attempts to solve its problems by monetary austerity of the German kind, and warns against repeating that experiment. Japan clearly did not choose austerity after its banks collapsed in 1997. The BoJ has kept the rate of interest at close to zero since then, while the government debt-to-GDP ratio has increased from 99% (1996) to 237% (2012) because of permanent Keynesian deficit spending. Apart from that, the ineffectiveness of austerity in a country with a flexible exchange rate does not apply to the situation of a country in a currency union. While the flexible exchange rate would sterilise all attempts at increasing competitiveness via deflation, price cuts in a currency union do work wonders, as the Irish example has shown. Ireland has cut its prices relative to the rest of the eurozone by 15% since 2006, and it succeeded in saving its economy.”


Good point

1. Maybe first some quotes, to illustrate the mood

“lead or leave”: The Economist had an interesting article “Don’t make us the Führer”

Soros is playing with fire

Crunch time is fast approaching

Many investors echo Soros. They want to cut and run – to unload their toxic paper onto intergovernmental rescuers,

2. Japan
I want to my, and I am somewhat baffled by my many, comments on Japan in this one blog entry : -)
“May 6th, 2013 at 11:17 am”:
False decisions in the 1970ties, creating the mother of all bubbles in 1990
“net Japan numbers”: look at the link
The dramatic increase of their net government debt from pretty acceptable 81% (like us now : – ) in 2007 to dramatic 143% in 2013 is a text book example of how failed policies trigger one thing after the other, first slowly, and then dramatically, and numbers like 10-year rates completely misleading.

FTAV Kaminska showed over Xmas, that it took Rome 60 years, to finally blow the bubble.

3. Ireland

Whether Ireland has already “succeeded in saving its economy”, I ll guess many, especially here, have different opinions.

Sinn doesn’t represent “Germany” as some unified total, and I don’t either, maybe we two better “General Dr. von Staat” : -) than most of what many here trot out with Spiegel quotes.

It is bifurcating now, across all party lines, from the very right to the very left (nowadays euro sceptic Lafontaine / Wagenknecht vs the left establishment)

You criss cross this with folks like Sinn and me, having the focus on how does our ship sail on the global ocean, some focusing in Europe, and many still perfectly fine to fight over the distribution locally, the “wish lists”, I mentioned above. And about a quarter of the population in blind rage, which can turn multiple ways every half a year, whatever “protests” the status quo. Left, pirate, AfD, principles, facts do not really matter.

We had here recently a TV contribution with 6 former Shin Bet Directors talking about Israel’s history and various crucial decisions taken, and one of them came up with the picture that he always believed that there would be one old man in a room at the end of the aisle, who looks at everything and ponders it, [my comment: maybe a little like Vernon Walters] and talks with some people.

“And one day I went there and opened the door, and I found the room empty”. And it is silly, but it shook me.

For Germany you know the names Schäuble and Merkel, maybe one day Weidmann and Asmussen growing into that.

I vaguely believe I know some more, but in the past these folks had a tendency to be assassinated (Beckurts, Herrhausen, Rohwedder, …) , so I will not share names.

And I now believe that in many euro countries there are none of that caliber, thinking in many decades and centuries.

john, paul, tony, zhou, and all

I also enjoyed it, a lot. This blog is pretty inspiring.

I am sure we will have more new topics, where I can contribute something useful to the discussion.

I looked around for swiss economic blog today, and all I found was

There is more excitement on the Wiener Zentralfriedhof – Depeche Ambros

John, closing, to your last link:

I ll kept my wallet walking Harlem at 3 am alone, and Cuban market places.
So now Mr Buiter thinks he could have a shot at it?

This Buiter will probably even on his death bed ask for the key to the money printing press,

and I will answer him:

From my cold dead hands : – )

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