Hidden Message from the Banking Inquiry: A First-Rate Economist Should Head the Central Bank

Some commentators wrongly claim there is little value in the long and (moderately) expensive banking inquiry. There is much to learn from the inquiry. One important message can be gleaned from the testimony of Central Bank and Financial Regulator executives this past two weeks: the coalition needs to appoint a first-rate economist (like Honohan) as his successor as central bank governor. The coalition should scour the globe and not compromise on analytical firepower.

Brian Lenihan pushed through the appointment of Honohan against the tradition of promoting someone from the senior ranks of the civil service. If the tradition had been followed, the Irish economy might still be wallowing in financial instability. A central bank governor without first-rate economic expertise could have made a total hash of the financial restructuring and recovery programme of the last five years. For example, a former senior civil servant would not have made the phone call to RTE Morning Ireland in November, 2010, getting the Troika programme quickly started. Other painful actions taken in recent years, such as the PCAR and PLAR exercises, and the time-consuming and expensive improvements to the financial sector database, might have never started or been botched. The job requires a highly-competent, well-trained and experienced economist.

Looking back at the banking inquiry testimony over the last two weeks makes clear why a first-rate economist is needed. Defending his time at the helm, John Hurley states:

“As Governor I fostered and welcomed open discussion. In Board discussions, as is normal, there were varying views expressed from time to time. A clear consensus always emerged after careful consideration of issues.”

This is the essential vision of the central bank governor as a type of senior civil servant. He chairs lots of consensus-finding meetings with important people. This hands-off management style, where the leader does not provide analytical input or make difficult decisions based on measurable data, but just chairs meetings and looks for a consensus, works fine in some institutional environments, but not for a central bank head. Meanwhile, if we briefly analyze the economic data, the financial system was hurtling toward Armageddon at the end of Hurley’s term:

• In the five years from 2003 to 2007, the domestic banking sector grew by 250%. This 250% growth does not include the growth in lending by foreign banks operating in Ireland; this was also growing too quickly.
• Irish property development lending by domestic banks, a particularly risky business line, grew by over 500% over this same five-year period.
• By the third quarter of 2008, the domestic banking system had net foreign borrowing (including lending for foreign property development) equal to 88% of Irish GDP. This was a volatile and skittish source of funding, being ploughed into long-term property development lending assets.
• By the third quarter of 2008, the domestic banking system had outstanding liabilities of €791 billion, equivalent to 439% of Irish GDP, an extremely high ratio by international standards. These liabilities were backed by problematic bank assets heavily concentrated in property-related lending. Foreign banks also had large loan portfolios in Ireland, adding to the risk of a collapse.

There was no sense of urgency in response to these alarming statistics – in fact, the central bank did not even have all this data! It had failed to maintain a decent quality database of the aggregate financial system. One of the first big projects after Honohan arrived was to fix this obvious shortcoming. Prior to Honohan’s arrival, financial stability oversight at the central bank was done without it. The senior management of the central bank analysed and controlled the economy’s financial stability by having lots of meetings with important people.

The situation in the Financial Regulator was just as bad. Mary Burke has testified that the Financial Regulator in fact had no ability to impose any real sanctions – the Financial Regulator’s control of bank’s risky lending policies was entirely dependent upon empty words. To give Mary Burke due credit, it seems clear from her testimony that she knew at the time that the regulatory system was deeply defective. The testimony of Patrick Neary, on the other hand, gives the impression that he was comfortable with the policy of just asking the banks to do things, with no credible sanctions behind the requests. A competent economist at the helm of the central bank would understand the difference between empty threats and credible deterrents, and not allow this sanctions-free regulatory system to fester and collapse.

The yawning gap between the regulatory coverage of the Central Bank and the Financial Regulator also reflects very poor economic analysis. Hurley states clearly in his testimony that the central bank was not responsible for looking at financial institutions, only at aggregate financial stability. Hence the central bank did not concern themselves with individual financial institutions. Patrick Neary notes that Financial Regulator had no responsibility for financial stability, focussing only on individual financial institutions! A competent economist at the helm of the central bank would see the obvious logical inconsistency in this un-coordinated, segregated oversight of macro and micro regulatory control.

The coalition partners might mistakenly think that all the hard work has been completed under Honohan and that they can return to the cosy past of a pliable ex-civil servant running the central bank. There are in fact very dangerous financial risks looming for Ireland. Ireland is a small open economy sited at the intersection of three currency zones. Grexit and Brexit both present big risks for Ireland. There remain basic design flaws in the Euro which could lead to an implosion or stagnation. Grexit could contagiously spread a credit and liquidity crisis to Portugal or elsewhere. Italy faces some very serious problems at the moment. If Italy’s medium-term growth rate goes negative and/or its budget deficit climbs, it could face a sudden stop to its sovereign debt refinancing. Things might turn out well, but there are a lot of big risks for Europe and Ireland, and the central bank needs a first-rate economic decision-maker as head. Ireland’s new central bank governor also should be qualified to contribute authoritatively to international and eurozone financial policy deliberations; this will have domestic benefits through its impact on Ireland’s international voice and reputation.

41 replies on “Hidden Message from the Banking Inquiry: A First-Rate Economist Should Head the Central Bank”

How can people tell which ones are first-rate economists?

Economics isn’t a science like physics. There are no objective standards by which one can tell which ones are first-rate and which ones aren’t.

Golden rule of economics:

For every economist saying one thing, there is another economist of equal rank saying that the first economist is spouting complete and utter b*ll*cks. This is true even if we apply the prefix ‘Novel Prize-winning-‘ to the word ‘economist’.

I’d go for a simple test:

Any economist who forecast in 2010 that this would be happening by 2015 should be considered first-rate:


“The coalition partners might mistakenly think … that they can return to the cosy past of a pliable ex-civil servant running the central bank.”

I have no doubt that a desire to return to this cosy past exists, but the extent to which there is some reasonably coherent EU institutional supervision should be sufficient to frustrate this desire. But I have considerable doubts about the ability of a “competent economist at the helm of the central bank” to stop the rot during the long run up to 2008. Successive governments most certainly didn’t want the reality of bank supervision and financial regulation; they wanted optical illusions – and that’s what they got. That’s why I find the pillorying of the former financial regulator and former governors of the central bank so distasteful. If they had made any effort to apply effective bank supervision and financial regulation they would have been shunted aside very rapidly. And there was no shortage of equally pliable replacements queueing up behind them.

It’s perfectly reasonable for an economist to make the case that an economist should be put in charge of bank supervision and financial regulation, but these are not the only areas that might require such expertise. The economic regulation of all other non-financial sectors continues to exhibit precisely the same malaise that previously infected bank supervision and financial regulation. This should not be a surprise to anyone. The same governments that ensured the enactment of legislation that projected the optical illusions of bank supervision and financial regulation also ensured the enactment of the legislation that projects the optical illusion of economic in the non-financial sectors.

But it is proving increasingly difficult for this Government to sustain the projection of these optical illusions. It is becoming increasingly clear that the economic regulatory bodies, particularly in those sectors where there is considerable public ownership of regulated firms, are simply policy-implementing agencies. For example, the CER was established to implement the explicit and implicit polices of successive governments and to facilitate the ambitions and antics of the semi-state companies in the electricity and gas sectors, while insulating government politicians from the repercussions of unpalatable policy decisions. It performed this role exceptionally well – at the expense of the vast majority of electricity and gas consumers – until there was a comprehensive public rejection of the water charge regime it allegedly had decided on independently of government last autumn. The Government’s panicked about-turn has deprived the CER of any shred of credibility it retained, but every effort is being made to continue to project the optical illusion of independent economic regulation. Another example is aviation regulation, where the repercussions of the relevant minister’s antics last year have forced him to commission a comprehensive review of regulation in this area.

But nothing will change while perverse variations of the failed British model of economic regulation continue to be applied.

It’s easier to agree that the pre and up-to-crisis management of central bank and financial regulator were not up to the task than to be sure what criteria there should be for new appointments. I am pretty sure that many heads of Central Banks in other better managed jurisdictions have been former finance department officials, rather than top rank economists. Nonetheless, in current circumstances I would certainly prefer an outsider, preferably someone whose career has been overwhelmingly outside Ireland, for any new appointments for these positions. By far the best would be to appoint neither a Irish civil servant nor an economist whose career was made at an Irish university.

Re: Appalling deficit in analysis by our own Irish academia

Gregory writes,

The coalition partners might mistakenly think that all the hard work has been completed under Honohan and that they can return to the cosy past of a pliable ex-civil servant running the central bank.

In reporting in Irish newspapers this weekend, this was very much the conclusion arrived at. In commentary and in criticism, we have returned to the same comfort zone, that we lived in, pre- the crisis of the later 2000’s. Until quite recently in Ireland, we were un-educated and under-educated for the most part. But in recent decades, we have seen large swatches of the middle and working class population in Ireland advance to third and fourth level education. We have witnessed the establishment of all kinds of new centers for learning and scholarship, around the country. This roll out of advanced education, and the building of some kind of ‘new age’ economy around the same, has been impressive. It is the kind of thing, which only a young nation, a nation willing to be the architect of it’s own destiny might do.

We could also ask ourselves the question, are there any downsides to this?

There are downsides, and severe ones. What has replaced ignorance, innocence and lack of awareness is sometimes an extreme level of bravado and sometimes denial. It comes with our new-found status, in terms of academic achievement. That achievement which seems to put Ireland, on the same level as other countries around the globe. But there is now a resident population on the island of Ireland, of well educated and bright people, who all still have a heck of a lot of ‘growing up’ to do.

My contention would be, that the Irish central bank, and the Irish financial regulator’s office were examples of institutions in Ireland, which worked in exactly the manner in which they were intended to function. As Fintan O’Toole puts it recently, the job was to defer to the banks.

That explanation is not good for our current crop of bulging brained economics professors though – who want their lives to mean something more. They want their country to aspire to the same heights as they do. The academic community in Ireland, as part of it’s bravado, want to invent institutions and standards, and levels of compliance with global excellence, in their imaginations only.

When push comes to shove, the community of Irish academics will sit comfortably in their ivory towers, and imagination a reality for Ireland that is up to their standards, rather than going out there and building it for real. There is evidence of this provided all across the range of newspapers, and broadcast channels in Ireland over this weekend.

None of the academic commentaries that I have read since last Thursday, even dare to reduce themselves down to the levels of quoting from legislation, that underpinned the function of the Irish financial regulator, in the first place. It appears as though, Irish academics are unable to bring themselves down to the grotty levels of reading through legislative code.

But that is exactly, what our regulatory system was build upon, in reality.

After the collapse of the ‘dot com’ bubble in America, a lot of business schools there were appalled – because of their own contributions to what had happened. Instead of being in denial about that, the schools in America got stuck in, and they examined themselves. That is not what has happened here in Ireland, post- our own financial crisis. Indeed, very much the opposite. Irish academic institutions have washed their hands, and that only smacks of their lack of evolution and recent-ness of their arrival.

In the early 2000’s American universities were pretty much appalled by the realization, of the sheer numbers of graduates, their brightest and best, who played pivotal roles, in driving the America, and it’s stock markets over a cliff. As if that wasn’t bad enough, the exact same people, before that decade had even ended, repeated the same thing again.

Be one hundred percent clear, the community who engineered both of the major financial crises in America, in the last decade were the brightest and the best of their generation.

Gregory writes,

This hands-off management style, where the leader does not provide analytical input or make difficult decisions based on measurable data, but just chairs meetings and looks for a consensus, works fine in some institutional environments, but not for a central bank head.

This goes to the heart of the problem. When they excavated through the rubble of the ‘dot com’ bubble collapse in America, time after time they found leadership, and graduates who had followed the ‘rule book’ they had been given in education. A whole century’s worth of scientific management theory, had led to the point where the American economy was at, by dawn of the new 21st century.

Starting with Ford and Taylor, and continuing through the 20th century, the business schools had worked to improve tools and teachings they could offer to their management graduates. The problem, that it boiled down to, was that management science had swung too far in one direction. Everything was about ‘decision making’, choosing between options as they were presented on the table.

Nowhere at all, in the academic training, had suggested to not accept what options were ‘on the table’, and the action to reject pre-packaged options, might be needed. That is, the best option might be the one, which still needed to be discovered. In the conversation in Ireland, our own financial crisis is described very much through the framework of classic management theory. It all came down to a ‘decision’ ‘A’ and ‘B’, on some night in September 2008.

It is the zenith in the expression of what 20th century scientific management is about. We have embraced education in Ireland. We have embraced both the good sides of it, and the bad.

To do what Patrick Honohan suggested, may have been needed in late September 2008, would have required a leader to say, these options are all lousy, and I’m not satisfied that the best option, is even on the table, at that point in time. To do so, would require a leader to turn against everything that has been taught in business and management schools for a century.

We have to ask ourselves, was that really going to happen?

The emphasis on ‘decision making’, it was discovered in America, was responsible in large measure for a long series of failures, which led in the end to the collapse of their economy, on not one but two occasions, and within the same decade. One really has to ask the question therefore, how much differently was a small island that models itself as being the ’51st state’, going to behave?

Irish academics might not like this conclusion, but it is the cold mirror of their own reality, that they must gaze into. BOH.

Reform of the “Mr Magoo” style of central bank governance is long overdue.

I word argue that putting a system in place to facilitate easy access to pertinent data/information is more a basic managerial skill rather than an expert economist skill.

I hope in the future we look back at the incompetence of that generation of leaders and think ‘How could that happen…’

It is wishful thinking that a top class economist of better financial data would have stopped or mitigated the rot in the financial system here. You only have o look at your country of origin for that Gregory. Unless you don’t count Ben Bernanke as a top class economist. Subprime contained?

Please try not to confuse Formal Authority with Functional Authority. Its the former which guides and dictates decision making in pyramidal (management) organizations, of which CBs are a prime example. An example of the latter was Prof Honahan’s (in)famous phone call. We have lots and lots of the former: the latter is, sadly, in short supply.

Like, we have lots and lots of prime bullocks: but only a few bulls – if’n you get my drift! And DO’D will be surely be on my case – asking what about the heifers and the cows? I know, I know! Its a matter of either running solo, or with the herd.

The article makes some very good points. The last thing (among other last things) that the country needs is the return of the Central Bank to a careerist public servant, with no detailed knowledge of central banking.
It would be a bit like putting an accountant in charge of the heart surgery unit; but perhaps we do that too.
Consensus building seems to be the great achievement of the careerist PS, generally building a consensus to do nothing. That always works well initially.


Listening to IBEC (or was it SFA) this morning saying that 40% of SMEs cannnot afford wage increases, I begin to wonder if we are experiencing cashless growth. I have heard of jobless growth, but cashless growth is new to me. On behalf of the hard pressed workers of Ireland, you should sent your forecast to IBEC / SFA. The growth money has to be going some place, after all.


“By far the best would be to appoint neither a Irish civil servant nor an economist whose career was made at an Irish university.”

So, NINA is back.

As an exercise in self-loathing, this takes the biscuit.

However, if it makes you happy, I propose a shortlist of Bill Clinton, Dominique Strauss Kahn and Sepp Blatter. These meet all your requirements.

@ JR: “… I begin to wonder if we are experiencing cashless growth.”

I believe there is an infinite supply of ‘virtual money’ available (fiat, electronic stuff). But it has first to metamorphose into real money and then be grafted onto productive enterprises – that is, making physical stuff for sale to real demanders with real money.

The problem is with those elusive demanders. If they have any spare real money, it might be used to pay down their debts – hence the real money is annihilated when it collides with real debt (anti-money). So, maybe you are correct. Faux, Enronesque economic growth parallels the destruction of real money. Neat!

Now all the econs have to explain to us is how does virtual money becomes real money. Word made flesh – and all that?

Bertie’s (and then Brian’s) Better Regulation site in the Department of the Taoiseach was suspended by the current Government in 2011. Anyone who wants to see how seriously it is taking reform of economic regulation should have a look at:
– in particular the timetable at the end.

Why don’t we just admit it. We love having the trappings of a modern functioning democracy with a mixed economy, but we don’t want the substance or the reality. And this serves the powerful and influential individuals and special interest groups perfectly. It’s like the bit in the Constitution about utterances in parliament not being subject to any court. Any polity that wants to be viewed by others as a representative democracy has to have this, and, of course, we have it. But we don’t really want it to be applied when the occasion arises. It appears there’s a fear that if one uses these processes to bite those who might deserve a biting there’s a risk that these processes might be used to bite oneself or others to whom one might be well disposed at a later date. And in any event who wants the conflict and the hassle? Similarly, there’s no interest in having competent and public-spirited people appointed to key non-elected posts who might make the hard and necessary decisions. It’s just the way we are.

The need for regulation arises generally in circumstances where a goods or services provider enjoys some form of monopoly, whether natural or constructed by the state. Remove the monopoly by the introduction of some form of market mechanism (aka putting the “customer” in the driving seat), and the need for regulation either diminishes or disappears entirely.


In the actual agreement, paragraph 3.3.5 concludes as follows;

“The processes set out in paragraph 6 of the “Service Delivery Options” document must be undertaken prior to any outsourcing of an existing service taking place, and in the evaluation process referred to in that paragraph, any cost comparisons shall exclude the totality of labour costs.”

In short, no basis for a valid comparison is to be allowed.

Against such a background, it is near farcical to speak of “reform” in any meaningful sense. The public sector is to remain like a fixed star in the firmament, accretions being allowed but not any serious questioning about whether many activities should be undertaken by the state in the first instance.

Stasis, Irish style!

The only saving grace is that the sums of money involved are necessarily limited and standing still is, in the long run, not a tenable position; for any of the parties.

@Brian Woods Snr.

Methinks we need the generalist human equivalent of Benjy – now outed as a crafty pragmatist bi-sexual bull – to head up institutions such as the Central Bank.

@Gregory Connor

With due respect to The Guv’nor – more erudite and well rounded than most so-called first-rate economists – the last person I would trust with such a position would be a so-called first rate economist.

IMHO, most are under-educated, seriously ontologically challenged, and more often than not, simply plain wrong.



The great unspoken among economists and politicos …

From whence did the odious and dangerous “Light Touch Regulation’ emerge?

From the Ordo-Neo-Lib Progressive Democrats and their followers in Fianna Fail and continued in today’s Fine Gael …

The ‘infamous report’ advocating LITE TOUCH REGULATION chaired by Michael McDowell S.C. here …. [and also the origin of Ms. Murphy’s recent alleged constitutional crisis …]


(h/t Michael Hennigan @ FinFacts.ie)


Delighted you linked to the Tsipras Le Monde article.

Excellent article from my viewpoint. No wonder the Eurozone and IMF and ECB rushed to Berlin to consult. You have to take your instructions from the top, I suppose.
The article from Marc Campion is about what one would expect from a champion (no pun intended) of finance.

June 10th is the day to watch.

A point that may not be clear from my link to the texts on the new public service pay agreement is their relevance to the subject matter of this thread. This relevance stems from the sealed container view of the public sector as such. It creates a situation in which cross-fertilisation (i.e. mutual exchange, as between dissimilar concepts, cultures, or classifications, that enhances understanding or produces something beneficial) with the outside world is rendered impossible and, indeed, even within the public sector itself. This, unfortunately, also includes the entire education sector.

The financial regulator, who rose through the ranks in the normal way, and, indeed, the entire senior public service as such, could not, by definition, successfully interact with the world it supposedly was charged with managing.

The reaction to the crisis has exacerbated rather than eased this phenomenon. The drawbridges have been pulled up, books have been balanced by stopping recruitment, permanent positions in a meaningful organisational structure have been replaced by staff on temporary short-term contracts with a resulting loss of institutional memory, destruction of normal career development and a dramatic collapse in staff morale.

Only where the associated loss of credibility has been of such a dimension as to make it impossible to continue with the approach has external recruitment begun. And, of course, universal grade related pay increases make it impossible to adapt salaries to the actual labour market for specific skills.

The overall approach is incoherent and can only continue if the economy revives for reasons totally unrelated to anything the Department of Public Expenditure and Reform has been doing since it was created.

@ JR

How the fight to the death between Syriza and the creditors of Greece will end remains to be seen. It is worth noting that Greece has twice as many public servants as Germany in percentage terms and spends more than any other country in the EU on pensions. In Germany, the traded sections of the economy set the pace for salary increases. In Ireland!


Either we wake up to the necessity of linking public services to the capacity to pay for them or the country will simply repeat the errors of the past.

Your description of economic regulation harks back to a time when it did what it said on the tin. In its ‘Hope Decision’ of 1944, the US Supreme Court established some abiding principles of economic regulation. It established, firstly, that the setting of regulated tariffs or prices “involves a balancing of the investor and the consumer interests”; secondly, that “the investor interest has a legitimate concern with the financial integrity of the company whose rates [i.e. tariffs or prices] are being regulated. From the investor or company point of view it is important that there be enough revenue not only for operating expenses but also for the capital costs of the business. These include service on the debt and dividends on the stock”; and, thirdly, that “the return to the equity owner should be commensurate with returns on investments in other enterprises having corresponding risks. That return, moreover, should be sufficient to assure confidence in the financial integrity of the enterprise, so as to maintain its credit and to attract capital”.

The application of the British model of economic regulation fails to comply with these principles. And what is even worse is that, instead of enforcing these principles, the policy implementation role of so-called economic regulators has expanded enormously. For example, the EU’s recent electricity and gas directives (2009/72/EC and 2009/73/EC) impose 21 duties on energy regulators. The delegation of these powers and duties suits governing politicians perfectly since they will do everything to evade scrutiny, restraint and accountability. Regulators, of course, do look after the interests of final consumers – or not. Ofgem, the UK energy regulator, makes much of its investigation and enforcement activities that penalise licensed regulated firms for damaging the interests of final consumers. Evidence of this activity may be found here:

The fines are no deterrent since they comprise a tiny fraction of the cash flows of these firms. They simply treat them as a cost of doing business. It’s similar to the fines that the US and UK authorities impose on banks for criminal activity. It begs the question: how much wrong do you have to do before your licence to operate is revoked?

It is interesting to note that none of the licensed, regulated firms in the Irish electricity and gas markets have done anything to damage the interest of consumers that has provoked investigation and the subsequent imposition of fines by the CER. It doesn’t have the powers, resources or incentives to do so. Revoking a licence is the ‘nuclear option’. But then of course the firms operating in these sectors in Ireland wouldn’t do anything like that. The island of saints and scholars.

@ Pbate H

I bow to your superior knowledge in this area. My target is, however, not the inadequacies of regulation as such but the organisational structures which give rise to an unnecessary need for it. The EU is replete with examples and they are a major element IMHO driving the UK debate with regard to a possible Brexit.

Closer to home, we have an inherited public service system which is captured in amber since independence, notably the archaic system of national cash accounting. My beef is not so much with the fact that nothing much is being done but that there is not even a glimmer of official recognition that this needs radical change.

In fact, change is knocking at the door and breaking in, notably with the introduction – from the private sector – of modern billing systems (a notorious recent example being Irish Water). My central point is that the public service should not, like a long isolated culture trying to modernise, be buying in expertise from “fore



I understand what you’re getting at, but, in the context of this thread, I’d prefer to stay with regulatory bodies being established, with delegated powers being granted to them. But instead of functioning as regulators within the broad legislative and policy context – and striking a balance between the interests of consumers and investors (and curtailing the greed of other special interest groups involved) independently of the political process, both explicit and implicit policy-implementation duties have been imposed on them. The implicit aspect requires pandering to favoured special interest groups at the expense of the vast majority of citizens as final consumers or service users. And these powers and duties are delegated and exercised with minimal scrutiny, restraint or accountability – so that governing politicians can evade this scrutiny, restraint and accountability. This is one of the main reasons why banking supervision and financial regulation failed so abysmally in the long-run up to the blow-outs in 2008 – and why economic regulation continues to fail in all other sectors where it is applied.

It was only in extremis that the governing politicians recognised that Prof. Honohan had a role to play. He’s long enough in the tooth and wise enough to recognise that, as business as usual gradually returns, his skills and abilities are no longer welcome. And that, I suspect, contributed to his decision to bow out early. People who know what is the right thing to do and who have the capability and determination to do it are welcome only when enough of the brown stuff hits the rotating blades that governing politicians recognise that the usual pliable public servant won’t do. But the latter is fine in all other circumstances – and the former most certainly is not. (And there’s no point talking about long-standing practices in northern European and Scandinavian countries. Despite a history of much intolerance, puritanism, narrow-mindedness and bigotry, some good civil society traits and attributes have emerged and proved durable and useful from the long tradition of protestantism/Lutheranism. These traits and attributes never secured sufficient traction in Ireland and mainifest themselves largely in terms of the hypocritical lip-service paid to them.)

So I would turn the title of the post upside down: the secret message is that a competent, non-malleable, non special interest group pandering person is no longer required.

@ PH

Apologies! Some gremlin in the works caused the above.

To continue.

“foreign devils” i.e. outside consultants, but have the in-house expertise to do the work themselves. They can only have this if the hermetical seal between public and private sectors ceases to exist.

One promising development is the fact that the glaring inconsistencies in the most recent agreement – clearly an electoral ploy and nothing else – are emerging in the public eye; courtesy of those who have failed to face up to the radical steps that are required.

@ PH

Our posts crossed. Someone far better versed than I am in the relevant economic literature referred me to the writings of the economist Mancur Olsson some time ago. I am not sure about his later work but that on the dynamic of groups made eminent sense to me.


The interest groups are not narrow. They are broad. The talent of the Scandinavian countries has been to harness them correctly. It is open to any society – irrespective of cultural differences – to do likewise.


What are “the radical steps” that are “required” (by whom?) and to what end?


Thank you. Brendan Keenan in a recent piece in the Indo:
presented a Machivellian, but perceptive, take.

“[Political] “Legitimacy” may come from both money and votes. The politicians swing between giving vested interests what they want, and giving voters what they want, depending on the issue and the state of the electoral cycle.

Neither is calculated to produce ideal results but there seems to be no political legitimacy to lead by doing what seems best, telling interest groups where to get off when necessary, and trusting that voters will make a reasoned judgement on their efforts come election time.

The old salts in today’s mature democracies have adopted a dual strategy; look after the other constituents of the ruling class most of the time, but offer goodies to the voters at election time. They have become experts in the circular motions which this requires.

Modern politics holds that, if you get the timing right, the dual strategy can be applied with minimal damage. Get it wrong, though, as the in 1970s and 2000s, and enormous damage can be done. Meanwhile the system gradually corrodes from the wear and tear of these gyrations.”

This for me is probably the most perceptive and insightful explanation of the current malaise I’ve encountered. This process and the malaise it breeds are by no means unique to Ireland. But the malaise is probably more pervasive than in any other advanced economy.

The prospect of remedy is negligible when so many benefit at the expense of all others and have every incentive to conceal the existence of the malaise.

Some regulatory processes in the US gave form and substance to the collective action on behalf of ordinary citizens described by Mancur Olson, there is a clue in his family name, but, over time, the powerful special interests whose greed was being contrained by the application of this collective action have been successful in minimising and negating its effectiveness in some, but not all, sectors. The special interest groups in Europe have been successful in persuading governing politicians to determinedly refuse to countenance regulatory processes which would give effect to collective action on the part of ordinary citizens as final consumers and service users. Isolated, atomised, individualised and disenfranchised citizens as consumers are so much easier to exploit.

A first rate economist? – at least an understanding of macroeconomics and the distortions that mean Irish headline data should not be taken at face value.

As the Central Bank is a large organisation with key regulatory functions, prior experience in a similar organisation would be important — how would a chief otherwise anticipate problems that could arise — the risk that fraud is not detected early and so on — without having a track record in the area?

A track record of independence, questioning conventional wisdom and confidence in communications both internally and externally — Neary must have had very poor relations with his staff: he only became aware of the Irish Nationwide end of year loans to FitzPatrick 10 months after his staff had discovered them.

Neary disclosed in the Anglo court case last year that he did not ask Seán Quinn about the size of his stake in Anglo Irish Bank when the two men met in early 2008 because he didn’t think it was “fair or appropriate” to “tackle” the tycoon on his investments.

@ PH

Brendan Keenan is, of course, right in his assessment. But it tends to confirm the points that I have been making.

It is all a question of degree. One of the positive aspects of our colonial inheritance is a public service of near total integrity. Incompetent maybe, but corrupt almost never. The same holds true of the legal system (although the system of judicial appointments leaves a lot to be desired).

Greece provides a telling contrast.



The Irish Times report on debt is incomplete.

Net debt (including public pension funds and cash) is a better indicator of sustainability.

Japan’s ratio is 140% of GDP; Ireland’s will be 84% of GDP in 2016 according to the IMF; Finland’s is -41% (that is a minus); Sweden’s is -19%; Germany is at 47% and the Netherlands at 35%.

In 2007 both Finland and Ireland had similar GDP levels but the former had surplus public funds (no net debt) — after experiencing a severe recession from 16 years before.

In recent years Ireland’s total household debt as a ratio of net disposable income has exceeded 200% and has been more than double the levels of Italy and Greece.

The Irish ratio was 177% in Dec 2014 compared with Germany’s level of about 90%.

It would have been useful a few years ago to have had a few economists at the helm who accurately foresaw the extent of the economic recovery. If that had happened, assets wouldn’t have been sold so cheap. A few years ago, the general consensus was that the Irish economy was ‘destroyed’, ‘ruined’, ‘finished for a generation’. In those circumstances. most investors wouldn’t touch Ireland with a bargepole. A handful of investors swam against the tide, however. Back at that time I predicted on this site that those who did would (a) make large profits (b) become the most hated people in Ireland among the loopy-left political and media class. As the Denis O’Brien saga is showing, this is exactly what’s happening.

The Irish Times report on Debt is not just incomplete, it’s completely out of paradigm. At this stage it is only the ideologues who pretend that their is no difference in the debt sustainability of a currency issuing, free floating, sovereign and a currency user/pegged sovereign. The first is limited only by inflation not some peculiar measure such as debt/gdp.


Sorry, my Portuguese is a little, how you say, enferrujado. Maybe you could translate?

A “debt brake” in the constitution? Oh, you mean outlawing Keynesianism? I can understand the desire: lord knows your side has been doing everything in its power to make Keynes look like the prescient genius that he was.

@ DOCM: “One of the positive aspects of our colonial inheritance is a public service of near total integrity.”

DOCM, we (Ireland) were never a colony. We either had our own government (up to 1801), or we sent over 100 MPs to Westminster – in fact Ireland was ‘over-represented’ in the number of its elected MPs. The Irish Parliamentary Party were a bunch of patsies? Think again!

The ‘colonial’ whinge is deployed by persons who have a distorted and inaccurate political or legal understanding of what a real British colony was. At this late stage, using the term is simply a form of mindless propaganda. Or Psychic Balm if you prefer. Neutralizes brain function. Prevents a valid analysis.

Actually, I blame it all on Hurricane Charlie!

Good luck to the next Guvnor. S/he will need it.

Now that ‘confidence’ has returned, we can expect the ‘risk takers’ to start taking new risks, mostly with other people’s money. A new bubble in commercial property, and all hanging on the ‘rock solid’ presence of profit-shifting MNCs.
Meanwhile the mortgage arrears issue simmers away in the background. Out of sight until after the General Election. As the saying goes, ‘watch this space’.


Now your overall position is on the money, IMHO, but I would invite you to consider the ‘colonial legacy’ issue in its broader dimensions. Of course there are grievances, and on many sides.

My understanding, as a non-historian, is that the ‘wild’, native/Gaelic clan population were not satisfactorily incorporated into the civil manorial society which was established in the ‘Pale’. The Reformation in England and the rise of Presbyterianism is Scotland made religious affiliation into a battleground, and not just here.
The result in Ireland was repeated cycles of rebellion, and repression, which continued, under various religious and poltical ideologies, into our own day. Every society has its economic/political struggles, and its wars, and the history of our islands islands is deeply, and complexly, intertwined.

It sure ain’t simple, and no one knows that better than Charlie. The Burren will be there when we are all gone.


The absence of overt corruption in our civil service is indeed a legacy of the British system. State power was strengthened in the reign of Elizabeth 1, and later refined.. Staff who are reasonably secure in their is terms and conditions are less likely to run a private operation. That system costs of course, but it is a price successive governments have been willing to pay.

The most troubling feature of this otherwise admirable system, however, is the way in which influence is exercised and exchanged informally at the top. Senior public servants work, play and marry into the ranks of the propertied and the privately successful. States enterprise executives have a foot in both camps.

Much of the information which circulates is of the soft, strategic variety, but it matters. It’s what one might call a ‘heads up’, a ‘contact’, or the converse, which is the fine art of ‘looking the other way’ when there is a conflict of interest. The C word is not to be mentioned in our polite society. Privately owned media don’t want to dig too deep into the various ‘deals’ and ‘understandings’, so the dots don’t get joined.

It’s pretty hard for Joe and Jane Public to respect the public/national interest when then the supposed guardians of public welfare are seen to be looking after Number One. Quid custodiet custodiantes ?


Gold is real money. Silver is real money. Bitcoin is fiat but has the saving grace of being strictly limited in quantity. The combination of these is where our monetary system is headed. All Austrians know this. All Keynesians deny this.

The other obvious implication many have alluded to is that the “economic system” is far too complicated to be managed by anyone. No academic or group of same, no institute or think tank can ever arrive at a model of the economy that considers the innumerable variables, each one of us being one of the six plus billion of same. The truth is that the market itself much like a vast shoal of fish or an enormous herd reacts independently. There is a “mind” separate from the individual that determines the outcomes which impact on our lives. This is the market.

Outside the marketplace there be devils. Manipulation, fascism, greed, theft, violence, arrogance etc. all the vices and evils that have finally brought us to the cusp of disaster are on display everywhere.

Humans need to respect each others property. Only then will ones own life be safeguarded. Government need only uphold property rights and everything else will fix itself. After this we get into the area that conflicts so violently with the present societal norm. Where academics become so distraught. This is of course,

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