Dublin Economics Workshop Conference – Final Call

Have you a slot on Corbynomics? Although it is almost certain that he will become leader of the British Labour party on Saturday, even if he doesn’t, the terms of the economic policy debate in Britain will change irrevocably – and this will have much wider repercussions. Not surprisingly, right-wing defenders of the current indefensible policies that favour well-heeled special interest groups at the expense of the vast majority of citizens are spewing half-truths, distortions and exaggerations to demonise Jeremy Corbyn’s policy proposals.

Ivan Yates provides a good example:
http://www.independent.ie/opinion/columnists/ivan-yates/a-tale-of-two-labour-parties-both-kneedeep-in-troubles-31515711.html

He slates Corbyn’s policies as involving: renationalisation of railways, energy/power stations and water utilities; open-ended Bank of England quantitative easing to fund free third level education, extra welfare and enhanced public services; dismantling Britain’s nuclear defence network; tax avoidance hikes to raise £120bn; diplomatically embracing Hamas and Hezbollah, befriending Russia; even reopening coal mines.

The reality is quite a bit different. In Britain the rail tracks and stations had to be taken back in to public ownership over a decade ago because the private sector owners screwed up big-time. The proposed renationalisation amounts to taking train service franchises back in to public ownership when the current private sector operators relinquish them – and this attracts significant popular from voters across the political spectrum who are fed up with being ripped off. The private sector owners of electricity, gas and water infrastructure have hollowed out their balance sheets, refuse to invest unless they receive cast-iron regulatory (and sovereign) guarantees, no-penalty exit deals and eye-wateringly high returns – while still continuing to gouge final consumers. Renationalisation is one of a number of options being considered. Jeremy Corbyn has made it clear that the tax gap (generated by evasion and aggressive tax avoidance) is far less than £120bn, but it makes sense to recover as much as possible – and to subject ‘corporate welfare’ to a cost/benefit analysis – so as to fund educational access and provision and to reverse ideologically driven cuts. The ill-titled People’s Quantitative Easing will be focused on making up the huge shortfall in infrastructure investment, rather than the current QE which benefits the asset rich at the expense of ordinary citizens, fuels financial speculation and inflates asset bubbles. Sensible climate change policies promoting carbon capture and storage could make some English coal mines economic again.

The international process of nuclear disarmament has gone in to reverse and needs a kick-start. The ‘war against terror’ is totally counter-productive. The UN requires significant reform. Putin may be a nasty piece of work, but NATO and the EU have provoked him unnecessarily. And however one might disagree with them, it may be necessary to talk to factions which have secured a democratic mandate in places of conflict.

On much of the continent many of these policies would be considered boringly moderate – as Jeremy Corbyn has observed. However, the extent to which they are considered extreme left-wing policies indicates how far right the terms of the economic policy debate have been shifted in Britain – and to an extent in many other countries. Ireland, of course, is sui generis, with its own collection of powerful special interest groups across the political spectrum groging themselves in the trough at the expense of the vast majority of citizens.

Corbynomics is exposing the the ill-labelled ‘neoliberal’ distortions and manipulations of the neoclassical economics canon and showing that there can be a better way. And the blinkers are falling from the eyes of a lot of voters.

@ PH

Two contrasting FT links of interest.

http://www.ft.com/intl/cms/s/0/8eaca74e-579f-11e5-9846-de406ccb37f2.html

The problem is that one is dealing, in financial terms, with the global equivalent of Microsoft. It is far from the best operating system but it it is the one most widely installed. There is simply no way of replacing it short of a systemic collapse. The only route is a cautious process of retrofitting; that now embarked upon.

Who would have believed it possible a few years ago? But, taking Q4 2007 as the pre-recession peak, Ireland is now showing the highest growth in the EU15 between that quarter and Q2 2015. These are the figures:

growth between Q4 2007 and Q2 2015 (GNP for Ireland, GDP for others):

Ireland +8.9%
Sweden +7.2%
Germany +5.8%
U. Kingdom +5.5%
Belgium +4.2%
Austria +3.9%
France +2.6%
Netherlands +0.3%
Denmark -3.0%
Spain -3.5%
Finland -6.7%
Portugal -7.0%
Italy -8.1%
Greece -25.0%
EU15 +0.8%

So, 6 countries are still below their pre-recession peak in Q4 2007.

I’d expect Ireland’s lead in this league table to increase sharply in coming years.

Its looking more and more like the contraction in Ireland’s GNP between Q4 2007 and Q4 2009 was simply a 2-year blip in a long period of supergrowth that began in 1986/1987 and should last until well into the next decade. That will be close to 40 years of supergrowth, with a 2-year period (Q4 2007 to Q4 2009) of contraction sandwiched in the middle.

Another prominent economist (not the ones referred to in the above post) recently wrote that the Irish economy wouldn’t be returning in the near future to its 2007 peak.

Correct!

Its now way ahead of its previous 2007 peak.

It now looks like real GNP in 2015 will be 11% higher than in 2007.

A key problem in terms of economic debate in Ireland is that , in macro terms at least, we no longer have any say over monetary or FX policy and fiscal policy is also now severely constrained.
That said, the latest national accounts throw up some interesting questions about the 2016 Budget. As it currently stands the Government has around €1.3bn in fiscal space, equivalent to a 1.6% rise in expenditure, based on a permitted real growth of around zero and a forecast 1.6% rise in prices (as measured by the GDP deflator). The real component is determined by long term potential growth, as estimated by the EC, as is the forecast deflator and both now look wrong. The latter rose by 5.3% in q2 this year , for example. Moreover, the Commission’s estimate of potential growth in 2015 was 2.8% implying the economy is operating 3-4% above capacity as the EC believes the Irish output gap closed last year.
So, on a more realistic forecast the Government would have greater fiscal space but against that should the Government use that given very strong growth and very loose monetary policy?

John, I should not be concerned about the variations and incorrectness of economic forecasts. One would get the same pattern of results if one tossed a fair coin. Mind you, rolling a die would provide more options.

The real conundrum is to know what exactly lies beneath the bonnet of this ‘supergrowth’ machine and how the various components are acting together to achieve that growth. We know what the fuel composition is, but little else.

Things we need to know:

– The mathematical expression being used by CSO to estimate G*P – and any assumptions associated with that expression.
– Change in the amount of all forms of consumer credit and its trend line.
– Estimate of the proportion of the Working-age population and its trend line.
– Estimate of the median salary/wage and its trend line.
– Is there any ‘hedonic pricing’ buried in the G*P estimate?
– The G*P estimate per capita and its trend line.
Electricity consumption (not generation) and transport fuel consumption.
Estimate of construction materials used – less the value or amounts of imported materials.

Monthly or quarterly estimates are unreliable. They make good press though. You need to wait for year-on-year estimate and its trend line.

You mentioned ‘wealth’. Now there’s a concept that’s as slippery as an eel coated in Fairy Liquid. And as I often remind readers on this site – our economy is a physical process which consumes finite raw materials and energy. Hence, the outputs should be (mostly) both real and tangible. So what do we have to ‘show’ for all this supergrowth? Yeah, I know!

Ernie:

The 133,000 extra people in employment compared with three years ago are no doubt grateful for the economic growth you disparage.

@Tull,

Those who are running away are those who, despite the evidence to the contrary, still believe in the relevance and validity of the ‘triangulation’ strategy initial pursued by Bill Clinton in the US and then by Tony Bliar and Gerhard Schröder in Britain and Germany, resp. For example, in Britain, with FPTP, the game for the Tories and Labour over the last decade is to shore up their core votes of around 30% of voters each and to have a scrap for the 10-15% of voters who could swing – with an intense focus on these voters in marginal constituencies. Labour was able to win comfortably in 2005 with 35% of voters. They needed fewer votes to win seats in metropolitan constituencies while the Tories piled up votes in the shires. The Tories couldn’t fully overcome that built-in Labour advantage in 2010, but they did in 2015. Though this was mainly due to a big chunk of Labour’s core vote in Scotland defecting to the SNP and another big chunk of its core vote in England defecting to UKIP.

Corbynomics is revealing the chasm between the comfortable well-heeled, rent-capturing insiders and the millions of strivers – in particular younger voters – who, irrespective of how much effort they put in, are being excluded and marginalised by the insiders. Corbynomics is hghlighting how the theory and practice of economics is being abused, manipulated and distorted to justify policies that benefit the insiders at the expense of the outsiders and is beginning to craft a range of economic policies that will restore some balance to economic policy.

Will it work? Who knows? But what would help with a newly expanded and invigorated Labour party membership – which continues to expand – is a concerted voter regsitration campaign. If that were successful, a rout of the Tories, similar to the SNP’s rout of Labour in May in Scotland, could be possible. FPTP is a very brutal system if there’s a big swing.

All of this, of course, has relatively limited relevance to Ireland. All we have to look forward to is perhaps some minor changes in the composition of the powerful special interest groups who will continue to gorge at the trough at the expense of the majority of citizens. And, while Ireland’s economy will be able to continue to free-ride on the efforts and policies of other EU economies, there should be enough largesse to distribute to keep the masses from revolting.