Debating Austerity: Professor Simon Wren-Lewis at the Royal Irish Academy

The Royal Irish Academy Social Sciences Committee in association with the UCD College of Social  Sciences and Law will be holding a conference on the topic Debating Austerity on October 29-30.  The Keynote Lecture and conference will be held at the RIA building at 19 Dawson Street, Dublin 2.

The Keynote Lecture will be given by Professor Simon Wren-Lewis of Oxford University at 6pm, Thursday October 29 (lecture details below).  The lecture will be chaired by Patrick Honohan, Governor, Central Bank of Ireland.

This will be followed on Friday, October 30 by a full day of sessions debating the experience of austerity in Ireland from a variety of perspectives.

Further information on the conference and registration details are available here.   The admission price for the Keynote Lecture on Thursday evening is €5; admission to Friday’s conference is free.

Keynote Lecture: How to Avoid Austerity

Abstract:

Austerity may be defined as a large fiscal contraction that causes a substantial increase in unemployment. If the government has a budget deficit that is unsustainable, or a debt level that is too high, it is sometimes suggested that austerity is inevitable. For an economy with a flexible exchange rate and debt in its own currency, which includes the Eurozone as a whole, this is simply false. Fiscal contraction can always be delayed until monetary policy can offset the deflationary impact of any fiscal contraction. Unfortunately this is not true for a member of a currency union that requires a greater fiscal contraction than the union as a whole. Even in this case, however, a sharp and deep fiscal contraction will be an inefficient waste of resources. As the macroeconomic theory behind these propositions is simple and widely accepted, the interesting question about the current global austerity is why it has happened.

Simon Wren-Lewis is currently Professor of Economic Policy at the Blavatnik School of Government at Oxford University, having previously been a professor in the Economics Department at Oxford.   He is also an Emeritus Fellow of Merton College.   In September 2015 he was appointed to the British Labour Party’s Economic Advisory Committee.

Comments

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47 thoughts on “Debating Austerity: Professor Simon Wren-Lewis at the Royal Irish Academy”

  1. @Simon Wren-Lewis

    Welcome! Blind Biddy reckons you are ‘sound’.

    On austerity, you are certainly sound.

  2. With a little bit of luck – and a fair wind – Simon Wren-Lewis and his distinguished and knowledgeable colleagues on Labour’s Economic Advisory Cttee may be able to shift the terms of the economic policy debate a notch or two back from the increasingly self-destructive, right-wing, special interest favouring thrust of policy-making in most of the advanced economies. But while they stick with the Labour party they will never get the opportunity to influence in the broader public interest the policies of a party in government. Labour is almost certain to be out of power for at least three parliaments.

    (Jeremy Corbyn is a decent, honourable and basically harmless left-wing politician who spouts Chomskyite assertions that simply do not resonate with the majoirty of British voters, but he appears to have charmed younger voters who understandably have no memory of Britain’s flirtation with ungovernability in the 1970s and who have been turned off by the blandness and the underlying viciousness, venality and mendacity of the current political and economic elites. What a majority of British voters who have longer memories rightly fear are the older left-wing activists who support him and who are seeking to capture the power structures of the Labour party from within.)

    As for SWL’s speech next week, I’m sure it will be “interesting” to hear his musings on why there is this almost universal obsession on achieving what the German’s describe as a “schwarze null” – a black zero, but will it serve any useful purpose? The Irish Government’s temporary deviation from pursuing this obsession and DG Ecfin’s apparent absolution earlier this year of this deviation (granted in the context of the need to win the next election) – which apparently was not revealed to IFAC – actually confirms the primacy of this obsession.

    The unjustified curtailment of badly needed public capital expenditure, the relance on seriously flawed PPP schemes, the political allocation of the limited public capital spend (over-riding economic analysis) and the gloriously inefficient financing of semi-state capex are the inevitable outcomes. But hey, who cares? once the powerful special interests can keep their snouts in the trough at the expense of the vast majority of citizens and there is enough largesse to distribute to keep the masses from revolting.

  3. @ PH

    The most interesting aspect of the presentation should be the explanation as to why so many democratically elected governments, inside and outside the euro, have it so wrong when this particular group of economists have it so right.

    I have not had time to go through this paper in detail (h/t Martin Sandbu of the FT) but it appears to cast some light on the matter. Both sides have the wrong end of the stick.

    https://www.whitehouse.gov/sites/default/files/page/files/20151016_firm_level_perspective_on_role_of_rents_in_inequality.pdf

  4. ” …. why so many democratically elected governments, inside and outside the euro, have it so wrong when this particular group of economists have it so right.”

    Really? Maybe its that our so-called developed economies have indeed developed to the point that they are now within the margins of aggregate economic expansion and advance and we need to operate faster and faster just to give the appearance of positive forward movement, whereas in fact, the rate-of-growth is steadily slowing. Incumbent, business-as-usual politicians will find it increasingly difficult to be re-elected in a situation of a stagnant economy. Hence, they will resort to schemes and behaviours which their predecessors used when we encountered similar economic situations earlier in the last century; viz. 1930 onwards. And that had a somewhat unfortunate outcome for many folk.

    The rise in individual inequalities – of whatsoever nature is a confirmatory signal of the inflection of the exponential Permagrowth trend line toward a maximum. Its postulated that this process will occur over a five-decade time-scale. Who knows how long, but occur it will. National and regional conflicts and population dislocations are another warning sign. As also are short-term shortages of food, water and fossil fuels and decreases in the prices of foundational physical commodities (metal ores, fertilizers, etc.) as their costs start to erode the affordability margins of the consumers.

    Our economic future, whilst unknown in detail, will be one where stagnation and contraction are commonplace. Our ‘democratic’ politicians and our social, commercial and industrial sectors have never encountered such situations. And the sad fact is that our economists will attempt to construct policies based on known historical events, not virtual future scenarios. Policies based on the former will not solve our woes: those based on the latter would be politically unacceptable – “Were gonna need a newer economic paradigm!”

    Enjoy the day!

  5. Speaking of ‘democratically elected governments’ …

    Anibal Cavaco Silva, Portugal’s constitutional president, has refused to appoint a Left-wing coalition government even though it secured an absolute majority in the Portuguese parliament and won a mandate to smash the austerity regime bequeathed by the EU-IMF Troika.

    He deemed it too risky to let the Left Bloc or the Communists come close to power, insisting that conservatives should soldier on as a minority in order to satisfy Brussels and appease foreign financial markets.

    Democracy must take second place to the higher imperative of euro rules and membership.
    […]
    This foolish treaty law obliges Portugal to cut its debt to 60pc of GDP over the next 20 years in a permanent austerity trap, and to do it just as the rest of southern Europe is trying to do the same thing, and all against a backdrop of powerful deflationary forces worldwide.
    The strategy of chipping away at the country’s massive debt burden by permanent belt-tightening is largely self-defeating, since the denominator effect of stagnant nominal GDP aggravates debt dynamics.

    Europe’s socialists face a dilemma. They are at last waking up to the unpleasant truth that monetary union is an authoritarian Right-wing enterprise that has slipped its democratic leash, yet if they act on this insight in any way they risk being prevented from taking power.

    http://www.independent.ie/world-news/europe/constitutional-crisis-looms-in-portugal-after-antiausterity-left-prevented-from-forming-government-34138113.html

  6. from Salazar and The Colonels to The ECB! Shure ain’t democracy.

    Catarina Martins, the Left Bloc’s chief […] says that if the Portuguese people have to choose between “dignity and the euro”, then dignity should prevail. “Any government that refuses to obey Wolfgang Schauble must be prepared to see the European Central Bank close down its banks,” she said.

    She is surely right about that. The lesson of the Greek drama is that the ECB is the political enforcer of monetary union, willing to bring rebels to their knees by pulling the plug on a nation’s banking system.

    http://www.independent.ie/business/world/portugal-antiausterity-revolt-as-left-tears-up-eurozones-demands-34130883.html

  7. @DOCM,

    It’s not so much that both sides have the wrong end of the stick; it’s that with this excessive focus on macroeconomic analysis they are either unwittingly or deliberately looking for answers in only one place. Papers like this surface from time to time, but, since they tackle some aspect or other of the primary activity of the powerful and influential special interest groups in all of the advanced economies – the sustained capture of economic rents and the continued protection of this capture, these papers inevitably and perfectly understandably have absolutely no impact on the policy-making agenda. Nothing much will happen until enough ordinary citizens who are being gouged to generate these rents take action collectively. But it is almost impossible to sustain any effective collective action. (For example, the water charge protests this time last year truly put the fear of god in to the Government and it resulted in a panicked and ill-thought through about-turn. The issue may still resonate in the polling booths, but its impact has diminished.)

    And, of course, there are factors that encourage an obsessive focus on fiscal deficits and public debt levels. For example, the ability of bond market participants to engineer circumstances (or to take advantage of cricumstances) to make a killing and force an economy out of the market. This is partly what’s behind Germany’s (and many others’) obsessive focus on the schwarze null. From the very beginning of the crisis when the financial doom loop ensnared governments Angela Merkel has been determined to minimise the power and influence of bond market participants relative to elected governments. And minimising the supply of sovereign bonds with which they have to play is seen as the most effective means of achieving this.

    And what is further reinforcing the resulting economic stagnation is the total unwillingness of major corporations in the advanced economies, sitting on mountains of cash, to make long term investments that would boost economic performance and productivity. It is clear that variations in corproate tax regimes have a major bearing on distorting the allocation of investment financing, but, in addition, firms have much less assurance of investment recovery in the context of so-called “market liberalisation” and capricious policy and regulatory changes. Nowhere is this more evident than in the utility and infrastructure service sectors where in many countries the state has withdrawn as the primary provider and the assurance of payment coolectively by citizens as users or taxpayers has been destroyed.

    The debate on economic policy is becoming more and more an exercise in avoiding addressing the issues that really matter to ordinary voters. And that’s what those who participate in these debates desire – and this is true in Ireland porbably more than in other countries. It’s an open question as to how long it will be possible to sustain this.

  8. @ PH

    I am a bit surprised at your reaction to the paper as it suggests a major shift in the debate, it seems to me, to territory on which you are rather expert, by no less than one author who is chairman of Obama’s Council of Economic Advisers and another from one of the world’s largest banks. They, incidentally, debunk, from the viewpoint of a non-economist, in the nicest possible way, two major associated theories; those held by Stiglitz and Piketty.

    I do not, however, disagree with your general conclusion. The main players, it seems to me, are now central bank governors, their governments and their electorates. Macro-economists come way down the list. There is a touch of alchemy about expert involvement one way or another. Debating the largely meaningless catch-all term “austerity” seems unlikely to me to get anyone very far. If the topic was “budgetary consolidation and its impact”, more ordinary citizens would buy into it, especially the uneven nature of that impact.

  9. “Austerity may be defined as a large fiscal contraction that causes a substantial increase in unemployment.”

    Ireland’s recent experience doesn’t qualify, so. We have had a LFC for sure but with unemployment falling from over 14% to below 10% we seriously fail the conditionality test.

    If only the likes of Paul Murphy, SF et al would listen to Prof SWL the “A” word would disappear from our national debate.

  10. It is an interesting question as to why there was a general acceptance across the major economies after the initial fiscal stimulus in 2008 through 2010 that fiscal policy should then become contractionary and that the only game in town was monetary policy, even though rates had fallen to zero. Policy makers even adopted QE rather than push for governments to increase borrowing at once in a lifetime low rates in an effort to get the private sector to borrow more-public debt bad, private sector debt good. Perhaps there is just a widespread view that Governments cannot be relied upon to deliver public sector investment projects.
    What was verboten can become accepted policy of course, as we see with the ECB, so if growth remains lacklustre or weakens in the developed economies we may see fiscal policy being dusted down again.

  11. @DOCM,

    I did not intend to appear sniffy or dismissive about the Furman-Orszag paper you cited. I’m probably getting weary and dispirited as I’ve seen many papers of this ilk over the years and I’ve thought that each one might shift the policy debate somewhat. But I’ve always been disappointed.

    In Ireland, a majority of voters used to be prepared to accept considerable inequality in market incomes, mainly driven by rapacious rent capture, once there was a substantial redistibution via the tax and welfare system to reduce the inequality of the outcome for disposable income. And the traditional mainstream parties (mainly the 2.5 of FF, FG and Labour capturing up to 90% of 1st preference votes), in various combinations, generally delivered. Now, with between 40 to 45% of voters indicating that they’ll vote for an array of factions and individuals across the political spectrum, that political compact appears to have broken down. How this will play out in the “early” Spring election will be very interesting.

    However, elsewhere in Europe many voters appear to be content to swallow the centre-right’s big lie that government finances may be equated to household finances – and centre-left parties have suffered as a result. It certainly worked in Britain and before that, and to an extent, in Germany, Belgium, the Netherlands, Finland, etc. But it is breaking down with a clear majority of Poles opting for PiS’s mix of nationalist, socially conservative and economcially conservative policies and an equally clear majority of Portuguese rejecting the pretty thoroughly sanitised fascism of the right and centre-right and opting for a leftwing rainbow. The Spanish PM, facing an election in Dec., has good reason to be worried.

  12. From the Conclusion:

    “As we stated at the outset, our principal conclusion is that more work needs to be done combing questions of inequality, deviations from perfect competition , and the role of rents in both arenas.”

    Any economist who still retains and expresses the delusional belief in the existence of an ‘efficient market’ or ‘perfect competition’ needs to carefully explain that these theoretical constructs are similar in nature and character to the religious notions of ‘a heavenly abode” and ‘sanctifying grace’.

    “Inequality started rising in the 1970s…” (para 2). Might this have some connection with the twin oil-supply and price shocks experienced in that decade? Followed by a decade long trend of money inflation and sharp increases in both prices and wages? Followed by the interest rate shocks of the 1980s? The genesis of the FIRE economy dates back to the mid-1970s.

    A far more entertaining – though somewhat longish narrative, about inequality, is Thorstein Veblen’s “The Theory of the Leisure Class” published in 1899. He describes and explains in a Anglophone version of excruciating, bichromic and kaleidoscopic Nordic prose, the rise and rise and rise of the social and economic inequalities of his times. Quite amusing in parts. I wonder where Kenneth Galbraith got his ideas from? Is Mark Blyth our contemporary equivalent? History surely rhymes!

  13. Or maybe too imprecise a term to be in any way useful!

    http://www.economist.com/blogs/buttonwood/2015/05/fiscal-policy

    To sum up in the case of the UK, with equal applicability to any country, inside or outside a monetary union:

    “But the risk, when a deficit is as high as 11% of GDP, [insert relevant figure] is that the markets lose confidence and push up bond yields, making the fiscal situation even more desperate. The costs of such an outcome are so great that a government can hardly be blamed for trying to avoid it. One can still argue that the way the government cut the deficit was wrong-headed, with far too much focus on cutting investment spending; arguably the bit of spending that has the greatest stimulatory impact.”

    In short, the political cost of cutting capital spending is less than that of doing so in other sectors of public expenditure.

  14. Do you know if any of this conference will be on the web in any form?

    btw, from the intro blurb:

    “In 1989 he published, with colleagues at the National Institute, a study suggesting that an entry rate of 1.95 DM/£ into the ERM was too high, which at the time was a minority view”

    Sterling had a long history of depreciation against the DM interrupted from time to time by bear market rallies. The ‘Lawson boom’ and the bounce from the previous dramatic depreciation had resulted in one of those rallies, and that unravelled into another big decline during 1989.

    It is as easy now as it was then for people to get carried away with the last couple of years of market behaviour and in ’87 and ’88 sterling had generally been rising, but back in 1989 in the City it was very widely considered to be extremely naive to ignore the likelihood of the necessity for another big leg down in sterling, in addition to the one already under-way.

    So there were plenty of people highly sceptical of 2.95 in the ERM being sustainable over more than the short term, even leaving aside extreme disagreement about the whole idea both within cabinet and on the government back-benches. 1.95 being too high though!?

  15. @docm

    “To sum up in the case of the UK, with equal applicability to any country, inside or outside a monetary union:

    “But the risk, when a deficit is as high as 11% of GDP, [insert relevant figure] is that the markets lose confidence and push up bond yields, making the fiscal situation even more desperate. The costs of such an outcome are so great that a government can hardly be blamed for trying to avoid it. One can still argue that the way the government cut the deficit was wrong-headed, with far too much focus on cutting investment spending; arguably the bit of spending that has the greatest stimulatory impact.”

    The question of whether a high deficit country is inside a monetary union or not is highly relevant to the way that country’s bonds (and currency) will be traded. The scenarios, and their likelihoods, to be reflected in prices by investors can be very different. Just one example would be that investors are generally much more relaxed about currency depreciation (provided it is a free float) than they are about default risk (too binary to discount incrementally).

  16. @ PH

    Your dissection of the political situation in Ireland is IMHO spot on. The question then is whether the change in voting intentions is attributable to a wider understanding of what is wrong or simply an uninformed widespread sense of grievance. I think we may find out but not until after an inconclusive election and a period of unstable government which will cause the markets to clarify matters in double quick time i.e. that the economy is still skating on very thin ice in terms of the government’s finances. The true meaning of “austerity”, and the totally inadequate way in which it has been implemented to date, will then be brought home. That is the optimistic prognosis.

    I came across this item on the internet from half a century ago which illustrates the maxim that the more things change, the more they remain the same.

    ftp://78.153.208.68/bkp/ipa/PDF/The_devlin_report_an_overview.pdf

    The Devlin committee obviously drew on the Swedish experience of executive agencies to implement settled government policies but failed to adopt it fully, trying to both have its cake and eat it i.e. by proposing to devolve executive functions to agencies but at the same time attempting to retain a lot of central government functions through the first incarnation of what I saw described in the Sunday Times as a “sister” Department of Finance.

    It could not work and it did not work. We have a current example with regard to the new HSE human resources policy and the reservations of the Department of Health about it. (In Sweden, only a small core of senior policymakers, in very small central government departments, the police, army and diplomatic service, have what might be described as a classic civil service structure. The full execution of public services lies with a wide range of almost totally independent agencies which reflect the heterogeneity of those services. What we retain is the delusional view that these are somehow homogeneous and we must continue to organise ourselves on the basis of the inherited “Westminster model”).

    The advantages of the Swedish approach are, of course, enormous. The artificial distinction between working in the public and the private sector is largely abolished; and the rents – for the first category – that go with it. (I would wager that the bulk of the attendance at the RIA conference will belong to the first category).

    The key additional elements required are (i) a proper budgetary procedure i.e. that debated and decided by the – nominally in Ireland’s case – institution constitutionally responsible, the parliament (ii) fixed budgetary ceilings and (iii) clear and unambiguous legislative mandates for the agencies being established. Sweden has all three, coupled with a fourth vital element i.e. universal equal access to certain minimum standards/services in employment, health, social welfare (notably pensions) and education.

    There is no evidence of even awareness in the Irish establishment that we have now come full circle. There are, however, a few changed circumstances, not least that the government no longer has the freedom of budgetary and other policy action that it once had e.g. Irish Water and there is now real political pressure to pay more than lip service to the “Scandinavian model”.

    There must also be a realisation, given the latest poll numbers, that it was a mistake for FG to agree, and an even bigger one for Labour to accept, a repeat of the error made by Devlin, that of effectively splitting the functions of the most important department of state.

    P.S. That no country has the full answer is borne out by one additional item; the housing mess in Sweden is even worse than it is in Ireland!

  17. Sovereign debt in Euro Area economies expanded in 2009 because of stimulus programs and support of failing banks.

    In the US the Obama administration had a $832bn stimulus and the Chinese began spending about $587bn.

    Europe didn’t have a transfer union like the US but in the latter, the biggest recipients of federal dollars were the so-called Red states and they were also likely to oppose big government! Some tea party folk demonstrated against Obamacare in Washington DC and they were surprised that their free Medicare was a federal program.

    So giving countries lots of aid does not necessarily earn approval.

    In Europe, politicians claim credit for all the good news and blame the EU for bad news — in his Budget speech Michael Noonan claimed that his record since 2011 was a standout of the past 100 years in Irish history but he could not acknowledge the role of Mario Draghi in particular in changing the fortunes of the euro from mid-2012.

    Member countries expect solidarity when they are in trouble but as seen in recent times with the refugee crisis, there is little evidence of it.

    Economists have implied that the likes of Germany and France should have given cash gifts to countries that were badly governed during the credit boom because their banks had recklessly lent to them. At the same time the economists opposed the bailout of private debt by governments.

    There are now bail-in rules but still external support for a member country of the euro area would trigger a backlash as cuts in public spending hit vulnerable groups in particular.

    How should reforms in Greece — one of Europe’s most corrupt states — have been be traded for support? The Greek PM said in 2010 that the same brand of medical stent that cost €500 in Germany cost €2,500 in Greece.

    Again some economists appear to suggest that existing spending programmes should have been maintained and funded by taxpayers in other countries.

    In the World Bank’s Doing Business flagship report on doing business in 189 economies published Tuesday, poor Macedonia got a 12 ranking compared with advanced country Greece’s 60 rank — down from over 100 in 2008.

    However, there is still a lot to do:

    http://www.finfacts.ie/Irish_finance_news/articleDetail.php?Doing-Business-2016-Singapore-on-top-Ireland-slips-to-17-ranking-304

    It’s easy to scapegoat external institutions but the standard of a country’s governance remains a key factor in determining its long-term prospects.

    In 1914 Argentina ranked among the ten richest in the world, after the likes of Australia, Britain and the United States, but ahead of France, Germany and Italy. Its income per head was 92% of the average of 16 rich economies.

    In recent times Venezuela has made itself a failed sate even though it’s the location of the world’s greatest proven oil reserves. The World Bank ranks it the worst of 189 countries for business.

  18. http://www.centralbank.ie/press-area/press-releases/Pages/NewresearchonthemacroeconomiceffectsoffiscalconsolidationintheEuroArea.aspx

    The Irish Central Bank has just released a Research note on the impact of fiscal consolidation in the EA over the period 2011-13. It is based on model simulations, with one including adjustments to reflect credit constraints on borrowers. That shows a multiplier of 1.3 and the fiscal adjustments account for 80% of lost GDP.

  19. @DOCM,

    I fear that the indicated change in voting intentions by so many voters is attributable to your suggestion of an “uniformed widespread sense grievance”. When there are two competing political blocs each capable of providing governance and power is rotated between them (this migrated from FF on its own to FF plus a small faction (initially the PDs, then the Greens) v FG plus various factions through to the 1.5 of FG plus Labour), it takes relatively few voters to switch sides, or to shuffle off this mortal coil, or to vote for the first time or simply to vote (having sat on their hands at the previous election) to replace on political bloc with the other.

    These voters generally vote reactively or punitively. They are simply fed up with or annoyed by the current shower in power and by withdrawing their electoral support almost by default elect the competing bloc. At the last election the number of these voters was much, much larger than would be usual and their anger at FF and the Greens so intense there is now no real prospect of FF ever regaining the parliamentary dominance it once enjoyed. Many of these voters transferred their allegiance to Labour and there is quite a bit of evidence that their animosity towards Labour is every bit as intense as it was towards FF at the last election. FG will also get an electoral kicking but nothing like that which Labour will receive – and FF may not have the pleasure of welcoming as many returnees who temporarily defected to FG as it hopes.

    There is justifiable widespread disgust and anger at the mainstream politicians and the way they barefacedly lie to voters. And this extends to the various prominent administrative institutions, commercial organisations and special interest groups – and the armies of advisers, consultants, tame academics, media hacks, PR operatives and other lackeys they either retain or who are happy to be their camp followers. This inchoate disgust and anger is being channelled and exploited by a broad range of factions and individuals.

    I have no doubt it will all come out in the wash eventually, but it may take another election shortly following the next one to encourage at least some handful of competent politicians to emerge who might speak directly and honestly to voters. And you’ll see the armies of advisers, consultants, tame academics, media hacks, PR operatives and other lackeys suddenly finding that that’s what they were in favour of all along.

  20. @ grumpy

    I bow to your superior knowledge in the matter and, of course, that of the keynote speaker tomorrow.

    http://mainlymacro.blogspot.ie/

    What strikes me most, as an observer over the years, is how little national behavioural characteristics and perceived basic economic interests change over time. In Ireland’s case, only external forces seem to cause any changes to happen, especially those generated by our membership of the EU, not just matters such as environmental standards, but in terms of governance. We now have at least two of the most important near totally independent central executive agencies in place on the Swedish model viz. the CB and the Revenue Commissioners. There are, of course, others but their legislative mandate is an open invitation to political interference (any such interference, under the Swedish model, would be a resigning matter). Ironically, the Swedes separated the supervisory function from Riksbanken and there are legal obstacles to getting it back (which may help explain why the bank is now sitting on top of a housing bubble).

    And there is Irish Water! Not that our political masters want to go forward with catching up with every other OECD country in the matter of charging for water but they have no obvious route back.

  21. Its a bit rich to have an economist from the U. Kingdom lecturing about austerity in Ireland, given that austerity in Ireland has now ended and the economy is growing at 6-7%. Indeed the IFC consider that recent tax cuts and spending increases were too expansionary and may cause the economy to overheat. It would be much more appropriate and interesting if he gave a talk on austerity in the U. Kingdom, given that its continuing at full throttle there (including in its colony in N. Ireland, which directly affects my good self). There is now a mini-Constitutional crisis in the U. Kingdom following the House of Lords decision to vote down George Osborne’s latest austerity measures, and there are starting to be predictions of a run on Sterling as the U. Kingdom balance-of-payments deficit soars into the stratosphere (v surplus in Ireland) and its budget deficit remains stubbornly stuck at 5% of GDP (v 1% in Ireland). Its a bit like bringing Stuart Lancaster over to lecture on Ireland’s failure in the rugby world cup.

  22. @JTO

    Austerity may be over for you, but for the vast, vast majority in Ireland, austerity is not nearly over.
    In my definition austerity, for working people, is defined as Net Pay 2015 versus Net pay 2007.
    By that measure, I would estimate that most people in the country are still mired in austerity.
    Of course multinationals, particularly those paying little or no tax, companies that are back in profit with the same 12.5% tax, same ER PRSI; those benefiting from REITs, landlords literally lording it over their 21st century tenure-less Irish tenants are back in clover.

    PS- The last thing Ireland or George Osborne can ill afford is a run on sterling. The Irish recovery has quite a lot to do with the current strength of sterling. So time for George to back down and back-off from kicking the poor. He would do everybody including himself a favour.

  23. Dan O’Brien throws down the gauntlet!
    http://www.independent.ie/opinion/columnists/dan-obrien/if-we-are-going-to-debate-global-austerity-lets-at-least-involve-all-sides-34151285.html

    However, this increasingly is becoming a dialague of the deaf. But it is very convenient for both sides as it provides a distraction from the profound dysfunction and deficiencies in the underlying economic policies and structural arrangements that advance and protect the interests of the protagonists and the special interests groups they represent or favour and that damage the interests of the vast majority of citizens.

  24. The link to the article in Voxeu referenced by DOB.

    http://www.voxeu.org/article/dispelling-three-myths-economics-germany

    @ JTO/JR

    The difference of opinion on this issue is the crux of political problem confronting the outgoing coalition. They have been reasonably competent in the role of implementing the Troika programme inherited from FF but have failed utterly to deliver the radical re-think promised in their election literature. The electorate know this. Some do not mind as they are happy with the status quo continuing, or re-asserting itself, as PH points out. A large number are, however, not so enamoured of the outcome.

    The view that seems certain to prevail is the rather hackneyed one that “all of this could have been avoided had people only followed my advice”, what that advice would have actually meant on the ground being impossible to establish. However, continued financial pressures, and EA/EU rules, are forcing, belatedly, the necessary re-think e.g. on the cost of university education and the unavoidable question that it leads to of the mis-allocation of spending between primary, secondary and third levels.

  25. I did a search in these comments for “neoliberalism” and it came up clear.
    Thanks be to god. Now we can continue our discussion safe in the knowledge that Dan O’Brien has deemed us (relatively) straight. Of course this “neoliberalism”, which he dismisses in two lines, doesn’t exist and should not be talked about (because it doesn’t exist).

  26. On ‘The Gauntlet’

    ‘The truth is that public opinion in a majority of eurozone member states is not well-disposed towards stimulus and is more favourable to cutting deficits.’

    Any post-structuralist deconstructionists with a modicum of knowledge of the peeved excluded other in infant developmental psychology willing to enlighten me as to what this gem of DanO’s might actually mean – in an empirical sense of course?

    Or is it all meaningless?

  27. In terms of reconciling the economic data with political reality, the paper that comes nearest to it must surely be this one by Aidan Regan and a colleague.

    http://www.aidanregan.com/1/146/resources/publication_1915_1.pdf

    It is to be hoped that the ideas behind it get a wide airing (once the startling discovery that fiscal consolidation reduces economic activity has been digested).

    Quite a few of the ideas have been ventilated on this blog, notably that it is a question of core and peripheral economies adapting to one another or the euro falling apart.

    There is, however, a central question that the paper needs to address which is whether these economies coincide with the boundaries of the sovereign states involved. I think not. A related one is the extent to which industry, notably the car and aircraft industries, have been integrated, or dispersed, between various states. The idea that Germany and other core countries have been undercutting wages also needs to be examined in more detail.

  28. From the above :

    ‘The authors show for example that anyone who had a reasonable understanding of the current and capital account pressures of the 1920s whose inconsistencies doomed Germany should have been able to understand why downward pressure on German wage growth, in the several years before the global crisis was set off in 2007 by the US subprime crisis, would ultimately force huge internal imbalances onto Europe during that time. More importantly, this understanding should have been enough to convince European policymakers that unless Germany responded to the crisis by reflating domestic demand sufficiently to generate large current account deficits, it would be all but impossible to prevent a decade of anemic growth and extraordinarily high unemployment in peripheral Europe.’

  29. @ PQ

    It seems to me that Aidan Regan and his colleague are on the right track but are drawing the wrong conclusion as to which side has to adapt most.

    “In 2007, the hourly wage in the non-market services sector (which encompasses health and social work, education, and public administration and defense) in Italy, Spain, Ireland, and Portugal was 38 percent, 24 percent, 50 percent, and 120 percent higher, respectively, than the hourly wages in the manufacturing sector (EU KLEMS, 2010). This is not a problem in itself. In contrast, however, the hourly wages in the non-market service sector of the EMU’s Northern economies were either at parity with (the Netherlands), or below (Austria, Belgium, France, Finland, and Germany) the hourly wage in the manufacturing sector. The difference in growth regimes steered by qualitatively distinct political-producer coalitions of political leaders and firms in different economic sectors goes a long way to explaining this difference in wage-bargaining and labor market outcomes.”

    It may not be a problem for those benefiting from the disparity – including probably most, if not all, of those participating in the conference debate – but it is for those who seem to be expected to allow it to continue and even to fund it.

    The “growth regimes” in the Northern economies are just that because they are putting the horse before the cart i.e. creating higher levels of output of physical goods, whether exported or sold in the domestic market, and they have no intention of changing this approach nor should they be expected to. They might, however, be amenable to joining in the overall effort to narrow the gap that has yawned between the lowest and the highest paid in all sectors, a global development for which it seems we have to thank mainly US private corporations.

    MNC’s, the main source of Ireland’s manufacturing exports, are, of course, not unionised and I agree with your point that direct comparisons with other countries as set out in the paper is simply not possible. Neither is it very feasible with regard to other countries and especially in the case of Germany. The advantages accruing to German industry are not coming mainly from more industrial wage moderation than in their main competitors. It lies in other areas where administrative actions by government skew the economy towards the export sector. The German Mittelstand is, in any case, well capable of prospering on its own merits cf. this link culled from the Internet.

    http://www.druckersociety.at/repository/2010/day01/15'30-17'00/Venohr_101118_PPT_Beamerversion.pdf

    “Dieselgate” has put a dent in the reputation of the system as have the difficulties encountered by Deutschebank, the only bank in Germany with a pretension – now largely scuppered – to a global role.

  30. text from Blind Biddy in Beirut:

    ‘First, it can help establish and maintain independence for individual fiscal councils, which may be put under various kinds of pressure by their national governments. Sometimes this pressure is just verbal, and often indicates that the council is doing its job. I have just come back from Ireland, where the Irish fiscal council criticised a pre-election giveaway by the government. Its chairman John McHale also suggested that it might break the Commission’s fiscal rules. The government then revealed that it had obtained agreement from Brussels, but had not told the fiscal council. It managed to spin this as an error made by the council, which journalists dutifully parrotted. Substantive criticism was thereby deflected. That kind of thing from governments is only to be expected. It becomes more serious when governments react to criticism in financial or even existential terms, as has happened in Canada and Hungary. In those cases, the council needs all the defence it can get.’

    http://mainlymacro.blogspot.ie/2015/10/fiscal-council-developments.html

    p.s. Simon – missed the Dublin bash … see you in Oxford later on .. for tea!

  31. finally – Why ‘austerity’ in the first place?

    Good question. Answer: Power

    ‘It would be comforting to believe that somewhere in the commanding heights of our permanent government, there are important players who are serious grownups who know what they are doing. That, at least, is the impression they seek to convey with their sober demeanors, credentials from think tanks or prestigious universities, and the measured, almost soporific testimony they deliver to congressional committees.

    Think of Robert Gates, Ashton Carter, Timothy Geithner or Eric Holder. On the surface, they seem the very antithesis of the Tea Party fanatic, gibbering about ISIS training camps in America. The preferred pose of these establishment personages is that of the politically neutral technocrat offering well-considered advice based on their profound expertise.

    That pose is nonsense. They are deeply dyed in the hue of the official ideology of the governing class, an ideology that is neither specifically Democrat nor Republican. Domestically, whatever they might privately believe about essentially diversionary social issues (“rube bait”) like abortion or gay marriage, they almost invariably believe in the “Washington Consensus”: financialization, outsourcing, privatization, deregulation and the commodification of labor.’

    Read on: https://consortiumnews.com/2015/10/31/the-anti-knowledge-of-the-elites/

    I hear that the 26th banker is to be jailed in Ir… er … Iceland.

  32. @PQ

    You have identified the single greatest issue that highlights why the EU and in particular the euro is a broken construct. Internal rent seeking within the euro by the strongest “partner” is at the core of the matter. No doubt rarely gets discussed at Eurogroup level based on Varoufakis feed back on what goes on at those meetings – none of what he said i note was contradicted by other participants and begs the question what is a “european policy maker” anyway when he/she is up against the might of the most powerful entity within the “union”. Of course any 1st year econ student could identify the problem of imbalances growing in europe and equally identify the cure…european policy makers too must have identified it….but when domestic governments are afraid to even mention it on their national stages what chance they will do it when confronted by Schuable and co?

    The attached brilliantly puts meat around the bones of the extract you have highlighted.

    http://www.levyinstitute.org/pubs/wp_767.pdf

  33. It feels like 2010 all over again.

    If we take the definition of “Austerity” from the article, then Ireland didn’t have it. The rececession and loss of employment was not caused by a fiscal consolidation. It just wasn’t.

    Then, when we look at the rest of the period, we can take average EA (Euro area) multipliers and expected responses to stimulus and contraction or we can look at the likely multipliers and responses of a small open economy like Ireland. I expect they’ll be different. Whatever about Portugal’s problems, Ireland’s were not caused by fiscal contraction and whatever damage was done to short term activity by not borrowing even more than we did borrow and are borrowing has to be weighed against the long term damage of the excess borrowing’s deadweight over time. And that’s a long discussion.

    But in any case, it looks like the FG govt has played its cards well. They have stayed as quiet as possible, played minor issues like the water charges up to the maximum, and have gotten through the recession without reforming anything. It’s been a political masterclass.

    In the run up to the next election they get to take credit for increased online activity being routed through Ireland without having to confront any of Ireland’s particular structural fiscal or spending problems. The public sector is back looking for their super salaries to be restored. The SW rates are still well above Euro averages. Taxes (or regulatory restrictions) on the staples of human life are still fantastically high while the sheltered occupations rock on. And even if we don’t talk about the web summit the evidence that startups get a hard time in Ireland is getting hard to ignore. Nothing has happened to reform health, education, transport, or anything, basically. The status quo ante has been essentially preserved despite its obvious rottenness.

    But we didn’t have “Austerity” in Ireland – not on the definition from the article anyway. Whatever the culprit in Ireland, it wasn’t “Austerity”.

  34. If we take the definition of “Austerity” from the article, then Ireland didn’t have it. The rececession and loss of employment was not caused by a fiscal consolidation. It just wasn’t.

    Then, when we look at the rest of the period, we can take average EA (Euro area) multipliers and expected responses to stimulus and contraction or we can look at the likely multipliers and responses of a small open economy like Ireland. I expect they’ll be different. Whatever about Portugal’s problems, Ireland’s were not caused by fiscal contraction and whatever damage was done to short term activity by not borrowing even more than we did borrow and are borrowing has to be weighed against the long term damage of the excess borrowing’s deadweight over time. And that’s a long discussion.

    But in any case, it looks like the FG govt has played its cards well. They have stayed as quiet as possible, played minor issues like the water charges up to the maximum, and have gotten through the recession without reforming anything. It’s been a political masterclass.

    In the run up to the next election they get to take credit for increased online activity being routed through Ireland without having to confront any of Ireland’s particular structural fiscal or spending problems. The public sector is back looking for their super salaries to be restored. The SW rates are still well above Euro averages. Taxes (or regulatory restrictions) on the staples of human life are still fantastically high while the sheltered occupations rock on. And even if we don’t talk about the web summit the evidence that startups get a hard time in Ireland is getting hard to ignore. Nothing has happened to reform health, education, transport, or anything, basically. The status quo ante has been essentially preserved despite its obvious rottenness.

    But we didn’t have “Austerity” in Ireland – not on the definition from the article anyway. Whatever the culprit in Ireland, it wasn’t “Austerity”.

    Overall, it feels like 2010 all over again.

  35. There has been some media coverage and Simon Wren-Lewis has indicated he will provide a link to his paper on his blog, but will we see links here to the papers presented last Friday? Thank you.

  36. Just looking at the latest EU’s Autumn forecasts. France’s fiscal deficit has been above 3% since 2008 and is forecast to remain so over the next two years i.e. it would have broken SGP rules for 10 years. Both Spain and Italy are forecast to increase their structural deficits next year and beyond. I doubt if EC fines are coming down the track.Clearly the ‘rules’ are political and size determines whether they are binding or not.
    Remember Greece?. The debt ratio is forecast to rise to 200% in 2016.

  37. @ Hugh Sheehy

    It is with regret that one is compelled to note that your view is the correct one. Trying to put all the blame on Germany simply does not work, despite the best efforts of quite a few people who should really know better.

    The recent press reports on health outcomes is another example of the dysfunctional nature of the Irish economy and an illustration of how little the country has advanced relative to others cf. this latest study by a well known German foundation.

    https://www.bertelsmann-stiftung.de/en/topics/aktuelle-meldungen/2015/oktober/european-economic-and-debt-crisis-children-and-young-people-are-hardest-hit/

  38. Another economic voice crying in the wilderness!

    https://www.irishtimes.com/business/economy/better-public-services-will-inevitably-mean-higher-taxes-1.2414323

    “Even if we choose better public services and higher taxation, it will be a major task to deliver them efficiently. In the boom years, too many of the resources available were frittered away on price increases. This time it must be different”.

    Change the word “price” to “salary” and the analysis is 100% spot on.

    It will be different this time! Anyone who doubts it should view the banner electronic headline from the Revenue Commissioners to “file and pay” on time. There will, however, have to be a messy general election with an unclear outcome beforehand.

  39. @DOCM

    “It is with regret that one is compelled to note that your view is the correct one. Trying to put all the blame on Germany simply does not work, despite the best efforts of quite a few people who should really know better.”

    Funny I don’t see Germany mentioned anywhere in Hugh Sheehy’s contribution…yet you manage to jump to their defence even when they are not being called out? Go figure…”methinks the lady doth protest too much”

  40. @ Nocense

    You have a point there. I should have put the comment either in parenthesis or in another paragraph.

    This does not make it any less true.

  41. Can’t yet find anything of the content of this conference at RIA. Anyone know if they, or contributors, are likely to share content with the outside world at some point?

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