Latest edition of Economic and Social Review now available online

Here is the list of contents of the latest edition of the Economic and Social Review:

Vol 46, No 4, Winter (2015)

Table of Contents


The Demand for League of Ireland Football
Barry Reilly 485–509

The Relative Age Effect and Under-21 Irish Association Football: A
Natural Experiment and Policy Recommendations, David Butler, Robert
Butler  511–519

Housing Bubbles and Monetary Policy: A Reassessment
Graeme O’Meara 521–565

To Weight or Not To Weight? A Statistical Analysis of How Weights
Affect the Reliability of the Quarterly National Household Survey for
Immigration Research in Ireland
Nancy Duong Nguyen, Patrick Murphy 567–603

Book Review

EOIN O’LEARY, Irish Economic Development: High-Performing EU State or
Serial Underachiever. London: Routledge; 232 pages; March 2015
Frank Barry  605-611.

All papers can be accessed at

80 replies on “Latest edition of Economic and Social Review now available online”

‘Housing Bubbles and Monetary Policy: A Reassessment’. [Graeme O’Meara]

I’m not entirely sure what the purpose of this paper is. The author (though he uses “we” a lot) selected 10 countries – but not Ireland? Now do not get me wrong on this, but what is the practical use of any analysis (for us here in Ireland) of residential property prices in other countries. Its zero! But lets move on.

from the abstract: “This study contributes to the ongoing debate over the causes of housing bubbles. … … The empirical results suggest that for some countries deviations from the Taylor rule played a role in the surge in house prices …”

The Taylor Rule. Ooops! The Taylor Rule is junk mathematics* and as Bill Gross has somewhat unkindly suggested – “the Taylor rule “must now be discarded into the trash bin of history””. Amen to that.

from Introduction: “This [an economic recession] occurs first because home ownership comprises a large proportion of national wealth, and second because financial institutions lending to the residential sector tend to hold a considerable volume of mortgage related assets on their portfolios, such that house price reversals cause disruption to the financial system.”

The idea that ‘home ownership’ constitutes a form of wealth is a disputed assertion. Its very unsimplistic. “house price reversals”: I presume the author means ‘property valuation reversals’. Private residential property valuations are an opinionated belief about the stability of long-term income streams – since borrowers will have to fund both the amortizing capital and the interest being charged out of their nett (after tax) wage/salary income and the proportion of that income that can ‘safely’ be applied to mortgage repayments exhibits a well-proven historical precedent – its 26% (plus/minus 2%).

” … it is likely that the historical relationship between interest rates and house prices became less stable over the last decade in light of exuberant behaviour observed in the global financial system. We argue that a monetary policy stance more closely aligned with a Taylor type rule could reduce some of the imbalance in the housing market, but would not be all effective on its own without being complemented by instruments of macroprudential policy …”

Exuberant behaviour might have something to do with – de-regulation and lax oversight? I believe so. I’ve commented on macroprudential instruments before. I shall not repeat myself.

from Conclusion: “We tried to quantify the extent of house price overvaluation in 10 OECD countries over the past three decades by specifying a house price model and taking the residual from this model as the deviation of house prices from their fundamental value, or in other words, the housing bubble.”

There is no need to specify a ‘house price model’ – just look at the historical record of trends in Irish residential property prices (increase; no change; decrease) using a specific start date – and explain the economic rationale why this particular (as opposed to some other) date is chosen. I’d suggest 1995 as a start date; append trend-lines for credit provision: demographic changes: median wages/salary changes. Then see what it looks like.

“It could be argued however, in line with Dokko et al. (2011), that housing bubbles over the last decade can be attributed to excess credit provision …”

How else would you explain the 1995 – 2006 exponential increase in Irish residential property prices? A contemporaneous exponential increase in credit provision – parallel with a scrapping of the historical prudential rules for private residential mortgage originations? I’d say so.

“For this reason, macroprudential tools, including loan to value and loan to income ratios as well as capital buffers, have been reported to be more effective in curbing exuberance in housing markets by disciplining both banks and borrowers.”

As in: Shut door – before, not after, horse has bolted. But who shuts door? Well, somebody should have, but nobody did. Does ‘disciplining’ imply some sort of financial ‘spanking’? Or what?

* The Taylor Rule expression seems somewhat bizarre in that it deploys quantitative variables which appear quite ‘dodgy’ (from a quantitative determination perspective) – that is, they are known to be statistically unreliable. Worse, if you embed exponential functions (log) into a mathematical expression which contains such unreliable quantitative variables, you are asking for real trouble. The output result is likely to be quite unfit for purpose.

A key critique of the Taylor Rule must be that it conflates the increase in the money supply (Inflation) with increases in consumer and commodity prices and service costs (General Price Increases). You cannot validly aggregrate Inflation and General Price Increases and then assume you must have a more meaningful (economic) quantitative estimate. [And presumably you might have to ‘weight’ changes in consumer prices differently to changes in commodity prices and service costs. And should an economy which has a 50% domestic consumption be treated differently to one where domestic consumption accounts for 65%?]. This does not rule out the possibility that those two economic variables may (or may not) be coincidentally correlated with one another. But, does B cause A – or the inverse? Good luck with that one.

Look, its ignitedly simple: Pour on more accelerant, the bigger the conflagration!

Frank Barry concludes his review of Eoin O’Leary’s book:

The book sets out a commendably long and comprehensive research agenda for the future.

…Frank must be commended for his diplomacy 😳

Frank raises issues of measurement and for example goods exports were valued by customs at €89bn in 2014 and €107bn in the Balance of Payments giving Enda Kenny bragging material in claiming that export performance was the best since 2001 — while if we were dependent on indigenous exporting, we would vie with Greece for being Europe’s worst exporter.

A surge in headline exports is creating few jobs and employment in exporting sectors is down 30,000 since mid 2008.

There is a need for research on the failure of the indigenous international trading sector to develop over the past half century and ministers will always avoid focusing on this reality when American firms can deliver ready-made jobs.

In the foreword to an annual American Chamber of Commerce in Ireland report this year, which is absolutely misleading on US investment in Ireland, Kevin O’Malley, US ambassador to Ireland, cited 115,000 jobs in Irish-owned firms in 2013 in the United States and commented on Irish investment in the US: “But this investment is not one way. The report states that Ireland invested a record $26.2bn in the United States for 2013. This is an incredible statistic for a relatively small country.

Yes, incredible indeed, and Pfizer is set to create further incredulity and confusion for gullible folk.

Prof Patrick Honohan said in 2014:

In the interests of robust diversification, most Irish economists observers would hope for a greater convergence towards normality in this aspect of Irish economic development, with a stronger emergence of innovative Irish companies alongside those steered from abroad.

An estimated 300 tech millionaires were created since 2000 but no scaleups — Richard Bruton said in 2012 that the State should aim to create the next Google or Microsoft.

This well-meaning nonsense was an echo of the 2010 Innovation Taskforce report when 28 “experts” suggested that Ireland could overtake the original Silicon Valley by 2020 through adding up to 215,000 tech jobs. A detail ignored by these mainly armchair folk, was that to succeed in exporting, a startup would typically need to develop experience in its domestic market and in the tiny Irish market, there would be either a small market or none.

Israel is the host of over 200 foreign-owned R&D centers but its high tech sector has limited impact on the rest of the economy.

According to the OECD “Although much of the (Irish) workforce is well qualified, many have insufficient skills to obtain sustainable employment. The OECD Survey of Adult Skills (PIAAC) signals that, despite improvements in recent years, adults in Ireland have lower skills than other OECD countries, especially regarding numeracy and literacy skills.”

FDI is very important for a small economy but the second-highest rate of low pay in the OECD area (27 developed countries among 34 members) — non-exporting SMEs tend to be poor payers — and the worst private sector pension coverage confirms two economies in Ireland.

Food is Ireland’s main natural resource but last year the traditional surplus with the UK evaporated. In 2003-2013 Ireland was the only member of the EU28 to report a rise in farm holdings and while CAP welfare provides about 70% of typical farm household income, Irish agricultural land is among the most expensive in the world and four times the level in France. How crazy is that?

See Irish economy links here on exporting etc.

Monetary policy is banjaxed. What was it Thomas Palley said about the Euro ?

“The last quarter of the 19th century witnessed a period of sustained global deflation. In the 1896 US presidential election, William Jennings Bryan famously attacked the gold standard as the cause of deflation, declaring “You shall not press upon the brow of labour this crown of thorns. You shall not crucify mankind upon a cross of gold.” Today, euroland is being crucified upon its own cross of gold that is the institutional arrangements behind the euro. Those arrangements have distorted the monetary – fiscal balance, creating deflationary central bank dominance. That balance needs correction and failure to do so could even risk the viability of the euro in its current form.
The euro was introduced in 1999, the high-water mark of neo-liberal economics. As such, its institutional design embeds neo-liberal monetary theory which in many regards rests on the same economic principles as the gold standard. These principles are that fiscal policy is ineffective; inflation is caused exclusively by money supply growth; and the real economy quickly and automatically returns to full employment in response to negative shocks. ”

And that theory has really stood the test of time, hasn’t it ? I mean, quickly and automatically can mean up to 3 generations. And money supply growth has delivered magnificent inflation, hasn’t it ? Apart from the deflation.


Although Frank Barry cited Garret FitzGerald’s “Diluting lobbies and unleashing growth”, he went very quite when it came to Eoin O’Leary’s assessment of rent-seeking and its detrimental impacts. No matter. Even if other academics were to tackle the issue as honestly as Eoin has it wouldn’t make a blind bit of difference. The long overdue political changes will not be initiated by a handful of courageous academics.

A large minority of Spanish voters have shown the way last Sunday. They have left the two mainstream parties with a little more than 50% of the vote. And they have used two relatively cohesive and coherent policy platforms in Podemos and Ciudadanos that have marginalised the other head-bangers. Unfortunately the non-mainstream offers before Irish voters range from the populist, but dangerous, through the right-wing pious and the left-wing deluded to the well-intentioned but totally ineffective.

In Ireland the political support for the rent-seeking special interest groups is shrinking, but they will remain largely unscathed. However, the politicians they have suborned will have to conjure up an increase in the largesse for the masses.

@Paul H

Mason had a good article on the political reverberations of economic suicide in the Grauniad yesterday

This Thomas Palley article on the neoliberal memes that form the economic logic of the Euro , all of which have failed to mirror reality, is even worse. People who voted Podemos and Cuidadanos may have a sense that something is wrong but not how dreadful the actual macro economic situation is. There is no coherent economic model of what is happening.

” These principles are that fiscal policy is ineffective; inflation is caused exclusively by money supply growth; and the real economy quickly and automatically returns to full employment in response to negative shocks. ”

all wrong


I don’t think your glass analogy captures the current situation in Ireland. What we’re seeing now is as good as it gets. Enough older voters, the well-ensconced rent-seekers and many of those who feel they’re probably doing alright and reckon they might do better with a continuation of the current dispensation will provide a solid core of support for the current Government. Whether it will be enough to get it over the line is doubtful because Labour will get a very well deserved electoral kicking. However, similar to the fate of the Really Useless Party in the UK (aka the Lib Dems) losing more seats to the Tories than to anyone else, Labour could lose more seats to FG than to all of the other factions that have its seats in their sights. FG’s support, like the Tories’ support in Britain, could very well be understated.

It looks like the traditional electoral cycle is being stretched with an FG-dominated coalition or inter-party government getting two terms in office for the first time (ignoring CnG in the very different circumstances in the ’20s). However, enough voters eventually well get fed up of the government, the government will get even more arrogant, tired and careless, some of the special interest groups will demand more time at the trough or the opportunity to to gorge even more voraciously and some sort of transmogrification of FF and possibly SF will emerge to win power. And so the sad cycle will continue.

As for Greece, it is sui generis. It is a failed state in which the factions, for the foreseeable future, are incapable of agreeing even a basic system of governance.


Any statement or assertion that begins with a lament about the hegemony of neoliberalism will secure no traction with those who might be persuadable about the need for major political and economics but who, quite sensibly and understandably, are totally unable to subscribe to the deluded ideological nostrums of those who moan incessantly about neoliberalism.

The only “ism” we’re seeing now is a variant of increasingly unfettered capitalism – very similar to that seen in the 19th century. Whereas in the 19th century it was manifested mainly in the so-called advanced economies (even if large swathes of the globe wre colonised to feed it) as a result of the rolling out of the industrial revolution, it is now evident on a global scale. The battle to harness and shackle capitalism to generate economically and socially useful outcomes continues. We simply can’t allow the three decades of economic and social progress after WWII to be a blip in the long sweep of history – even if the scale of the battlefield has expanded enormously. And those of us who participate in this battle are continuously weakened and undermined by the deluded who somehow think that capitalism can be suppressed, superceded or replaced. The fools, the fools, the fools.

@ PH

One simply cannot write off a democratic country, member of both the EU and NATO, as a “failed state”. I agree, however, that Greece is a rather extreme case.

As to our own patch, the key question is whether the Laurel and Hardy act with regard to the state’s finances is to continue under a new government. If it does, I will be forced to review my opinion as to whether events can drive change.

The page link to the actual revised estimates document for 2016 is below.

The added notes on the “outputs” for the individual vote headings, themselves set in concrete for nearly a century, could be viewed as an effort in the right direction but remains so feeble, when compared to the sophistication and modernity of the budgetary control procedures of other countries, as to be almost laughable.

It may also be noted that the legal underpinning for this largely meaningless exercise remains in place (Public Services Management Act), despite the undertaking by the outgoing government to review it.


George Marshall in Carbon Detox argues that people are not persuaded by information. Views are formed by the people with whom we mix. And of the narratives that make it to our circles we are more likely to listen to those which offer some reward.

So I understand why people switch off when neoliberalism gets aired. But the ideology is bankrupt regardless.

We need higher interest rates. And there is too much debt. The next crash is going to be humungous.


I am not writing off Greece. I’m simply pointing out that it is up to Greek citizens and their politicians to come to a settled position on some basic and sensible democratic governance. In the absence of this the best efforts of external agencies often prove to be counter-productive; and more self-serving, politcally motivated interventions can be damaging.

As for the public expenditure estimates, this is the “great redistribution” which is required to keep a plurality of voters broadly satisfied – and to compensate for the baleful impacts of the avarice of the special interest groups – in the little Irish báidín as its bobs on the tides of global capitalism. Similar to Bismarck’s comparison of law-making and sausage-making, there are pressing political reasons for not inquiring too deeply in to the mechanics of this redistribution – or indeed why it is needed to the extent it is. And while all this remains uninvestigated and unremedied the conditions continue to exist for a future internal holing below the water-line of the little Irish báidín. We can only hope the inevitable future holing won’t be too severe and that it won’t coincide with powerful and damaging global squalls – as it did the last time.

Wishing all here a merry Yule-tide. (It is depressing that organised religion and global capitalism have conspired to exploit and distort a deep human expression of collective relief and celebration at the re-birth of the sun.)

Further to the Frank Barry quote above on research, what is the current state of economic research that could inform contemporary Irish policy making?

Frances Ruane, then ESRI director, said in a paper in 2012 that the planned Irish Government Economic and Evaluation Service (IGEES) “will be crucial for policymaking. Furthermore, its members will become the key links between the policymaker and the research community.”

David Madden and Kevin Denny are members of the IGEES Oversight Board – first report here:

There can be value from evaluations such as state enterprise supports here:

However, the problem is political interference when it comes to actual policies, rather than individual programs, and the exclusion of inconvenient facts: Dissenters are not included in ministerial taskforces and management consultants understandably do not imperil handy sources of income.

For example the contrast between the consultation document on innovation policy that was produced by civil servants and the political brochure that was published as an innovation “strategy,” is striking.

Two years ago the OECD recommended empirically-proven policies and sunset clauses in enterprise and innovation supports but there is no experience of this in the Irish system. It said the number of programs and agencies multiplied during the period of booming growth. “There are now over 170 separate budget lines, sometimes for very small amounts of money, and 11 major funding agencies involved in disbursing the Science Budget, although it is small by international standards.”

Prof Ruane noted that “the social partners had an opportunity to draw on research evidence through the underpinning work of the National Economic and Social Council (NESC). However, over the course of the 1990s, the role of the NESC increasingly became one of supporting the partnership process by producing consensus documents, rather than one of publishing objective policy analyses (a role partially fulfilled by the National and Economic Social Forum).”

Central Bank and ESRI research was also generally timid.

It’s hard to teach old dogs new tricks and prior to Government’s decision to end the Double Irish, tax officials at the Dept of Finance endorsed the position of ministers that it was a “flawed premise” to even consider the profit shifting via Ireland to Irish shell companies.

A technical paper was published with 8 possible effective Irish corporate tax rates — the more confusion the better! — while ministers and the media suggested that France had one rate at 8%, and that appears to be commonly accepted:

France’s 8% effective tax rate only for small and very big firms

In recent years the Central Bank has produced useful papers relevant to policy making, including a paper by Martina Lawless on Irish business startups and related job creation — an area that seldom gets attention from researchers.

The ESRI is to be commended for its social research but it has had the odd gem in the economics area such as John FitzGerald’s paper on redomiciled plcs/ tax inversions.

As for the 150+ academic economists, it’s not easy to quantify the impact of the output.

On bad planning and long term impact, the El Niño weather pattern not only has a seasonal name (in the 19th century Peruvian fisherman observed an irregular warm current that would appear around Christmas and they called it the “little boy” or “Christ child”) links my current location with my hometown of Bandon.

It’s striking that a rise of 0.5°C above the historical baseline of the sea in the equatorial east Pacific Ocean can create so much havoc elsewhere.

This year the monsoon in Southeast Asia has been both drier, and average temperatures have been higher, than normal.

In recent decades Bandon has been seriously impacted by flooding and flood warning alerts have been raised again in recent days — serious floods were rare until recent times and in modern times have been made much worse by planning vandalism.

In earlier times, the Bandon Milling & Electric Lighting Co, a family business of Joseph Brennan, first governor of the Central Bank (he was a graduate of Christ’s College, Cambridge), operated at the northern bank of the salmon weir as the River Bandon entered the town. West of the weir the river flowed through was a marshy area known as “the bogs” that flooded in the winter and beyond the bogs was the walled estate of Castle Bernard, owned by the Earl of Bandon, which had sluices to regulate the flow of water onto the floodplain.

Bandon when known as the Londonderry of the South was surrounded by a wall but most of that was demolished during the 1688 rebellion. A piece of the surviving wall was located by Weir Street on the southern side of the weir and was a flood defence.

From the early 2000s, a shopping centre was built on the bogs and the surviving town wall was removed to provide car access to the new Riverview shopping centre.

At the same time upstream, in Dunmanway, the River Bandon was dredged increasing the flood risk to Bandon while beyond the former Brennan’s mills, apartments were built on the northern banks on what were once the sloping gardens of houses on North Main Street.

On the south bank of the river, the back gardens of onetime family houses and business depots of businesses on South Main Street, the main shopping street, were also built on.

Coupled with these developments, the removal by farmers of field ditches and defosteration increased the risk.

In 2009 Bandon town was hit by a massive flood and it has been a regular occurrence since.

“It’s striking that a rise of 0.5°C above the historical baseline of the sea in the equatorial east Pacific Ocean can create so much havoc elsewhere”

It isn t really. Heat can destroy weather patterns and 0.5% is a big increase

Interesting paper on League of Ireland soccer,advocating a smaller, more competitive, Premier division. That may help but the League seems to be in a vicious spiral, with little income for investment in players or facilities leading to less spectator interest and hence less income.It might help the status of the game here if the management of the national side called up a few LOI players to the squad’s training sessions, rather than waiting for them to move to England first.

I think the answer to the question posed by the first response here (“… but what is the practical use of any analysis (for us here in Ireland) of residential property prices in other countries?”) is “a lot”. Recall that Morgan Kelly’s influential & prescient piece on the likely extent of house price falls was based on an analysis of property bubbles around the world.

@ seafóid

You miss the point here: while the El Niño is intermittent it’s not new but it’s unique in its global impact.

There isn’t certainty as to why trade winds in the Pacific weaken and in effect the waters in the West Pacific tropical region in the area of the Philippines, Indonesia and Malaysia, which typically have a surface temperature 8 degrees Celsius higher than the tropical area off South America, impact the temperature in the latter region.

@Dan McLaughlin

Although the paper didn’t mention it (not surprising given the partitionist mentality now prevalent in Dublin media/academia circles), the reality is that there is no chance whatever of any worthwhile soccer league being established in Ireland as long as that sport is run on partitionist lines. Irish League soccer is even more of a joke than League of Ireland soccer, which is really saying something. At most matches in the Irish League there are more stray dogs in attendance than spectators. I’d suggest an all-Ireland league of about 10-12 teams. Even then it would have a hard time being a success, faced with competition from the GAA and rugby. But, with the present set-up of two separate leagues, each with a ridiculously large number of teams, failure is guaranteed.

This isn’t a particularly nationalist point. Rugby, cricket and hockey are all run on an All-Ireland basis, none of which have historically been associated with nationalism. In each of these Ireland has frequently punched above its weight (given its population). In addition, in sports like golf, boxing, horse racing and show jumping, all run on an All-Ireland basis, Ireland has been exceptionally successful down the years. In contrast, I can’t think of any sport run on partitionist lines in which Ireland is successful. The odd athlete here and there, one (dubious) swimmer, while the record of its partitionist soccer clubs in Europe is truly abysmal.

There is, of course, no chance of my advice being taken. Having two leagues may turn domestic soccer into a joke, but does provide lots of extra jobs for administrators. It may surprise some younger ones, but It was actually the League of Ireland that broke away from the All-Ireland league based in Belfast. Thankfully, other sports have not followed them, and Ireland has achieved lots of success in the ones that didn’t.


Climate change is already messing up winds and ocean flows and there is zero allowance for it in any DGSE models.
They are essentially useless anyway under a zero growth outlook but are even more useless in the face of climate change.

Already there is 4% more moisture in the atmosphere. Think of it as Gavin Hastings pushing the scrum of El Nino.
The engineer, like the insurance agent, is hampered by the fact that his skill depends on the earth behaving in the future as it has in the past. As Petroski writes,
Since it is future failure that is at issue, the only sure way to test our hypotheses about its nature and magnitude is to look backward at failures that have occurred historically. Indeed, we predict that the probability of occurrence for a certain event, such as a hundred-year storm, is such and such a percentage, because all other things being equal, that has been the actual experience contained in the historical meteorological record.
That record, however, is now shattered. In the course of Petroski’s lifetime, and all of ours, we’ve left behind the Holocene, the ten-thousand-year period of benign climatic stability that marked the rise of human civilization. We’ve raised the global temperature about a degree so far, but a better way of thinking about it is: we’ve amped up the amount of energy trapped in our narrow envelope of atmosphere, and hence every process that feeds off that energy is now accelerating. For instance, this piece of simple physics: warm air holds more water vapor than cold. Already we’ve increased moisture in the atmosphere by about 4 percent on average, thus increasing the danger both of drought, because heat is evaporating more surface water, and of flood, because evaporated water must eventually come down as rain. And those loaded dice are doing great damage.

@ KD: Kevin , thanks for the comment about non-Irish residential property prices (RPPs). I have studied MK’s papers, but I would argue that while RPPs within the UK might have some use for us on a generalized comparative basis, RPPs for the US and other jurisdictions, whilst interesting in their own rights, have little comparative use.

Though the more interesting phenomenon of world-wide ‘booms-and-busts’ of RPPs seems to be an uncanny reprise of some class of pandemic ‘flu. Or as a well-known local soccer pundit might intone (with great solemnity) – “Interesting, but not relevant!”

What would be useful for us would be a historical ‘look-back’ at Irish RPPs over the period 1960 – 1985, then from 1985 – 1995, then from 1995 – 2001 qnd finally from 2002 – 2007. Each of these time periods may display quite different characteristics, hence they should be treated separately – until proven otherwise. Crucial parallel statistics would be; (a) the median wages/salaries within these time-intervals – if this info is actually available and; (b) the identity of, and the lending protocols used by, the Irish residential mortgage lenders of the time.

We really do need to get a firm empirical handle on what was (< 1% res. mortgage defaults), and how it metamorphosed into to the shambolic lending that led to a residential property bubble of 350% over a 12-year period (with a 2-year pause from 2000 to 2002) with res. mortage defaults now at 20%. If I said GUBU applies – would this be appropriate?

Someones have a lot of explaining to do – and they seem awfully reluctant to say anything. Why?

Best wishes to one and all for 2016.



Blind Biddy is off to India for the Women’s Cricket World Cup …

Men Hockey have qualified for the Olympics …

… and Paddy Barnes for President {if Joe Brolly doesn’t run!}

p.s. any truth in the rumour that Arlene and Martin are taking Tango lessons?

the fall in interest rates over the 12 years was hugely significant. It meant banks could lend far more cash for a given salary and led to much higher loan multiples. From the point of view of the punter bigger debts looked more manageable in terms of monthly cost. Land bank hording builders LOVED IT. The glory of monetarism . Only problem is that low rates provoke moral hazard and excessive risk taking. And now there is so much debt that interest rates cant go up. Until inflation rears its head. And that will be very scary. Especially as a lot of financial products were designed for a low inflation world.

@ Brian Woods Snr/ Kevin Denny

This year Ben Bernanke rejected suggestions by John Taylor, the Stanford economist, that the Fed’s FOMC, the policy-making committee, should robotically apply the Taylor rule:

John has argued that his rule should prescribe as well as describe — that is, he believes that it (or a similar rule) should be a benchmark for monetary policy.

Graeme O’Meara, the author of the paper on housing bubbles writes:

Our assessment of the impact of Taylor rule deviations on housing bubbles leads one to argue that there is some scope for stricter adherence to a Taylor type rule to restrain some of the imbalance in housing markets.

I’m sure that it would also be possible for non-economists to devise a Common sense rule as the housing bubbles were simply a colossal failure of common sense.

In both the US and Europe the worst regional busts reflected a lot more than inappropriate central bank monetary policy.

I remember reading this BusinessWeek articleon interest-only mortgages in the US in 2005 — “In metro San Diego, 47.3% of all mortgages required interest payments only in their early years” — in Ireland at the time, Bank of Ireland launched 10-year interest-only buy-to-let mortgages.

Maurice O’Connell, Irish Central Bank governor, had thrown in the towel on regulating credit in 1997 — two years before the launch of the euro:

There seems to be a perception that the Central Bank can exercise some legal authority in restricting credit. It has no such authority. Any restriction would be inconsistent with European Union practice. Besides, it would be unworkable as demand would probably be met by overseas lenders. The introduction of the single currency will facilitate access by overseas lenders. The Bank continues to monitor the conditions applied by the credit institutions in lending for house purchase. It has warned these institutions repeatedly of the dangers inherent in high rates of credit growth and any relaxation of lending standards. Insofar as the Bank can establish, 100% mortgages have been issued only in exceptional cases where properties were being purchased for investment. The Bank would not encourage this practice and the credit institutions have been so advised.

Encourage or not, the 100% mortgage was available by 2006 — in that year Spain had more housing completions than Germany, UK and France combined.

In Ireland annual private credit growth was almost 30% and Jean-Baptiste Say (1767-1832), a businessman who was the first professor of political economy in France, who is identified with the claim that supply creates its own demand, cheered the boosters and amateur demographers.

The Irish were the second-biggest commercial property investors in Europe and when a group of farmers in receipt of CAP welfare — mainly funded by Germany — bought a shopping centre in Germany, you had to have been either riding the tiger at the time with no options to hold on, or you were simply a fool, if you expected a happy ending! : mrgreen :

Ulrike Guerot is a very interesting lady

Some snippets from the last crash because nothing has changed since

“the dangerous disconnect between the parties who benefit from various imprudent practices and those who bear the related risk and ultimately pay the price

Second, a lack of transparency facilitated the crisis. Banks and other financial institutions created off-the-books entities so that regulators would find it hard to track the risks to their health.

Some industry analysts estimate, for example, that if investment banks were to cut leverage ratios from 30 times (or recent levels) to 20 times, this would trigger $6,000bn worth of asset sales, excluding likely deleveraging by hedge funds too.”

I think leverage is back up around 30 again. There is no point in bailing out banks that go back to the same insane behaviour again.

Germans are capable of doing good work too

and the Bundesbank could also come around to this at some stage ,. But the politics are not ready yet.

what VS Naipaul wrote in The Enigma of Arrival, his memoir about exile. “I saw what I saw very clearly. But I didn’t know what I was looking at. I had nothing to fit it into.”

“I’m sure that it would also be possible for non-economists to devise a Common sense rule as the housing bubbles were simply a colossal failure of common sense.”

Yep. Common Sense. Lot of it about – its just a tad tricky to grasp and deploy. Reminds me of a dense gas – found only in low-lying locations.

I have yet to read an explanation as to why we had a prudently self-organized and self-regulated residential mortgage lending regime by Irish lending institutions for four (possibly five) decades. No third-party regulation was needed. Then it all went to hell in a handcart!

Smokey Coal was ‘banned’ because it caused serious air pollution, which in turn caused serious medical problems. So, mortgage defaults (caused by reckless lending practices) are ‘harmless’ then? Like hell they are.

Amusing aside (or maybe not). You may have to watch it a few times.

There have been reports today in the main media outlets that the Government is to push back the full-employment target to 2020 but even though the latest Dept of Finance forecast for 2020 is above 6%, there is no explanation as to why 6% is full employment when several developed countries currently have lower rates e.g Germany is at 4.5%, Czech Republic at 4.7%.

Besides, the 2018 target that was announced last January included a commitment to replace all jobs lost in the recession but the Dept of the Taoiseach’s press office told me that the Live Register and earnings surveys not the QNHS were used and the the number of job losses was understated by 55,000.

The news embargoed until today to bury it, is the third time since last January that the media has published misleading reports on the issue.

@ MH

I do not think anyone is fooled, or even bothered, by this sleight of hand. The issue is in the category of what everyone knows but is unwilling to admit i.e. the fact that the high level of households with “low work intensity” also happens to represent quite a decent number of voters; as long they are looked after, who cares about full employment!

In any case, unemployment rates – unless they are wildly out of line – are only a very rough guide to what is happening an economy.

On another related but wider issue, that identified by Eoin O’Leary as the serial under-performance of the Irish economy, it is interesting to note how the explanation for the dramatic reversal in the fortunes of the economy is now being put down to the “luck of the Irish” i.e. the favourable external factors. Budgetary and wage consolidation, AKA “austerity”, to recover lost – comparative – productivity, continues to be viewed as a major error despite the evidence to the contrary.

@ MH

I hasten to add that I am not trying to find excuses for France (and Italy) in terms of the need for the necessary reforms to improve the overall level of unit labour costs (ULCs). It is the burning euro policy issue. At least, the French seem to recognise this.

However, when one considers the fact that the decision-makers who thought that the 35 hour week was a good idea (and have presided over the growth of the Code du Travail from a slim volume to one which is too heavy to pick up) are again in charge, optimism cannot be the order of the day.

text from Blind Biddy in Beirut:

Looking forward to taking tea with Sir Anthony Peter (AP) McCoy in The New Year!


“In any case, unemployment rates – unless they are wildly out of line – are only a very rough guide to what is happening an economy”

When they stay high in complete contrast to one of the key principles of the current macroeconomic dogma behind the DGSE model at the ECB HQ they are actually very important. Neoliberalism is a busted flush. It cant even generate 2% inflation, its only macro target.

What Europa did getting into bed with the spivs ,thugs and parasites of neoliberalism is the big question, innit.

Happy New Year

I hope your handlers find you some new material that reflects what is actually going on.

SNP 500 flat for the year . Take out the FANG Facebook Amazon Netscape Google companies and market is stagnant. This is a very interesting article about taking money out of the equity market . It is as if we are at the end of neoliberalism with the plutocrats securing their lot before the herd cottons on to what is happening. Reminds me for some reason of the fall of the Nazis ,

@Michael Hennigan, @DOCM

The point about Enda Kenny’s recent forecast for unemployment up to 2018 is completely overblown. Its only a forecast, probably made by some junior civil servant with a mediocre level of expertise in statistical analysis, and who probably bet his house on Leicester City to be relegated this season. People should focus on actual outcomes (in the past, so we know what they are), not forecasts (in the future, so we don’t know how accurate they are).

In general, economic forecasts are not worth the paper they are printed on.

As evidence, here are the IMF forecasts for the Irish economy published in January 2015, and which were posted by Seamus Coffey in a thread on this site on 29 January 2015. Please note that they are not Seamus Coffey’s forecasts, but the IMF’s. Here is the link:

In their forecast, the IMF predicted that:

(1) Ireland’s GDP growth would fall to 3.3% in 2015 (from 4.7% in 2014).

(2) Ireland’s GNP growth would fall to 3.1% in 2015 (from 4.0% in 2014).

(3) Growth in domestic demand in Ireland would fall to 2.4% in 2015 (from 3.8% in 2014).

(4) Ireland’s unemployment rate would stall, falling only to 10.7% in 2015 (from 11.0% in 2014) – echoes of the recent Enda Kenny forecast.

(5) Ireland’s inflation rate would rise to 0.9% in 2015 (from 0.6%) in 2014.

(6) Ireland’s balance-of-payments surplus would fall to 2.7% in 2015 (from 3.4% in 2014).

The 2014 figures in brackets in each of the above are what the IMF were forecasting in January 2015 for 2014 outcomes, not the actual 2014 outcomes. All the IMF forecasts are at the end of the paper that Seamus Coffey gives a link to in his thread of 29 January 2015, and to which I give a link above.

If you link to the thread, you’ll find that the the third comment is from myself. This is what I wrote back then:

“Some of the IMF figures look decidedly dodgy.”

“(1) They predict growth of 4.7% in GDP and 4.0% in GNP in 2014. But, both these would require a dramatic slowing-down in growth in Q4 2014. There is no evidence whatever that this happened. The industrial output figures for October and November showed an acceleration in growth. More likely estimates for growth in 2014 are 5.5-6.0% in GDP and 5.0-5.5% in GNP.”

“(2) They predict a sharp slowing-down in growth in 2015 as compared with 2014. Given the stimulus from the collapse in oil prices and tax cuts in 2015, neither of which contributed to growth in 2014, it is more likely than not that growth in 2015 will be higher than in 2014.”

“(3) They predict the fall in unemployment almost grinding to a halt, at 13.0% in 2013, 11.0% in 2014 and 10.7% in 2015. This seems very unlikely. Live register figures indicated the fall in unemployment was accelerating towards the end of 2014, not slowing down. It was already down to 10.6% in December 2014. So, for the IMF forecast to prove accurate, unemployment would need to rise in 2015 from its December 2014 level. Very unlikely. A figure in the range 8-9% is much more likely for the unemployment rate in 2015.”

“(4) It is also extremely unlikely that, with an election on the horizon, the volume of public consumption will fall in 2015, or that, with the 50% fall in oil prices, the rate of inflation will be higher in 2015 than in 2014 or that the current account surplus will fall by almost half between 2013 and 2015.”

So, that was what I wrote back then.

But, what actually happened in 2015? Who was right? The IMF or JTO?

Judge for yourself.

(1) GDP/GNP growth in 2014.

IMF forecasts (in Jan 2015) for 2014: 4.7% (GDP) and 4.0% (GNP)

JTO comment in Jan 2015: “Both these would require a dramatic slowing-down in growth in Q4 2014. There is no evidence whatever that this happened.”

Actual outcome in 2014: 5.2% (GDP) and 6.9% (GNP)

1-0 to JTO.

(2) GDP/GNP growth in 2015.

IMF forecasts (in Jan 2015) for 2015: 3.3% and 3.1%

JTO comment in Jan 2015: “They predict a sharp slowing-down in growth in 2015 as compared with 2014. Given the stimulus from the collapse in oil prices and tax cuts in 2015, neither of which contributed to growth in 2014, it is more likely than not that growth in 2015 will be higher than in 2014.”

Actual outcome in 2015 (Q1-Q3): 7.0% (GDP) and 5.7% (GNP)

2-0 to JTO.

(3) Growth in domestic demand in 2015.

IMF forecasts (in Jan 2015) for 2015: 2.4%

JTO comment in Jan 2015: “Given the stimulus from the collapse in oil prices and tax cuts in 2015, it is more likely than not that growth in 2015 will be higher than in 2014.”

Actual outcome in 2015 (Q1-Q3): 9.4%

3-0 to JTO.

(4) Unemployment rate in 2015.

IMF forecasts (in Jan 2015) for 2015: 10.7% (down just slightly from 11.0% in 2014)

JTO comment in Jan 2015: “This seems very unlikely. Live register figures indicated the fall in unemployment was accelerating towards the end of 2014, not slowing down. It was already down to 10.6% in December 2014. So, for the IMF forecast to prove accurate, unemployment would need to rise in 2015 from its December 2014 level. Very unlikely. A figure in the range 8-9% is much more likely for the unemployment rate in 2015.”

Actual outcome in 2015 (Nov): 8.9% (and very likely to be revised down in next QNHS)

4-0 to JTO.

(5) Inflation in 2015.

IMF forecasts (in Jan 2015) for 2015: rising to 0.9% from 0.6% in 2014

JTO comment in Jan 2015: “It is also extremely unlikely that, with the 50% fall in oil prices, the rate of inflation will be higher in 2015 than in 2014.”

Actual outcome in 2015 (Nov): -0.2%

5-0 to JTO.

(6) Balance-of-payments surplus in 2015.

IMF forecasts (in Jan 2015) for 2015: falling to 2.7% (from 4.4% in 2013)

JTO comment in Jan 2015: “It is also extremely unlikely that, with the 50% fall in oil prices, the current account surplus will fall by almost half between 2013 and 2015.”

Actual outcome in 2015 (Q1-Q3): up to 4.4% (from 3.1% in 2014, with Q4, normally the best quarter for the balance-of-payments, still to come)

6-0 to JTO.

Remember that the IMF forecasts were published in Jan 2015, well after the large fall in oil prices. Also, the international environment in 2015 has turned out to be less favourable than expected in January. So, the question needs to be asked: why are the IMF forecasts markedly inferior to JTO’s forecasts right across the board? And, when the IMF publish their next set of forecasts, why should anyone pay the slightest attention to them?

Nice try, Enda. There cannot be any dynamic equilibrium under climate change. This week’s floods are driven by 30 year old emissions. the feedback loops involve the oceans and take far longer than any DGSE model considers.

Even for bread and butter economic issues the DGSE approach is banjaxed. Where is the Phillips curve these days ?

@ seafóid

What Europa did getting into bed with the spivs ,thugs and parasites of neoliberalism is the big question, innit.

Neoliberalism in Europe has been tame compared to in Communist China where in the 1990s Zhu Rongi, the Chinese premier, ended the obligation of business firms to provide housing and health care services while 30m jobs were cut in state companies.

Two years ago the so-called “iron rice bowl” — lifetime jobs for civil servants — was abolished. Social protection spending is in single digits.

Government spending as a ratio of GDP in the big developed countries has ranged from close to 40% in the US in recent decades to the high 50s in France.

There has been good and bad deregulation — I assume you would not wish to get your broadband from a state monopoly or have air transport also restricted to government services?

Germany, France and Italy account for about 65% of Euro Area GDP — allowing for a decline following Germany’s post-reunification surge in spending, there is no evidence of a big shrinkage in public sectors.

People tend to like cause and effect explanations in soundbite sizes but usually there aren’t simple explanations.

Over the long-term, economics does tend to come back to basic arithmetic — think of Greece, Venezuela and Argentina.

It is also a reality that in Europe many voters are not willing to pay very high taxes on the promise of politicians that the money would be spent prudently.

@Michael Hennigan

Reading media commentary this week, it seems that liberals now actually believe that governments control the weather, and that bad weather and any damage it causes is due to unfettered capitalism and corruption in government. That’s what both the Irish Times and Ireland Central were peddling this week. Forget the 7% growth, how can any one possibly vote for parties that caused the recent downpours? We need proper socialist planning to avoid such calamities in the future. You couldn’t make it up.

Back in the late 1950s my home village (50-50 mixed) in the Foyle valley in Tyrone was badly flooded. My aunt’s house was under 2 feet of water. She lived upstairs for a few days. The water reached altar-high in the chapel. The local doctor (a Protestant) made a name for himself by wading through the water and rescuing the ‘Blessed Sacrament’ (his words at the time). Back then relations between the nationalists and the Stormont Government were very bad. The nationalists were badly treated and blamed the Stormont Government for almost everything. But, not even the most fanatical nationalist back then (among them my flooded aunt) would have dreamed of blaming the Stormont Government for the weather or its consequences. They’d have thought it was crazy to do so.

In those days most people would have described days of torrential rain and flooding as ‘Acts of God’. As modern liberals don’t believe in God, they need someone else to blame. If storms sweep across the Atlantic, causing torrential rain for 3 days, and flooding ensues, why its the Government’s fault. If only they had implemented a proper socialist system of planning, with people being directed to live only where socialist planners deemed it prudent for them to live, then none of this would be happening.

According to the Irish Times, the recent flooding is not an ‘Act of God’, but a visible manifestation of corruption in the planning process. If only planning was done properly as in other European countries, flooding would disappear. That’s what we’re now being told. But, its all drivel of course. Here’s a list of flood reports in recent years from other countries. Unfortunately, this site doesn’t allow multiple links, so I can’t provide them, but they are easily googled.

June 1997 – eastern Europe:

The flood that occurred in summer 1997 in Poland, affecting the drainage basins of the Odra and the Vistula, caused 54 fatalities and material losses of the order of billions of US$. The flood struck a large part of the country and caused inundation of 665 000 ha of land. The number of evacuees was 162 thousand.

August 2002 – central Europe:

In August 2002 a flood caused by over a week of continuous heavy rains ravaged Europe, killing dozens, dispossessing thousands, and causing damage of billions of euros in the Czech Republic, Austria, Germany, Slovakia, Poland, Hungary, Romania and Croatia.

16 June 2010 – France:

Deadly flash floods hit southern France

The worst flash floods seen in 200 years swept through a tourist area of south-eastern France on Wednesday, leaving at least 19 people dead and 12 missing. The main highway between Monaco and Marseille was reported under water in many places.

3 June 2011 – Denmark:

Heavy rains have flooded hundreds of homes and several streets in Denmark’s capital, disrupting traffic and delaying trains. The Danish Road Directorate says the floods have forced it to close four major freeways surrounding the city Sunday and have delayed trains in the region. Rescue Services said 150 millimeters of rain fell over the Copenhagen area on Saturday and Sunday.

23 Nov 2011 – Italy:

Three people have been killed after flash floods triggered a landslide that swept mud and water through an Italian village. The victims included a ten-year-old boy, a father and his grown-up son, who all died after a wall of mud and debris crashed into their homes and swept them away following 24 hours of torrential rain. A 24-year-old woman feared dead was found in the wreckage of her destroyed home with mud and debris up to her neck. It is the third tragedy involving flash floods to have hit Italy in less than a month, following similar events in Genoa and the nearby Cinque Terre, which have left 17 people dead and caused damage costing millions of pounds.

26 Janurary 2013 – Australia:

Severe storms struck New South Wales and Queensland, Australia Friday, setting off fatal flash floods. 9News reports that at least six people died Friday, five of whom died in vehicles stranded by floodwaters. A six-year-old boy, the latest reported death, was swept into the ocean and rescued, but later died at the hospital.

7 June 2013 – Germany:

Record floods engulfed the historic eastern German city of Dresden today, swamping its Baroque architecture and driving thousands from their homes. A tide of debris-laden brown water also submerged other towns on the River Elbe, forcing the evacuation of tens of thousands while volunteers battled to save the centre of Dresden, the capital of Saxony, 120 miles south of Berlin. Floods have killed at least 89 people in Germany, Russia, Austria and the Czech Republic over the last week, after torrential rains sent a huge surge of water through river systems. At least 10 died in Saxony.

20 June 2014 – Bulgaria:

Heavy floods have hit eastern Bulgaria, killing at least 10 people and causing severe damage to several cities.

26 June 2014 – Brazil:

Less than three hours before the start of the titanic USA-Germany showdown on Thursday, the streets of Recife were flooded to knee level. While the soccer stadium is actually located about an hour outside of the city, the water was causing problems for both local residents and everyone who was trying to get out to the stadium grounds after spending the night in the city.

7 October 2015 – U. States:

Devastating flooding gripped South Carolina over the weekend and into Monday as heavy rain hammered the region. Seventeen people were killed as a result of weather-related incidents in the Carolinas since Thursday, emergency officials reported. Six were killed in traffic incidents and 11 were killed in drowning incidents after driving through high water, officials said on Tuesday. Two people were killed in traffic incidents in North Carolina.

Interstate 95 was one of hundreds of roads that were closed in South Carolina due to flooding with some roads being completely washed away.

1 December 2014 – Morocco:

Floods in Morocco has killed up to seven people a week after a previous storm left 36 dead, media reports said on Monday. Storms again lashed the south of the kingdom, with the resort of Agadir experiencing the equivalent of an entire year’s rainfall – more than 250 millimeters (10 inches) – between Friday and Sunday. The bad weather, which finally eased overnight, led to many rivers bursting their banks and causing widespread damage, especially in the Guelmim region 200 kilometers (125 miles) south of Agadir, which has been declared a disaster area.

22 June 2015 – Canada:

Toronto streets are flooded after severe thunderstorms dumped nearly 100 millimetres of water across the region.

8 September 2015 – Spain:

Ten people in total have died in Spain in the regions of Andalusia and Murcia due to flash flooding brought on by downpours.

4 October 2015 – France:

Violent storms and flooding have hit south-eastern France, killing at least 17 people with four more missing, officials say.

1 November 2015 – U. States:

HOUSTON — A sixth death has been confirmed in Texas after another band of storms spawned tornadoes and flooding in this area Saturday, the second day that extreme weather hit the state.

In the Houston area, some locations received nearly 12 inches of rain since Friday though it had mostly stopped by Saturday afternoon, and starting around 5 a.m. CT Saturday six tornadoes touched down in Alvin, Barrett, Danbury, Friendswood, Lake Jackson and Pasadena and La Porte. All are areas to the south and east of Houston.

2 November 2015 – Portugal:

An elderly man has drowned after a heavy storm caused severe flooding in Portugal’s Algarve region. … Municipal workers, storekeepers and residents shovelled away thick mud and fire crews pumped rainwater out of basements in Albufeira, the hardest-hit resort.

27 December 2015 – Britain:

Heavy rains led to severe flooding in northern England, Scotland and Wales on Boxing Day and into Sunday, with at least 24 red alerts for “danger to life” still in effect as of Sunday afternoon local time as several rivers continued to rise above record levels.

Homes, businesses and cars have been submerged or even swept away after repeated bouts of heavy rainfall. Major cities that have been affected by flooding include Manchester, Leeds and York.

30 december 2015 – U. States:

Missouri has been engulfed by “historic and dangerous” flooding with water levels expected to crest at record levels in the coming days following a severe storm that has wreaked devastation throughout the southern and midwest United States. As the National Guard was called in to maintain security in evacuated areas, state governor Jay Nixon said on Tuesday that the floods, in which 13 people have been killed, could “go to levels never seen before”. Twelve of the victims were killed when their vehicles were swept away, he said. The rare winter deluge, which threatens a repeat of the catastrophic 1993 floods, shut down parts of two interstates on Tuesday and has also caused chaos in neighbouring Illinois where inmates from a state prison had to be transferred. Five people have been killed in Illinois.

The reality is that, just as with other weather events such as hurricanes, tornadoes, heatwaves, blizzards, snow and ice, droughts, Ireland suffers very little from flooding compared to most other countries with more extreme weather patterns. There are very rarely fatalities and almost never floods that cause multiple deaths such as those in most European countries in recent years. There is usually little by way of structural damage. Most damage from flooding in Ireland is ruined carpets. which is no doubt very distressing for those affected (like my aunt in the late 1950s), but hardly Noah’s Ark.

If whole areas of Ireland are to be emptied of people and not built on because socialist planners think the risk of flooding is too high, then I’m afraid that York, Carlisle, Bristol, Dresden, Copenhagen, Toronto, St Louis, Charleston, Marseille, the Algarve, Andalusia, Genoa, Budapest, Queensland, Warsaw, Bulgaria, Venice, Trieste, New Orleans, Pensacola, and a host of others, will have to be similarly evacuated, as they’ve all suffered much worse flooding in recent years. And, that’s not even counting the places that suffer from other weather risks, like earthquakes, hurricanes, heatwaves etc.

The reality is that weather-related damage, injury and even death (although fortuitously little of the latter in Ireland) is a fact of life.Always has been. Always will be. Nothing that planners can do about it. They should get real.

As for whether or not vast sums should be spent on flood defences in Ireland, pragmatism and cost-benefit analysis is called for. If some village (usually just a small part of the village) is subject to regular flooding, then it should be considered. But, not if there’s flooding once every 30 years. In most cases, money would be better spent on improving roads. Even with greatly reduced road fatalities, there was still 164 killed on R. Ireland roads last year. I don’t know if any were killed by flooding, certainly the numbers would have even minuscule in comparison. So, in most cases, getting rid of killer bends on roads would be a better use of resources than trying to prevent rivers overflowing every 30 years or so, although (as I say) there might be occasional exceptions.

Would the ECB be able to kickstart demand for League of Ireland football via QE? It is about as plausible as the ECB generating growth via QE.


You are surpassing yourself! On forecasting, one is obliged to quote JK Galbraith who opined that “the only function of economic forecasting is to make astrology look respectable”. This also holds true of your forecasts, although it must be accepted that your immediate record looks good.

On flooding, it is Ireland’s good fortune that economic development has not been such as to allow the level of building on flood plains which leads to such catastrophic results in the economies, supposedly more fortunate than ours, that you have cited. It must, however, eventually occur to people in Ireland that building one’s house with some elevation – preferably over a cellar – is the best guarantee against flooding risk; that and building, or buying, on a hill and with close regard to the risk of flooding, which is not always obvious. (You will have noted the comments flying in the political wind to the effect that it would be cheaper to re-locate the some hundreds of houses either inundated or at immediate risk than to spend millions on expensive flood protection which simply shifts the problem either upstream or downstream).

@ MH

You are correct in your view with regard to Germany, France and Italy. The French have woken up. The Italians have yet to do so although they are, paradoxically, better placed to make the necessary changes. A link that bloggers may find of interest in this respect.

That such an effort would be devoted to examining what OTHER countries of the EU have done in the matter of structural reforms of the labour market is a definite indicator that the French establishment has recognised that the European caravan is, and will continue, moving on, with or without France.

What also emerges is that each country has perforce been obliged to find its own solutions in order to restore competitiveness. It is impossible to imagine a standardised solution given that the issue is one of societal choice. It is the result that matters.

The extensive data also suggests that the process of adaptation is not being left by Germany entirely to the other countries, notably the – belated – introduction of a minimum wage, even if a circumscribed one.


Nice try, Enda. There cannot be any dynamic equilibrium under climate change.

I don’t think you should be so dismissive. How do you think climate change models work? Your claim that DSGE models could not ever incorporate climate change, well, could use more justification. The paper I linked to shows the first phase of this is already under way.


‘Lone Star is a €45bn fund which is owned by a ‘Texan private equity tycoon’ John Grayken who became an Irish citizen in the late 1990s. He is the fourth richest person in Ireland according to the Sunday Independent Rich List 2015. They state that Grayken made his fortune by making up to 20% return on his investment in ‘buying distressed assets in bombed out economies and flipping them as markets improved’. NAMA is giving Grayken and other super wealthy investors another opportunity for massive wealth accumulation. They gain from purchasing NAMA land and assets at a discount and then selling them for higher prices and they gain from the escalating rents and house prices. They are making hundreds of millions in ‘super profits’ on their investments. For example, it was reported that Blackstone, the world’s biggest private equity firm, made in the region of €40 million profit from the sale of buildings it bought in Dublin’s south docklands from NAMA. Similarly, it has been speculated that Cerberus, the US company that bought the controversial Project Eagle loans from Nama could make a few hundred million in profit on the transaction. These profits don’t come from thin air –they are being paid for by the Irish people through the on-going repayment of the bailout debt and escalating rising rents and house prices. And we wonder why inequality and the housing crisis are worsening?’



The timescale over which climate change works and the feedback loops are very difficult to model. Because we dont understand the role of the oceans in converting the excess heat of cc into excess moisture.

Modelling economies over 30 years involves massive levels of uncertainty. It increases the further out you go. Adding in climate would appear to me to be very tricky.

I think DGSE models already have a problem with how crises work.
This is an interesting view from 2008

“In real life, unlike in many of our models, crises are not an instant but a time period. This time dimension creates ample opportunity for all sort of strategic decisions within a crisis. Distressed agents have to decide when and if to let go of their assets, knowing that a miscalculation on the right timing can be very costly. Speculators and strategic players have to decide when to reinforce a downward spiral, and when to stabilize it. Governments have to decide how long to wait before intervening, fully aware that delaying can be counterproductive, but that the political tempo may require that a full-blown crisis becomes observable for bickering to be put aside.”

the other problem is that humans are herd animals. Most projections converge because of this.

1. tullmcadoo Says:
April 16th, 2014 at 9:06 am
Anybody who has ever done macro forecasting for a “living” knows how that you spend all of your time looking at Y1 and trying to guess where C+I+G + (X-M) is going by extrapolating recent trends and talking to your mates in other forecasting bodies. Then you look at all the other forecasts and go + or minus depending on how you feel.

And thus in times of heightened uncertainty, most projections are wrong.


There can never be a guarantee of no flooding and in recent decades there have been responses in Europe to building on floodplains and measures such as in France to mitigate the impact of flooding by raising floor levels, requiring heating equipment to be above floor level and so on.

Inter-country management commissions for rivers such as the Rhine and the Danube have also been active.

The Dutch of course have the greatest level of expertise in handling water.

The UK’s dysfunctional planning system may be worse than the Republic’s given the building restrictions on Nimbyland known officially as the greenbelt, resulting in overbuilding on floodplains.

Further to my comment above on Bandon, I have a more comprehensive piece here:

I remember in times past walking on the foot bridge in winter and the raging water from the nearby weir was often high but it seldom flooded the town.

Bad or reckless planning is a key factor and after a ministerial announcement of a flood relief project in 2012, work will commence at least 4 years later.

The Dutch are always lauded as the masters of water management. After 1953 they built a system of dykes and dams that offered protection relative to value at risk. Amsterdam has the highest level of protection. No system is perfect and this one’s Achilles Heel would be the combo of a storm surge on the North Sea and a heavily flooded Rhine. Climate change makes that dystopia more and more likely.


Believe it or not I thought of you as I watched/read the usual self-loath-athon approach of the media to the crisis.

Though It would appear the government are now fearful of being blamed for rain and are likely to throw some money we don’t have at the problem.

As we used to say down home ‘It would be a great country if only you could roof it’. Perhaps that will be the solution.

@Michael Hennigan

How many have died in floods in Bandon in the past 50 years?

How many have been killed in road accidents in Bandon in the past 50 years?

I’d suggest that the number for the latter is much greater than for the former?

Probably the best investment that Ireland has ever made in relation to saving lives is the massive investment in motorways and roads that the FF Government launched from 1997 on. This led to a 75% reduction in the road deaths rate between 1997 and 2011 (a saving of about 450 lives per year). Unfortunately, the FG-Lab Government has failed to reduce it further, so its now stalled (although at the low level bequeathed by FF).

Yet, most media commentators opposed the road-building plan. They’d much rather spend the money on ‘flood defences’, even though the number of fatalities from floods in Ireland is minimal compared to that from road accidents. Investment in ‘flood defences’ is now ‘politically correct’ while investment in roads isn’t, even though any cost/benefit analysis would show spending on roads to be more generally beneficial (possibly with some localised exceptions). Presumably, this is because it fits in with the modern theory that man, not God, controls the weather. Therefore, when there is a spell of bad weather, there is media pressure on government to ‘do something about it’.

Once something becomes politicised, all rationality goes out the window. Now that the weather has become politicalised, we are subject to daily politically-motivated hysteria about coming weather armageddon. An article in the Sunday Times yesterday forecast that Dublin would soon be wiped out by flooding and dams bursting in the Wicklow mountains. I have mixed feelings about that, Its terrible to think of a million people drowning. On the other hand, Dublin are likely to be Tyrone’s main rivals for the Sam Maguire this year. So, its an ill wind…


Motorway construction, together with all other headings of the capital programme, has collapsed because of the budgetary bust that FF policies gave rise to. The current standing of that once mighty party, capable of winning an overall majority, in the opinion polls would suggest that the electorate has not forgotten.

This year’s election will be crucial for the future of FF. Maybe eventually they will merge with the moderate wing of the Shinness to become FFS. Which is what a lot of voters would have thought last time.

The “two and a half party system” or the more recent “one and a small party plus one and a slightly larger small party” system served reasonably well for nigh on 80 years since the peaceful transfer of power in 1932. There was always the semblance of a reasonably credible ‘government-in-waiting’ to provide voters with a choice. That no longer is the case and it is not a healthy situation. But it suits the well-entrenched special interest groups.

I think this election is going to be a farce. FG will be campaigning on a stability meme as if stability in the dying days of neoliberalist monetarism that can’t even hit its own 2% inflation target is possible. Massively overvalued financial assets and there is only so far all those algorithms can drive prices. Bonds could go to minus 500 bps of course but that would be well beyond the pay grade of even Milton Friedman. Ireland is not only looking potentially at Brexit but also at the breakup of the EZ over the lifetime of the next Dail.
And the Civil Service is still living in the 1800s

Pete Lunn is a really smart cookie who I admire immensely but it is pathetic from a governance point of view that there was actually a need for a paper on policy vs evidence in the Ireland of the year of our Lord 2014.

And NONE of this will be discussed in the run up to the election. No, it will all be 7% and I believe I can fly.

I just ordered a new T shirt.

“Neoliberalism is f#cked. Tell FG when they come canvassing.” Yours for 60 Euro plus postage.

Stagnation is the problem and has been since the 1970s say the people at Monthly Review They have more credibility than anyone at Goldman Sachs. MR didn’t have to be bailed out in 2008 .

Consider the following

1. USD 9 trillion in QE globally and not a single OECD Central Bank can manage 2% inflation, their only target under monetarism

2. 3 trillion USD in bonds are now yielding negative rates.

3. There are NINE growth stocks left in the SnP 500.

4. USD 1 tn was taken OUT of the SnP 50o in buybacks in 2015. SFA investment

This is also germane to the Irish bailout. There was no point in repaying the bondholders in full because the fuc%ers didn’t do anything with the money. It should have been paid subject to a commitment to invest productively.


It amazes me that these ‘titans’ do not realise that the theory and practice of macroeconomics is in totally uncharted territory. The debate described in your link comes across as a bit of mutual intellectual masturbation. It’s unlikely to have any influence on the policy-makers – they are always on the lookout for policy-supporting evidence rather than evidence-based policy.

Actually these guys are more interesting and useful when they step back and try to outline the big picture. Summers, for example, is good when presenting his thoughts on “secular stagnation”. Brad de Long recently presented an interesting take on Piketty’s “Capital etc”:–bradford-delong-2015-12

Progressives everywhere are damned by what I call Gramsci’s curse:
“I’m a pessimist because of intelligence, but an optimist because of will.”

Most economists – whether academic or practical – are not burdened in this manner. And Irish economists are less burdened than most.

@DOCM: Looks like PH got in ahead of me.

From Sandbu’s ‘Free Lunch’ piece. “The tremendous power of economic models is that they filter out the complexity of real economic life to allow us to see the bare forces at work.”

This is gibberish – or Bullshit if you prefer. Just check how often the term ‘assumption’ appears in any description of an economic (mathematical) model. You can assume (with considerable caution) that a particular variable may have a null effect, but you must run the model in real time, with statistically reliable data*, then observe the outcomes. But what about the behaviours of the unknown variables? Or the close coupling of different variables? How is that ‘filter’ Sandbu refers to, to be chosen and deployed then? We all know what the ‘bare forces’ actually are; its the applied political complexity which dismays us. It does have a human ‘logic’: give promises according to political motive, then fulfill them according to political circumstances. Can anyone realistically call this type of behaviour logical? Its plain self-serving stuff.

“There is much food for thought here on the philosophy of mathematics and its use in finance and economics.”

Nope, its pathetically simple. Mathematics is a system rules based on genuine logic – whereas humans are by evolutionary development, non-logical. We would hardly have survived and thrived this long if we were solely logical and rational.

Economics, or more correctly Political Economy, is all about the myriad of human interactions with each other and with our contrived environments. Hence mathematics has only limited roles: engineering; science; statistics. Economic modelling is not one of those roles – it merely provides confirmation about the obscene arrogance of so-called high intellects. Academics are intelligent suckers and are constantly seduced by the ephemera of numbers.

As a pathetic example of this, refer to the example mentioned above on this thread by Enda: Jan 2nd; 5.22 am. ( ). I tried to make sense of it, but it was like attempting to wade through a flooded bog in lead wellies. The math was brilliant, though.

* This concept of reliable data is well understood by quantitative analysts but maybe not by economists. Hence all so-called quantitative economic data should be re-classed as qualitative opinion and carry a “Consume with Caution” label.

@ PH and BWS

A bit harsh! Summers has, at least, an enormous amount of hands-on experience. Whether he put it to good use or not is another matter.

Insofar as I understood them, I found the exchanges rather pertinent to current concerns. Not everything is quantifiable and mathematical formulas built around such elements fail to convince. On the other hand, a lot of elements in a modern economy are quantifiable and there is a basic broad consensus, it seems to me, on how one functions. The problem appears to be that some of the buttons being pushed on the theoretical control panel are not connected to anything that matters and the control panel needs buttons, as yet unknowable, to things that are.

Banking, for example, seems central to any such panel and to boil down to not very complicated arithmetic. Yet is appears not get much attention (other than the sort Summers applied to it under Clinton with disastrous results).


“climate change is a fact”

Possibly. I never made any comment on the causes of the heavy rain or disputed that there had been abnormally heavy rain. I merely pointed out that the floods in Ireland (both in recent weeks and historically) are pretty small beer compared with those I cited from other countries. According to yesterday’s IT, some 250 houses have had to be temporarily evacuated, about 1 in every 8,000. While no doubt very distressing for those affected, these numbers are small compared with floods in Europe and the U. States in recent years. So far, touch wood, I believe there have been no fatalities in the flooding, in contrast to multiple fatalities in many of the floods I cited in my earlier post. There were 12 road deaths during the Christmas break alone. That puts it in perspective.

Apparently rainfall in Ireland in November and December was 3 times the normal. If winter rainfall is 3 times the normal, and yet only 1 in 8,000 houses have to be temporarily evacuated, this hardly indicates massive defects in the planning process or that the entire government budgeted has to be redirected to defending the population from flooding.

As for the causes of the heavy rainfall, I have no idea. There are different theories. Obviously the number one theory at the moment is that its due to man-made climate change. I keep an open mind on this, but its perfectly possible. Others believe that its natural climate change. Others that its just random fluctuation. I’m not expert enough to know which is correct, although certainly your theory has majority support at the moment. I heard yet another theory on Radio Ulster over the Christmas break. A minister in the Free Presbyterian Church (Paisley’s Church) was claiming that the flooding in ‘Eire’ (as he called it) was God’s punishment for the SSM referendum outcome last May, and he warned ‘Ulster’ not to go down the same route. I don’t buy his theory at all, in fact I had a bit of a laugh when I heard it, but it could be fun monitoring the statistics over the coming year to see if there are any divergences in rainfall patterns north and south of the artificial border. I think its unlikely. In fairness, I can see why someone in his position would advance such a theory, given that the rainfall in Ireland this winter has indeed been of ‘Biblical’ proportions.

EZ headline inflation 0.2%. FFS. Whatever

it takes. I believe I can fly.

Target for those at the back is 2%. Who will deliver the coup de grace to neoliberalism? Put it out of its misery. And how much of all the debt will ever be repaid? 60 cents on the Euro ?
And sov debt is risk free under Basel, CAPM and Solvency 2. Herding the herbivores into a cul de sac where they will be machine gunned. The pity of it all.
Einstein noted that there were 2 infinites in the world. The universe and human stupidity but he said he wasn’t sure about the universe.


You’re taking us a long way away from what was probably the most interesting item in the original post – Frank Barry’s review of Eoin O’Leary’s monograph. What the big boys in the US, the UK and the EU do is obviously interesting and of relevance. But there is very little that Irish governing politicians and policy-makers can do other than to respond sensibly.

We appear to going through what is unfortunately likely to be a temporary phase of a reasonably stable and sensible Irish macroeconomic policy stance – even if the global background appears increasingly dysfunctional.

It also appears that Ireland will be able to continue to exploit the often unintended consequences of some of the big global players’ (in particular, the US) taxation and economic policies to maintain the MNC export enclave. Maintaining this enclave generates highly distorted top-level economic metrics which appear to satisfy the external observers, assessors and adjudicators. It also provides the cover for compensating for the rapacious and expansive capture of economic rents by the special interest groups in the sheltered private, public and semi-state sectors using a massive redistribution of income primarily via the welfare system.

As a result, governing politicians and policy-makers have relatively little room for manoeuvre. They have no incentive – and every incentive not to – tackle the endemic and expansive capture of economic rents. The key special interest groups are simply too well-embedded and two powerful. And Ireland is so darned small the mutual back-scratchers are always in close porximity. As a result the focus is on tweaking tax and spending policies to ameliorate the impact on final consumers and service users – or on seeking to conceal the extent of the rent capture.

Given the increasing openness of the economy over the last fifty years it is a delicate balancing act – and it took the previous “two and a half party system” quite some time until the early ’90s to resecure some semblance of a balance following the inflationary shock of the early ’70s and the subsequent sequence of hare-brained and then inept fiscal policies. This balnce was maintained for little more than decade and we are more than well aware of what happened since.

Not surprisingly, the great re-distribution of income and rent capture were curtailed somewhat during the period of the recession. But they were officially supported – both by sins of commission and omission – to the greatest extent possible. And now, as a much delayed recovery takes hold – and in the run-up to an election – the pressure is building to restore fully the great redistribution and the extent of rent capture.

However, similar to the Tories in Britain, only FG is in a position to secure office – most likely in association with a handful of others – and to be in a position to restore the great redistribution and the extent of rent capture.

And so the delicate balance will be maintained – until one or more of the powerful special interest groups become too greedy and lose the run of themselves. Or an external shock is experienced. Or until voters tire of what inevitably will become an increasingly arrogant, compromised and tired government. We can only hope that there will be a reasonably credible ‘government-in-waiting’ when that time comes, because such an alternative does not exist at the moment.

It would, of course, be much more efficient, equitable and sustainable if the rapacious rent capture could be curtailed and the compensating great redistribution could be reduced. But the forces of darkness and reaction are powerful – as Garret FitzGerald recognised in his “Diluting lobbies and unleashing growth” (which Frank Barry cites). If the Great Recession (whose severity in Ifreland was largely self-inflicted) could not loosen their grip it is hard to thnink of anything short of war or natural disaster that would do so.

“Banking, for example, seems central to any such panel and to boil down to not very complicated arithmetic.”

Banking is not, and never was, ‘central’ to a neo-classical Production/Consumption [PC] economy. It (banking) was (a very past tense) a useful service to provide credit for the creation and maintenance of productive capital.

To-day however, banking and finance have become vehicles for speculative gambling and have become a serious negative externalitiy on contemporary economies. They can create fiat money, then lend it out at compouding interest. That’s about the high-water mark of their productive usefulness. One hundred and sixteen years ago Thorstein Veblen laid out the trajectory of predatory pecuniary pursuits (aka: speculative finance)*. So what’s new then?

Great little world we have here! Some time ago there were lamentations on this site about the dearth of economists in the Irish Civil service. Looks like we need less of them – perhaps zero.

Please try and disregard all effusions from any ‘economist-of-note’ – most especially if they make reference to “economic models”. What we really need are folk who actually understand how our actual economy actually works, not vacuous helium-heads who know they know how it should work. And who have a dubious, if not a downright disasterous record.

*’The Theory of the Leisure Class’ – 1899.

Numbers are political but given this 0.2% is atrocious.
The best guide to what is coming imo is a box set of Brideshead Revisited. We are edging ever closer to an epochal inflection point. The models are all wrong.

Another thing. Monthly Review is unmissable at the moment. Stagnation is the core problem. Economists are lost.

“The great nations have always acted like gangsters, and the small nations like prostitutes, “ is a quote from Stanley Kubrick (1928-1999) director of the epic ‘2001: A Space Odyssey,’ the 1968 science fiction movie, which was memorable for its music as ‘The Force Awakens’ may long be to Irish people for the last few minutes on Sceilg Mhichíl!

For Ireland Apple’s Tim Cook is the more benign face of for example the East India Company (from my first reading of the line ‘ I had grown to my desk, as it were; and the wood had entered into my soul,’ by Charles Lamb, a clerk of the East India Company, it seemed so enduring when in contemporary times when we think of dwellers of cubicleland and the the work life of the wage slave).


“When the facts change, I change my mind” is a putative quotation of John Maynard Keynes. However, it appears that many people, in particular political partisans, are unmoved by evidence that they are wrong and the Internet or their existing beliefs will always deliver an affirmation that they are right.

According to Sir Samuel Brittan, the former Financial Times economics columnist, there is no evidence that Keynes used the banality about facts as facts don’t change.

A half century ago scientists commonly believed that they had to find as many examples as possible confirmed by research to support their theories.

However, Sir Karl Popper (1902–1994), an Austro-British philosopher and professor at the London School of Economics, famously wrote: “No number of sightings of white swans can prove the theory that all swans are white. The sighting of just one black one may disprove it.” New evidence can thus overturn an existing fact.

Paddy O’Sullivan, a lecturer at UCC introduced me to Popper.

In recent times there has been evidence that facts not only don’t change minds but they can entrench the opinions of people who believe that they have the truth.

“The general idea is that it’s absolutely threatening to admit you’re wrong,” says political scientist Brendan Nyhan, the lead researcher of a Michigan study. The phenomenon — known as ‘backfire’ — is “a natural defense mechanism to avoid that cognitive dissonance.”

As regards the new Irish motorway network, why would Sweden and the UK have achieved a lower death rate than Ireland’s in recent times, long after the development of their road networks?

The OECD says the death rate in the 34 member countries has fallen 70% to an average below 7 per 100,000 since 1990.

The US has one of the highest death rates: 20 in 1990, 17 in 2000 and 12.4 in 2010; France was at 18 in 1990, 13 in 2000 and 6 in 2012.

The UK was at 10.5 in 1990; 6 in 2001 and 2.8 in 2013 compared with Ireland’s rate of about 4.

@ seafóid: Thanks for the up-date on MR.

Speaking of Stagnation. A +0.2% price inflation is essentially a minor statistical error – it might just as easily have been 0.0% or even a negative value. Informationless.

In respect of the US economy; price inflation from 1955 – 2015 (60 years) is estimated to have been less than 4% p/a for 2/3 of that time (40 years), with a median of 3.5% for the entire 60 year period.

In terms of the Permagrowth paradigm, a 3.5% p/a rate of price inflation is barely adequate, especially if you factor in the increase in the US population over that same time period. If you compound that 3.5% p/a rate increase over 60 years, it comes in as an eight-fold reduction in purchasing power. Did the median US wage increase as well – to compensate? Apparently the US median wage has been declining for quite a while. How about personal savings? (which actually declined to near zero in the early 2000s) and the timer on the Boomer pension IED? Now, tell me about the increase in personal debts? Ah yes! – exponential. Funny that.

Debt taken on yesterday is a subtrahend from to-day’s growth. Debt taken on to-day is a subtrahend from to-morrow’s growth. That’s basically Third Form math. Like 4 -1 = 3. Or does economic theory assume that debt like credit, is merely a virtual entity rather than a real one; hence it may be ignored since it will have a null impact on annual economic growth rates? Looks like it.

Maybe that’s why interest rates have to be maintained near zero. The economy would rapidly capsize if they increased. Perhaps the below water-line seams have sprung and the bilges are already awash and its only the heroic action of the pumps that prevent the ship from foundering. Better locate a sandy shore in a sheltered bay to beach-up on. Unless you like swimming.


Are you sure about the role of banking?

Sandbu has been IMHO consistently light years ahead of any other commentary, FT or otherwise, on economic issues and in a manner which is comprehensible to those – the majority – without a formal qualification in economics.

@ MH

The major cities of Stockholm, Gothenburg and Malmo in Sweden are still not connected by motorways, to my knowledge. This reflects, one would assume, a considered economic cost/benefit analysis. It is a big country! Ireland, on the other hand, is a very small country and to failure to connect up ALL the major cities is a a failure of such analysis. What price capital investment when one has voters to keep happy!

The almost totally bizarre level of auction politics currently takes place raises the question as to which is the more cynical, the politicians or the electorate; or maybe they are united in their cynicism.

@ Michael

“facts don’t change”

What? Of course they do. Man Utd are no longer invincible. 25% RoEs are no longer reasonable or sustainable.


There may be widespread cynicism among voters, but, to the extent that there is, it is a learned cynicism generated by observing the behaviour of the politicians. Of more interest is the evidence emerging consistently from opinion polls and the 2014 local and Euro elections that the electorate appears to be divided in to two broad camps. On one side, there are those who engineer and greatly benefit from rent capture, those who benefit directly or indirectly from the rent capture (but do not engineer it) and those who may not be fully aware of the nature of the rent capture but who believe (either mistakenly or not) that they benefit from the arrangements underpinning this rent capture – with the last two sub-categories also benefitting from the great redistribution. On the other side are those who are disgusted and angered by the way the current governance arrangements allow certain special interest groups (whom they have either identified or to which their attention has been directed) to behave with impunity at their expense and who believe the great redistribution should be skewed much more in their favour.

Not surprisingly none of the politicians (mainstream parties in the first camp and non-mainstream parties and individuals in the second) seeking to shore up or increase support from either or both of these camps will address the pervasive rent capture or the great redistribution directly. And, while many might not understand the minutiae of either of these key features of the Irish economic polity, the majority of voters are well aware of how they impact on their own lives. If there is cynicism, this is where it may be found. But it emerges as this quintessentially Irish ability to suspend disbelief almost indefinitely and to project and sustain all sorts of optical illusions. This is not uniquely Irish; there is plenty of evidence of these phenomena in other polities. But it is far more pervasive in Ireland.

As a result, the economic policy debate, insofar as one exists, is entirely confected and ritualistic. In order to conceal the shared avoidance of any consideration of rent capture or the great redistribution an impression of a polarisation of policy stances is presented, but it is just a cunning imitation of the “talking past each other” and polarisation evident in the US:

And even these protagonists are adept at avoiding consideration of various elephants in the room.

Dan O’Brien, in the Indo today is doing a bit of scare-mongering to bolster political support for the rent capturing/great redistribution status quo. But it’s unnecessary. The outcome of Britain’s election last May is more relevant than the outcomes in the other PIGS. Brendan Keenan, in contrast, is more astute in his assessment of the great redistribution:

The absence of a credible ‘government-in-waiting’ will have more of an impact than the delusions, evasions and confected passion of non-mainstream politicians.

@DOCM: The role of banking and finance? Yeah, 101%.

Lending for the formation of productive capital only makes economic sense if the locations into which you are lending are low wage-cost, have low or no welfare protections, have low or no environmental abatament costs and have currencies that can be swiftly depreciated (to increase or maintain export share). Mind you, those economies better have a lot of non-indebted consumers to sell to 😉

In our developed economies, lending has to be principally for non-productive purposes (ie: financial speculation and asset value appreciation). The global financial institutions can now borrow at near zero interest rates from compliant CBs, if they really need to do so. However, their principal financial activity is issuing fiat credit almost without limit – at compounding interest, based on the certain increases in the value of assets whose values are promptly levered up as a consequence of the massive inflation in the money supply.

eg: the 350% increase in Irish residential property values! Same Dublin house: 1995 @ 300,000 – 2006 @ 3,000,000.

The ‘rent’ collected by these global finance gambling casinos is either paid out to their executives or re-cycled into new speculative financial lending. Little goes into the formation of productive capital in our economies Also, the lenders can now rely on their governments to backstop any significant ‘losses’ if the inflated assets should have their values reduced. I say ‘losses’, because no real economic or financial loss ever actually occurs: there was never any investment of real money to begin with – it was almost entirely virtual credit.

There is an anomaly – which is rarely alluded to, and poorly understood by most folk: credit is virtual (and almost costless to emit) whereas debt is real. What this means, in economic terms, is that in order to repay the debt (and the principal) the borrower has either to make something tangible, using real resources and then sell it (at a profit) or provide some service. For the borrower, the repayment of debt results in a reduction of surplus income, together with the comcomitant increase in the price of the good or service being consumed. That is, lending fiat credit into a predominantly service-type economy automatically bids up costs (wages and prices). The truely shocking aspect of this is that some economists are recommending ‘austerity-style’ actions (reduce wages and taxes) as a means to ‘re-stimulate’ consumption – via a re-newed cycle of lending and borrowing. The logical outcome of this economic idiocy is that consumers (government, business + private) will have even less incomes: less!! Now what will be the economic consequences of that? Increased borrowing? Increased consumption? Increase in the rate of economic growth? Or the exact opposite?

Just imagine if you and I had printing machines in our homes which could churn out legal tender notes at will – and little costl. Or we had credit cards with no lending limits and a kind relative who would pay the bills for us. Our financial institutions – as currently structured and operated are simply an economic ‘dead-weight’: their lending practices ‘crowd-out’ the surplus incomes (of all consumers), incomes that might otherwise be deployed to maintain, or even expand, real economic activity. To continue to assert that our financial institutions are truely systemic to our economies – hence must be ‘protected’ can, I argue, be no longer sustained. The weight of accumulating economic evidence would robustly refute those assertions. But who heeds evidence when your belief system holds that the evidence is ‘wrong’?

Sandbu? The FT? Jaysus DOCM, you mean they might actually read the FT in Darndale? I have had numerous conversations with supposedly economic literate folk and I have found them to be uniformly, and depressingly, poorly informed. Like limpits: they hold fast – and do not move too far. Thinking is hard work.

No comments on the end-year Exchequer returns, which were extraordinary even by Irish fiscal standards (large forecast errors are not uncommon). The cash deficit (the Exchequer Borrowing Requirement) was just €62mn against a target of €6.5bn. Some €4bn of unbudgeted capital receipts (proceeds from holdings in the various banks) was partly responsible but tax receipts came in €3.3bn or 7.8% above forecast,with corporation tax alone €2.3bn or an extraordinary 49% above profile. Who knows what is going on in the Irish multinational sector but we are assured that these receipts are ‘sustainable’.

The outturn renders redundant the assumptions underlying the 2016 Budget. Specifically, if tax revenue grows at the 5.8% projected rate the General Government deficit would be around 0.7% of GDP instead of the predicted 1.2%. The deficit in 2015 is now likely to be around 1.5% instead of the budgeted 2.7%,which, one suspects, was greeted with mixed feelings by the outgoing government.
I have argued before that there is a strong case for Ireland to move the Budget back to December, producing only a draft in October as many other Governments do; this would not eliminate forecast errors but probably reduce them . As it stands the budget analysis, including that of IFAC, is rendered redundant by events.

@ PH

Re-distribution is a feature of every developed economy. One man’s rent-seeking is another man’s entitlement. Deciding which is which can only be decided on the basis of establishing certain principles, the most important of which relates to what we mean by society (which Margaret Thatcher famously maintained did not exist). My own view is that it is best defined as the outcome of what we collectively degree to do together, the basic principle being that every able-bodied adult, not in full time education, must be expected to work and contribute to the collective effort before he/she can expect to be supported by the “collectivity”. This is neither the basis on which the current debate is taking place nor that underpinning the political campaigning . Brendan Keenan, for example, one of our best commentators, refers to the fact that the drop in income of the lowest decile over the period of the crisis is largely due to cuts in welfare. But welfare comes from the collective pot and we know from both the statistics and everyday experience that it is not based on this fundamental principle. That is not to fault those in that situation but those who have failed to get them out of it, a failure largely due to political expediency and the rent-seeking to which you constantly draw attention.

A second central principle should be equality of treatment in relation to certain basic benefits from the collective pot, notably health care, education and pension rights. The country is failing miserably on all three fronts, and contributing to the rent-seeking you decry in the process. The repetitive furore about the state of the health service is the daily manifestation of this failure.


My point regarding banking relates to the importance of its role. I am not making any judgments on how the role is managed. It seems to oscillate between no regulation and too much regulation with the pendulum coming back now to somewhere in the middle.

@ DMcL

Why not scrap annual budgets altogether? They relate to at most 10% of expenditure that is actually discretionary. As I have pointed out on many occasions, our two departments of finance have failed miserably over the period of the crisis to get a handle on either income or expenditure. If anyone doubts this contention, they are invited to consider the “outputs”, neatly put together by DPER, for the years 2013, 2014, and 2015.

We have had the Public Expenditure Division of the Department of Finance masquerading as a full scale department of state for the past five years. It is time that the charade ended.

“But welfare comes from the collective pot and we know from both the statistics and everyday experience that it is not based on this fundamental principle. That is not to fault those in that situation but those who have failed to get them out of it”

It goes back how kids are educated and the fact that in the modern economy a lot of workers are not required. Government takes up the slack with welfare and journalism takes up the role of dissing these people who are not respectable like the workers for whom there is work.

@ DOCM: ” …the basic principle being that every able-bodied adult, not in full time education, must be expected to work and contribute to the collective effort before he/she can expect to be supported by the “collectivity”.”

This pre-supposes that there IS ‘work’ available for each able-bodied person. That it is close to where they reside, and the rate of pay and the conditions of that work are agreeable – or how-so-ever one wishes to describe ‘work’. Otherwise your principle reads like a piece of ill thought-out, ideological demagogary borrowed from some religious tract or other.

As I wrote at the end of my comment above – “Thinking is hard work.” Or I might also phrase it this way: I have to create a deliberate, concious and intellectually meaningful engagement with the matter in hand. Politicians and most media commentators cannot, nor will not, do this.

“My point regarding banking relates to the importance of its role.”

My point too. Contemporary ‘banking’ no longer has any economic importance. Its basically unfettered loan-sharking.

“I am not making any judgments on how the role is managed.”

That’s an unacceptable co-out. You have to make judgements – and be prepared and able to argue in their defence. You do not have to be either ‘right’ or ”rong’ – just put forward a convincing (plausible?) argument.

“It seems to oscillate between no regulation and too much regulation with the pendulum coming back now to somewhere in the middle.”

Nope. The regualtions were introduced for practical reasons: the persons owning and running the banks behaved as crooks, thieves and fraudsters.
Governments had no alternative – citizens and law-abiding business had to be protected from those financial predators. And they were. Until 1998, when the pendulum was trashed. Wer’e still waiting for it to be restored. Guess who is dragging it out? Its not the banks!


The principle I enunciated is not my own creation but the observable one underpinning the most successful European economies. Some half-hearted attempts are, indeed, being made to apply it here; electoral considerations permitting.

On banking, it is a very important cog in a complicated economic machine. Let us leave it at that.

This extract from the transcript of the IT discussion with the Governor of the Central Bank is worth high-lighting in the context of this thread.

“What of the debate around the election? You can’t wake up of a morning without some story about one manifesto nugget or another. The entire debate seems to be around what the taxpayer is going to get back. There’s a lot of focus on a tax-cutting agenda on the abolition of USC and all of that. What’s your own response?

“The Fiscal Treaty, the fiscal framework, is silent on the size of government in the economy and the scale of taxes. Essentially it’s core to any democratic political system to have a debate between those who want high expenditure on public services paid for by a high level of taxation and however that taxation is raised versus those who prefer a more limited public sector lower taxes… It’s perfectly possible to have a vigorous debate about the democratically preferred size of the public sector in terms of scale of public services, scale of redistributions, scale of transfers, but of course behind that is the plan for taxes, how is each party proposing to finance that through taxation.”

The point that the choice of the kind of societal organisation that any member country of the EU wishes to have is up to them is more often overlooked than not.

The real debate is not, however, or should not be, between those in favour of high taxes and a high level of public services and the opposite – a false dichotomy – but about how a consensus can be achieved on the basis of demonstrating that the taxes raised are visibly being well and productively spent. We are collectively as far away from this as ever.

The banks are not going to make it. We need debt free money issuance and any company with a balance sheet is going to be in trouble. A lot of debt will simply not be repaid. No matter what it takes is optics, no more. Macron cannot get France to grow, neither can Osborne with the UK. We need to start thinking post Neolib. It is inevitable. The system has failed the people. Europe is more important than any ideology. I think a nuremberg trial for the most odious bankers and financiers would be a good start.

@ DOCM: Thanks for the comment:

1. You cannot have a ‘successful’ economy – let’s say in the Permagrowth sense, if you are consuming finite resources and need to create fiat money (in all its various forms) in order to keep the Permagrowth trend-line at > 3% p/a. The idea that ‘work’ (that is; an optimum number of folk engage in waged- labour or such like activitiy) makes for a succesful economy is flaunting reality: high-speed communications, robotics and computerization make some sectors of human labour redundant. So, what do you do with the redundant ones, and those who have no ‘work’ – and never will. The Permagrowth paradigm mandates an annual compounding of consumer demand and consumption. So, how is this to be achieved in the face of an expanding population? Stagnant waged-labour incomes? Its not. You need a replacement principle.

2. “On banking, it is a very important cog in a complicated economic machine. Let us leave it at that.”

Absolutely not. But another time.

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