The Irish Economy
Commentary, information, and intelligent discourse about the Irish economy
“Repeating a simplistic election slogan over and over is no substitute for real policy debate.”
Never was. But how does one have a twitterish ‘sound-bite’ debate then? You do not. What appears (or is promised to appear) in one’s wallet or purse will have a significant bearing on voter behaviour. So, what’s new then?
Also the transfer patterns of lower preferences will be decisive in the way the third, fourth or fifth seats are filled. Independents may have some advantage here. Its unfortunate that we have so little information about the nature of the lower vote transfers. Analysis of previous election ballots is still off-limits apparently.
Jack Lew? Ms Yellen? Dear God. What US economic recovery? After injecting $2 or $3 Trillion into the US economy (or rather gifting it to US financials) the US labour participation rate has declined, not increased. Median income has continued its 25 year down-trend. Debt levels are still increasing, not declining. And, higher debt axiomatically leads to a reduced (future) economic growth rate. Is that really so hard to grasp? Seems so.
As Chief George solemnly intoned: “Endeavour to persevere.” Indeed we should.
The main political parties will probably take the latest Finance projections for GDP over the next 5 years and it should then be clearer what their respective spending and tax plans mean in terms of resources used by the State or left in private hands.
Macro is far more serious and relevant with the US headed into deflation . the Irish focus on 1916 and 7% is insane.
With what shall we generate growth, dear Henry ? With labor, dear Liza.
1 Nonfarm business labor participation rate ..
2. Hourly earnings
But labor is shafted dear Henry. With leverage dear Liza.
3 Household leverage ratio. Workers have seen falling incomes so spending has been supported by more borrowing.
With unions dear Liza
4 Decline of labor bargaining power http://www.washingtonpost.com/blogs/wonkblog/wp/2015/02/24/the-incredible-decline-of-american-unions-in-one-animated-map/
But unions are dead dear Henry. With productivity dear Liza.
5. Productivity gains vs salary increases. Even though workers are working hard they don’t see pay rises
But incomes are stagnant dear Henry
6.US real median family income. Stagnant
7. With the Phillips curve dear Liza
But the Phillips curve is broken dear Henry
With investment dear Liza
7. Corporate profits as a percentage of GDP. Labor has stagnant income so most of the gains go to the corporate sector.
But investment is banjaxed dear Henry
8. where those corporate profits go> share buybacks
With Quantitative Easing dear Liza
But there’s not enough growth dear Henry.
9. US inflation.
There is a hole in the growth bucket , Dear Liza.
Very strange argument. Macro policy mistakes can blow favourable external circumstances up in smoke.
Interesting that Mr Whelan sees no major policy reason for allowing workers retain more of their own money & make their own choices about how to spend it. Better still to retain it for the state & plough it into a new range of interventions designed to address the problems caused by the last series of interventions.
Articles by CMcC and Stephen Donnelly in today’s Sindo raise a very interesting general question; why is so little credence being given to the impact of the new EU fiscal rules, signed up to by the Irish electorate directly?
These rules, after all, represent what is new as opposed to previous episodes of national profligacy, assuming that the Irish leopard, both electors and elected, has no intention of changing its spots.
Further, assuming that the best that can be hoped for as an outcome to the election is some form of minority government held together by support from a variety of independents, and Ireland’s run of external good luck continues, is it not the case that the government will be facing, for the first time, an EU imposed envelope of additional expenditure withing which many competing promises/demands will have to be met?
Shades of the Gregory Deal! Multiplied!
From written answers in the Dáil on 14 January
“13. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which corrective fiscal or budgetary measures are required over the next five years to ensure the maintenance of sustainable economic growth without over-reliance on any particular sector; the extent to which he expects the economy to perform throughout this period and to remain amenable to job creation; and if he will make a statement on the matter. [1327/16]
Minister for Finance (Deputy Michael Noonan): We are required to “balance the books” in structural terms. This can be achieved by keeping expenditure growth below the trend growth rate of the economy.
Budgetary forecasts for the next five years were set out in Budget 2016. The Deputy will be aware that these provided for an increase in expenditure of over €700 million in 2016, while tax reductions worth approximately €700 million were also announced.
The 2016 Expenditure Report published separately by the Department of Public Expenditure and Reform on Budget day, outlines Ministerial expenditure ceilings for the period to 2018. These amounts are reflected in the medium term budgetary forecasts prepared by my Department which also provide for demographic costs, public sector pay agreement, the public capital programme and also provide for the indexation of the income tax system.
Accordingly, the forecast level of net fiscal space available for each year over the forecast horizon, was set out in Table A9 of the Budget and is based upon these and a number of other baseline assumptions, which are also set out in the accompanying Budget tables.
The overarching objective of recent fiscal policy in recent years has been to return the public finances to a sustainable basis while promoting economic growth. Ireland will exit the excessive procedure because the general government deficit will be substantially below 3% of GDP in 2015. Indeed, the strong end-year Exchequer figures indicate that, all things being equal, the deficit for 2015 will be closer to 1½% of GDP, down from the budget day forecast of 2.1% of GDP. In terms of economic growth, Budget 2016 contained forecasts of 6.2% and 4.3% for 2015 and 2016 respectively.
Figures up to the end of last year show that the recovery is gathering pace with the OECD expecting Ireland to be the fastest growing economy in the OECD in both 2015 and 2016. Encouragingly consumer spending is continuing to grow, a component of GDP that is both tax and jobs rich. The level of economic activity is already above pre-crisis levels, but importantly it is now more balanced than was the case at the height of the bubble, when it was driven largely by construction. Indeed, employment in 12 of the 14 economic sectors, highlighted in the recent Quarterly National Household Survey, has increased. On the domestic side, consumption and investment are contributing very positively, with very strong data also recorded on the external side. Overall the data available are consistent with an economy that is performing very strongly.
Having said that, it is clear that global prospects are increasingly uncertain, with difficulties in emerging market economies and elsewhere. Accordingly, it is imperative that we remain competitive and continue to take the correct policy choices to underpin the sustainability of the public finances.”
Tull for that you would need a party serving a core constituency of non PS workers and AFAIK that doesn’t exist.
We have no party in his country representing Peter. We have loads of parties who represent Paul. Not surprisingly various proposals to rob Peter always fare well. I was listening to Michael last night promising accountability but then unveiling a range of measures targeted at one deserving group after another.
Unlike the Bourbons our main opposition party has learned nothing and forgotten everything.
The macro situation given that QE has failed to deliver 2% inflation means the ECB is a potemkin village. Debt will have to be either written down or subject to inflation regardless of German or big 4 sentiment. Finance will have to be rewritten. The expertise that someone like NoelWhelan offers relates to a world that no longer exists.
The Peters profit handsomely from the most unequal ‘market’ (i.e., pre-tax and welfare transfers) outcomes in the OECD and they are pandered to by governments of all complexions between general elections. The Great Redistribution is continuously applied to generate final outcomes that are more equitable than average in the OECD. It is intended to keep enough of the Pauls voting for the mainstream parties – and the largesse is spread so widely that many Peters and their families also benefit. The Great Redistribution is tweaked annually at budget time, but the rent-seeking by the well-placed Peters is continuously facilitated. Not surprisingly there is much more focus on the nature of the Great Redistribution in the run-up to general elections because the majority winning party or coalition or inter-party group will be the one that will convince (or fool) more of the Peters and the Pauls than its competitors.
Previously FF (and whatever set of numpties were power-hungry and stupid enough to join them in government) represented one set of Peters and Pauls; FG and Labour represented another set of Peters and Pauls. But an increasing number of Pauls (and quite a few Peters) have been drifting away from the mainstream parties for a long time – to the point that actual election polls and opinion polls indicate that wwll over 40% of voters are in the non-mainstream camp. Though it is possible that the traditional mainstream parties will regain a bit of the lost ground at the next general election, the old rotation between FF and others, on one side, and FG and Labour, on the other, appears to be finished.
The smart money has to be on FG holding its own (snaffling Labour seats in the same way as the Tories snaffled Lib Dem seats in the British general election last May) supported formally or informally by the small but peculiar combinations of Peters and Pauls that will vote for Renua, for Shane Ross’s groupuscle and for other ‘independents’ from the mainstream gene-pool.
So, Tull, I wouldn’t worry too much about the Peters. There is no effective political pressure to dislodge their snouts from the economic rent-generating trough. Nor is there any pressure to reduce the size of this trough which is fed by extractioins from the vast majority of citizens. Indeed it continues to increase in size and scale and provokes even more demands for redistribution from those whose snouts aren’t in the trough. The Peters simply have to realise that the more the size and scale of the trough increases and the more snouts that are in it the larger is the relatively small net contribution they will have to make to the Great Redistribution.
It would, of course, make far more sense and be better for all if the rent-seeking by the Peters (who exist across the economic spectrum – with some of the most avaricious in the public and semi-state sectors) was curtailed, if the requirement for the Great Redistribution was reduced and if changes were made to remobve the barriers that prevent many of the Pauls from particiapting effectively and productively in the economy. But there would be no votes for anyone advancing proposals like this. And so the pantomime will contimue until the next external shock – or, more likely, the next self-inflicted downturn triggered and exacerbated by an external shock.
The phenomenon of offering something for everyone in the audience is not new. It was GBS who remarked that “A government that robs Peter to pay Paul can always depend upon the support of Paul.” The problem for politicians in the case of the current election is that no clear message may be getting through among the confetti of promises other than that they are all false, especially given the likelihood if the new Dáil is being made up of a confetti of diminished major parties and a slew of independents (as confirmed by Noel Whelan on the SOR show this morning).
The focus may then turn to identifying who is Peter and who is Paul i.e. answering clearly (i) from whom is taxation being raised (ii) to whom is it going and (iii) how efficiently is it being spent i.e. is it promoting economic growth or a drag on it? The three questions in which there appears to be little interest in answering, mainly because there is a collective concern at what might emerge. The motto of all concerned is “what we have, we hold; or add to”!
The central issue then IMHO is whether the budgetary corset which has to be respected, and the likely cacophony of claims being made within it, will make answering the questions unavoidable.
Neoliberalism is dying. It is take that yield versus cover your ass. Ireland should be trying to ensure it doesn’t get shafted again. The election is all about take that yield.
Lucinda could have gone after the Peter vote. I wonder why she didn’T. Rich pickings if someone would join the dots. Brecht it was who said what goes on all the time is not natural. Over now to Con for the sports news.
I had forgotten that you were a Paul.
Closer identification of Peter and Paul is being sought by the Commission.
Pulling another €1.5 billion rabbit out of the hat will be beyond the capacity of any incoming government. Back of an envelope calculations of the state of the country’s finances – after the money has been either spent or committed – simply will no longer do. Fixed budgetary ceilings, policed through the use of modernised budgetary controls, are unavoidable.
“Establishing an effective spending control mechanism is crucial for prudent and counter-cyclical fiscal policy making. With the introduction of a medium-term expenditure framework (MTEF) in 2012, expenditure ceilings were expected to operate as anchors of prudent fiscal policy making over the medium term. However, while specifying procedures and conditions for revisions, existing legislation and relevant circulars, leave ample room for changing the ceilings in a pro-cyclical manner as testified by recent experience. In particular, since the first Comprehensive Expenditure Report (CER) of December 2011, expenditure ceilings have regularly been revised upwards, mostly in the wake of higher than expected economic growth (Graph 3.2). In 2015, due to stronger than expected tax receipts, the government will exceed expenditure allocations to departments from the CER 2015-2017 by 0.7% of GDP. Regular revisions of the domestic expenditure ceiling, weaken the Irish medium-term budgetary framework, increase the risk of pro-cyclical fiscal policy and reinforce doubts over the binding nature of key aspects of the MTEF. ”
In short, same old, same old! Either this problem is fixed or nothing will get fixed. The fix will not be volunteered.
What would Whelan know about tail risk? He reminds me of Stephen Collins, another establishment alsatian who lost his bark when the IMF rolled into town.
Please spell out who the “Peters” are who are being “robbed” to pay “Pauls” that you should also specify. One suspects those using this terminology don’t have the same groups in mind.
Good morning, Tull,
I’m sure you’re well aware that not all people named Paul are your “Pauls”; nor are all those named Peter your “Peters”. There are many “Pauls” who, for their self-esteem and dignity, would much prefer to be net contributors rather than net recipients. And there are “Peters” who willingly pay their taxes to fund collective endeavours and to support the common bonds as citizens and residents that bind us all.
The problem, as I am sure you are well aware, is that we have far too few of these contrarian Peters and Pauls, far too many Peters with their snouts in the trough and far too many Pauls with a sense of grievance and entitlement. The problem is not unique to Ireland but the gorging at the trough filled with captured economic rents and the acompanying great re-distribution is much more extensive in Ireland.
An election frenzy is taking hold – even though it has yet to be declared. We may as well abandon all hope of careful and rational consideration of either what’s being leaked or what eventualy will be on offer. In his op-ed in today’s IT John FitzGerald is calling for a fully independent assessment of the various manifestos. Is IFAC empowered or resourced to do this? Would it want to do this? Should it be required to do this?
Even if it were to, its analysis would be constrained by the “tennis club” accounts used by government in which no proper distinction is made between current and capital expenditure and the anally retentive rules emanating from Brussels.
Furthermore, it is embedded in the narrow neoclassical canon and has no apparent understanding that governments effectively create money by spending and that the collection of taxation is a post hoc activity.
And, even worse, it appears to have no understanding of the extent to which rent-seeking characterises the domestic economy and of the great redistribution that is required to compensate for this.
But how could they? They, too, are part of the problem. But it’s not their fault. One should not expect an entity of this nature to impose any check, restraint or balance. It was established as a “comhairle comhairleach” to make damn sure it would not do so.
WEF is on and papers are full of the key themes. On linked in outfits flog their latest ideas. Nobody mentions deflation. Nobody. Groupthink is calling the shots.
Are any economists out there other than KOR thinking about deflation? DGSE is dead.
Fiscal rectitude is an important principle of good government but it is not as simple a concept as is sometimes presented. All taxation and government spending arrangements have to be convincing politically as well as economically. Plenty of wars have been fought under the banner of prosperity and fairness, and there is still a welfare state on both sides of the border. The very consumption which drives economic ‘growth’ also generates demand for publicly funded goods and services.
As I am sure you will agree, productive activity happens in the public and domestic spheres as well as the business sector. Children have to be raised and educated. Civil conduct is a public good, in that poor conduct imposes serious costs on Gardai, courts, prisons, social care systems, hospitals etc etc.
We can close the little hospital in Ballymagash, of course. Sure no medical trainee wants to go there and they can’t recruit consultants. The only problem is that most of the Ballymagash stuff then clogs up the ‘centres of excellence’ via the open door of A&E. We can shut the front door, but the problems always pile up at the back door. Poorly planned fiscal rectitude without political support is simply ‘cuts’, and stupid cuts are as stupid as stupid spend.
‘The focus may then turn to identifying who is Peter and who is Paul i.e. answering clearly (i) from whom is taxation being raised (ii) to whom is it going and (iii) how efficiently is it being spent i.e. is it promoting economic growth or a drag on it?’
There is a preliminary process. Wealth, and economic growth consists of stocks and flows. A sovereign state can tax anything, provided it the arrangements are economically and politically ‘sound’. The disaster with our banks could not have occurred in circumstances where windfall gains from property rezoning had been regulated. As Calomiris and Haber showed in ‘Fragile by design’, populist politics and poorly regulated banking is a lethal combination.
‘These rules, after all, represent what is new as opposed to previous episodes of national profligacy, assuming that the Irish leopard, both electors and elected, has no intention of changing its spots’
The Irish leopard is the same as every other leopard. What is distinctive is our history. We will never have a consensus on who ‘we’ are but it is critical, in every sense, that we continue to debate it.
I have referred many times to Joe Lee’s ‘Ireland 1912-85’ not because it is any sort of Bible, but simply because it is one of many fine reads, and which shows how our political and economic development has been constrained by history. As Marx and others have pointed out, we all make choices, but we do not get to choose the circumstances in which we have to make them. Not only do people have different circumstances, but it takes considerable effort even to establish what are the constraints. The rat in the test cage who presses the red button and gets an electric shock is a wiser rat.
+1 as usual
‘It would, of course, make far more sense and be better for all if the rent-seeking by the Peters (who exist across the economic spectrum – with some of the most avaricious in the public and semi-state sectors) was curtailed, if the requirement for the Great Redistribution was reduced and if changes were made to remove the barriers that prevent many of the Pauls from participating effectively and productively in the economy.’
Your focus on rent-seeking is very valid, IMHO. We have lots of anti-competitive practices behind the ‘free market’ slogan. Social capital is hugely influential in determining economic opportunities. The graduates with good connections don’t have to emigrate. Their internships will actually lead somewhere because they have one or more patrons, as in the old days.
They get ‘fixed up’ because they socialize in certain venues , know certain people from school and expected to marry into a comfortable circle. For them, society is a caring family, which buffers them from the harsh economic realities. In other words, the ‘free market’ is designed to serve some people.
Of course security of the above type comes at the price of conformity. As Pierre Bourdieu, sociologist, put it, ‘the heir inherits the inheritance,
but the heir is also inherited by the inheritance’. Mao Zhedong went to very considerable and very bloody lengths to try to stop the inherited transmission of wealth and status, but he did not succeed.
The family is at the centre of our Constitution. It is interesting that this could be reconciled with horrible institutional abuses, for which we still pay a price today. The victims and their families might well take the view that our Constitution was designed to designed to serve some families, rather than all families. Ditto for the people living in homeless accommodation today.
No one is surprised to find cartels and other rent-seeking practices in
the business world. They happen because they are profitable for the participants, and business is business after all. As Shaw said, every profession is a conspiracy against the public. Probably it is necessary conspiracy in that it delivers a good, so regulation is about striking balances, as you know all too well.
We shouldn’t have cartels in the public sector, but we do, and for obvious reasons. The same processes of social competition and co-optation go on in all
institutions, including religious ones. It is absolutely natural that those at the top should leverage their position to favour their family and friends, and live in most of the ways that dominant groups live. One look at our elites will show that dominant clans have a finger in all sectors and all professions. They combine social, economic and cultural capital and live a global lifestyle.
Abe Lincoln was right though. The Irish leopard isn’t completely stupid. The argument for fiscal rectitude will not convince a generation which sees itself socially downgraded, and confined to a future of insecure low pay ‘gig’ jobs. Pushing the burden of adjustment out to the ‘marginals’ is already generating long term generating social costs, with the state retreating from the toughest places.
Neither ‘left’ or ‘right’ politics will suffice because what we need most is a calm, detailed appraisal of how power is really distributed. As Foucault would say, a ‘capillary analysis’, of all the little and large channels where overt and tacit influence is exercised. Even if this is perceived as shocking and embarrassing, and sometimes even shameful. Noel Whelan has a point.
As I hope I have made clear, I have zero expectation that the Irish body politic will volunteer a fix to the central problem of misdirected income re-distribution. My central point is quite the opposite i.e. that circumstances, and notably the new rules governing participation in the euro, will force a change, especially when coupled with the advances made elsewhere in the technical aspects of government accounting, which makes the continued presentation of “tennis club” accounts a matter of national embarrassment (and raises questions about what the DPER has been doing for the past five years).
The publication of the IMF report, on which Gregory Connor has just opened a thread, drawing attention to the bank funding problem with regard to housing, as the Commission also did, is equally timely. (It will not be credible for either electorate or politicians to argue in the future that they were not warned).
I detected a certain element of tired resignation in the piece by John Fitzgerald.
Box 2.1 at page 21 of the Commission paper “Evolution of poverty indicators and social expenditure” is also essential reading. This time around, the private building sector will be incapable of resolving the current housing crisis largely because the banking sector will be incapable of funding it. That “some” of the policies required to correct the situation of the “off the chart” number of households with low work intensity “have been incorporated into the 2016 budget” is a damning indictment of where the priorities of the outgoing government have been and, especially, of the junior partner in it.
Pauls are Public Sector and Peters are private sector. Median Peters are not as politically well organised as median Pauls.
I think I was right the first time
The views of Eddie Molloy on “accountability” in the public service and the riposte of the head of the DPER.
Neither viewpoint addresses the fundamental issue; as most recently identified by the Commission in its paper.
“With the introduction of a medium-term expenditure framework (MTEF) in 2012, expenditure ceilings were expected to operate as anchors of prudent fiscal policy making over the medium term. However, while specifying procedures and conditions for revisions, existing legislation and relevant circulars, leave ample room for changing the ceilings in a pro-cyclical manner as testified by recent experience.”
This is the legislation that needs changing. If there are no central adequate budgetary control mechanisms, which force good management practices, but independent of pointless attempted central day-to-day supervision, in terms of varied measured outputs, across a multifarious public service, all the rest is just management waffle.
@ Paul Hunt
“There are many “Pauls” who, for their self-esteem and dignity, would much prefer to be net contributors rather than net recipients. And there are “Peters” who willingly pay their taxes to fund collective endeavours and to support the common bonds as citizens and residents that bind us all.
The problem, ……, is that we have far too few of these contrarian Peters and Pauls, far too many Peters with their snouts in the trough and far too many Pauls with a sense of grievance and entitlement.”
I think that you are absolutely correct in this assessment. How to get out of this situation is the burning question. A key element will be to get acceptance that all workers, whether public or private, must be dealt with on the same basis in terms of basic employment, social services and pension rights. As the exchanges that I linked to above will illustrate, we may be as far away from recognition of this as ever. The participants seem incapable of thinking outside the box, as the modern phrase has it.
Or maybe not. The make-up of employment in the country is changing rapidly. And the voters with it.
Very little reform of the PS happened post crash 1. Turned out that PS workers in their 50s preferred to keep their own their own salaries rather than have decent salaries for their kids which is why starting salaries are so much lower. The PS is still wondrously inefficient. I wonder if it’ll still be thus once the deflation combine harvester gets going.
Thank you. It indeed appears that we are in agreement. But that also appears to be the extent of it. The scale and targetting of the great redistribution required to ameliorate and to compensate for the malign effects of pervasive rent capture (that is not only permitted by feigned official blindness, but is also officially facilitated) requires constant tinkering. That is why so much power is concentrated in the hands of the Minister and Department of Finance. None of the beneficiaries (either of the pervasive rent capture or of the great redistribution) will openly admit the existence of this Grand Bargain but all are acutely attuned to any centralised manipulation of the minutiae that might impact adversely on them – and they are prepared to fight tooth and nail to avoid any adverse impacts.
Much of the rent-seeking is provoked by the extent of the progressivity of the income tax system that is used to part-fund the great redistribution from a shrinking tax base. Rent-seeking will never be eliminated; indeed it is the primary driver of capitalism. But is can be curtailed and the inefficiencies and dead weight losses which it generates can be reduced. And this, in turn would reduce the amount of compensation provided via the great redistribution. It would be a win-win all round and would reinforce a virtuous cycle. But it is impossible to advance any changes in this Grand Bargain when, officially, it does not exist. And in addition, as with Northern Ireland, if even the tiniest changes are contemplated, nothing is agreed until everything is agreed.
This government and the previous government struggled to maintain , but broadly succeeded, in maintaining, this Grand Bargain through the Great Recession and its aftermath while subject to external supervision. In the run-up to a general election the focus inevitably is on restoring some of the previous relativities to those who either lost out or perceive they lost out during the period of fiscal adjustment and consilidation.
It should be pretty clear by now that eternal calamity (exacerbated by domestic greed and policy stupidity) will not drive the necessary changes. Inded it is quite the reverse; it results in a bsttening down of the hatches and a mentality of “what we have, we hold”.
Perhaps increasing prosperity may generate profitable opportunities beyond rent-seeking and reduce the attractions of rent-seeking. It may be a vain hope, but these appear to be the only circumstances when rent-seeking (and the dead-weight losses and inefficiencies which it generates) might be curtailed without provoking the normal fury and resistance.
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