Numberless ‘experts’ have misunderstood the government’s mortgage deposit subsidy. It’s all about the supply elasticity, as Michael Noonan helpfully explained to the Irish Examiner on Tuesday.
“The economists are saying we should have concentrated on the supply side. When there’s a demand for something, it leads to increased supply. If we can give deposits to people there will be an increased supply. The [building] industry will move to supply the extra demand.
To give you an example: When it was done previously, the first [car] scrappage scheme was introduced by Ruairi Quinn back in the 1990s. The theory then was the motor-car business was on the flat of its back — no cars being sold. So, with the scrappage scheme, people were given money and that money expressed itself in demand for new cars and a lot of new cars were sold. So, when there is demand backed by cash, supply responds and that’s the theory of it.”
So you whistle up some guy in Germany and he ships over 100,000 houses, at yesterday’s price.
Why didn’t I think of this ? Does Philip Lane read the Examiner?
47 replies on “Supply Curves Explained”
Is it a Fine Gael version of Say’s law? The “he sez” law, maybe, “When there’s a demand for something, it leads to increased supply” doesn’t seem to work for payrises
When something has to be done and it boils down to a choice between (1) the formulation and implementation of a number of policies which will have to be performed in an integrated manner, which should help to increase the supply of new houses where they are most required, but which will almost certainly restrict the existing capture of economic rents (and reduce the potential capture of supplemental economic rents by a large number of voters) and (2) a fiscal transfer which might stick as a subsidy to new house buyers in areas where supply is relatively elastic, which will simply increase prices where supply is highly inelastic (with some limited prospect of increasing supply) and which will be distributed as supplemental economic rent among participants in the provision of new houses and will significantly increase the potential capture of supplemental economic rents by a large number of voters, then it’s not difficult to understand why the second option is chosen.
In Ireland, the entitlement to capture economic rents is broadly equivalent to any fundamental right enshrined in the Constitution. I’m pretty sure that most economists who opine on public policy issues are well aware of all of this.
In addition, those who benefit (or perceive they benefit) from the choice of the second option are relatively large in number and tend to support those parties which traditionally have supplied governance. Those who lose out are much smaller in number, are much less assiduous participants in the democratic process and, when they are, tend to support parties, groupuscles and individuals who hardly ever secure the opportunity to participate in the provision of governance.
A failure to participate in the democratic process or a decision to support no-hopers, the deluded or the wrong-headed (however well-intentioned some of these might be) will attract a penalty.
Noonan is an ass. The DoF is full of t#ts.
This is politics – ‘to be seen to be doing something’ even if that ‘something’ makes no sense for either supply or the financial system induced horrendously high costs of basic accommodation in this serf-dumb.
grumpy put it well earlier …
We now have a Prufrock administration … indecision, kick all cans down road …. until FF reckon that it can do a repeat with FG and yet another Prufrock admin and more indecision ….
IMHO – declare a ‘state of emergency’, use the tax system to free up land banks, tell the ECB and the SGP to take a hike, and pop out a good few 10 Billion 30 year bonds. Give the Ministerial responsibility to Mick Wallace who actually knows how to build good quality housing. The County/City Councils couldn’t handle water … why think they can handle house building ….
Cop on! The country needs a Government capable of making ‘decisions’.
Yellen is an avatar of Prufrock
Treasury Select Committee
Hammond says Ireland will be the country most affected by Brexit, apart from the UK.
What will that do for Noonomics?
Irish demand is dependent on the comfort of morons
Number 10 sources say they are “baffled” by the mutterings that Mr Hammond is an obstruction, or that he’s holding up the Brexit process. Treasury sources say the stories, including the suggestion that he might resign, are “utterly ridiculous”.
So what is going on?
First off, Philip Hammond has made no secret of his hope that the UK can retain economic ties with the EU that are as close as possible, and is on the record defending immigration – holding out the possibility that the control of migration might not be as tight after we leave the EU as some other ministers believe.
So for MPs suspicious of the motives of some ministers who backed Remain in the referendum, the chancellor is an obvious political target. For passionate Brexiteers he is an obstacle to a short, sharp departure from the EU who must be overcome
Re: The ‘First time Buyers’ scheme.
Its not ‘first time buyers’.
Its not even first time buyers of new houses.
Its first time buyers of new houses, who take out a mortgage of 80% (or more presumably) of the purchase price.
This excludes the following profile of buyer for a house of €220,000, who actually has a deposit of deposit of €22,000 but earns €50000 and receives a loan of 23,000 from parents.
Purchase Price 220,000
Dig Out 23,000
Mortgage 175,000 (salary *3.5)
The above will not ‘qualify’, as (per minister’s speech and other reports), the buyer’s mortgage is not 80% of the purchase price.
I think Grumpy got it exactly right in comments referenced by DO’D
“It is another manifestation of the familiar line that “we need to get prices up another bit”.
There is a moral hazard type problem here, which might actually be counter-productive. They have established that Hoard-Wait-Lobby is a winning strategy.”
Not only that, but the “Hoard-Wait-Lobby ” appears to be ably assisted by all the organs of state, in refusing to zone sufficient land for housing and also zoning land but deliberately not servicing the zoned land, while proclaiming in a very loud voice that there is plenty of zoned land. Both worthy tactics in achieving the objective of “we need to get prices up another bit”.
The Irish Times website has a report that the government will back off from offering the €20,000 grant to buyers of houses above the €400,000 level – it had planned to make it available up to €600,000. Minister Coveney prevaricated a little on the RTE Claire Byrne programme on Monday night when I criticised this feature – perhaps the reversal had already been decided upon. The Irish Times report also states that the ‘minimum 80% LTV’ requirement will also be reduced – apparently the Central Bank objected.
A woman I know aged about 40 recently inquired about a 20-year mortgage from one of the banks. She was informed that only 25-year and 30-year mortgages were on offer. Can this possibly be correct?
A 36-year-old friend of mine got a 35-year mortgage this year from an Irish bank.
On cue re signalling effect, reports back from the sort of meeting CBI bods don’t go to – FTB move characterised as a bit underwhelming “but a step in the right direction”. The fact that it is perceived that a “direction” has been established should be the key takeaway.
Grumpy , FTB is only one letter away from FMB, the footwear. And in 2008 FTBs were shafted. It is a cruel world. BOHICA is out there somewhere .
Colm, if your question is “Why didn’t I think of this?” it’s simply because you’re trying to answer a different question than the government is trying to answer.
The government is trying to boost house prices (while making highly visible gestures to suggest that there is a shortage of money to buy houses instead of doing anything about the price of houses or the supply of houses). You’re probably thinking of how to have a rational market that addresses a societal need.
Again, I can’t really do better than refer to David van der Klauw’s submission to the Australian government several years ago. https://goo.gl/2JP6I7 Complete with the Parable of the Frozen Oranges, it answers most of the supposed mysteries of the Irish situation and leads one inescapably to the conclusion that this is all deliberate, measured, and immoral in a serious way.
Blind Biddy, allegedly, had afternoon tea recently in London with a senior advisor to ‘Our Philip’. She conveyed the possibility of a ‘dig out’ from the Western of These Islands at a time where The Eastern appears to have lost the plot. We cannot stand idly by and allow our Sister to needlessly suffer the consequences of the present idiocy. Not to mention that we are concerned about the dire socioeconomic consequences for 6 of the Western 32. We can handle the other 26 on th€ .. €r … doubl€ and kick this can down the road into €ternity. This admin, as related by Blind Biddy, is the world leader in can kicking and in not making decisions. It is also in our best interests to do so; as well as being simply cricket!
Allegedly, according to a usually reliable source, the possibility is being seriously considered.
😉 David, perhaps you might be considered sufficiently, that you might put it to your esteemed, and apparently very well connected informant, to ask (if this is the correct term for such) an Authorised Officer in the relevant Gov Dept in the Republic of Éire to comment on the obvious defict (as reported on a recent Joe Duffy Show) in the supply of ‘disposable incomes’ – the supply of the aforementioned being the primary, necessary and mandatory requirement (not an optional fashionable, iDiot accessory) to satisfy the ‘demand’ for a suitable premises in which to house oneself on a whole-time basis – and hopefully, one’s family also. The supply of the aforementioned premises being somewhat of secondary importance to the aforementioned aforementioned ‘disposable incomes’ Thanking you – in high anticipation. Yours, etc.
I have an idea that this Western Isle you allude to, did in fact give the Eastern one a substantial ‘dig-out’, not once, but twice, during the last century. Interesting that.
250K for 5 beds 10 minutes from Athlone when the UK is tearing itself apart , the GOP is in meltdown mode and the ECB cannot generate inflation
I think this is best looked on as an attempt to manage the threshold at which it becomes economically rational for a property developer to go to work. Over a lot of the country, construction costs (inclusive of taxes and government charges) are too high for significant volumes of private new residential construction to take place. The government is reluctant to do anything that persistently reduces the State’s take from private construction, or that places downwards pressure property prices. This prevents it from taking the obvious measures of cutting VAT and development levies, and also prevents it from forcing matters by placing levies on undeveloped development land.
The government is introducing what is in effect a small, temporary and quite narrowly targeted scheme to rebate a part of its construction VAT and development levy take. This is aimed at nudging the economics of residential construction so as to make it viable in a wider range of geographic areas. As a general approach to management of the economy, this sort of micro-management through complexity is undesirable, but in an economic system in which similar designed-in complexities are normal it is quite understandable that the government has made this choice.
Going back to Colm’s original focus on Supply curves, a lot depends on the extent to which new-build and existing houses are close substitutes.
Overall, the price of houses is the outcome of an interaction between the almost fixed supply, i.e the overall stock of houses and the overall demand for this stock, which of course can be volatile for various reasons. Over a fairly short period the flow of new houses is quite small relative to the total stock, and an intervention which is confined to new-builds (and even more confined to first-time buyers) should have limited effects on general stock-equilibrium house prices.
If old and new houses were perfect substitutes, the very short-run effects on house prices should be close to zero. Testing this hypothesis might be quite difficult as the assumption of perfect substitutability doesn’t apply in practice. For example new houses have far higher insulation standards which might well get capitalised into higher house prices.
While in general I would argue against anything that would stimulate demand (the cost of this scheme would be better spent directly on supply-side measures), it might be the case that the incidence of this subsidy will not accrue to vendors, simply because of its limited scope vis a vis the overall housing market.
On a more general note, I sometimes wonder if we are wasting our time teaching economics, if even the rudiments are overlooked when it comes to policy analysis. Of maybe having a government economic service is futile given the populist focus of our politics. .
It’s beyond sad. It is , as Tallyrand said referring to the murder of the Duc d’Enghien,worse than a crime, it is a blunder.
They know it’s wrong
They know the population either don’t care or understand.
John you write ‘….the cost of this scheme would be better spent directly on supply-side measures’.
Like servicing land already zoned. But sites already zoned and serviced in Dublin are not being developed because of opposition, led by government TDs in some cases, Nobody really and truly wants to get Dublin prices down.
Re your concluding observation, it’s not so much that the “rudiments [of economics] are overlooked when it comes to policy analysis”; it’s that so much time and effort is put in to seeking out patchy evidence to support pre-defined policy positions, to studiously avoiding, at best, or to rubbishing or undermining, at worst, any evidence that might contest these pre-defined policy positions, to ensuring that any research that is conducted is scoped in such a way to generate results broadly supportive of these policy positions, to constructing and projecting optical illusions that deviate from the objective reality but are politically convenient (and supportive of whatever special interest groups to whom governing politicians consider they are obliged to pander) and to suspending disbelief for as long as possible.
All of this effort, of course, is not put in solely by economists; this often requires an army of public officials, lawyers, accountants, advisers, consultants, tame academics, PR operatives and compliant media types as well as economists. But the argumentation (or, if you like, the propaganda) is primarily couched in economic terms.
In this instance, there is little point railing against the policy being advanced – as wrong-headed as it might be if the objective is to increase the new housing stock in locations where the demand is greatest. There is a consensus in favour of “getting house prices up another bit”. This suits a broad range of interests.
However, when the objective is to advance or protect the interests of specific groups at the expense of the vast majority of citizens as taxpayers or as service-users exactly the same approach is applied. The economic regulatory regime is characterised by deal-making behind closed doors at the expense of ordinary citizens. The evolution of the gloriously failed water charging regime is probably the perfect example of how deals are done behind closed doors with ministers, senior officials, elements of the semi-state and local government sectors with selected private sector service providers putting together a deal with numerous moving parts that protected and advanced the interests of all parties. It genuinely was a work of art – until it was revealed to the public and enough citizens were disgusted and angered at how the parties involved were extracting economic rents, perpetuating inefficiencies and fattening themselves up at their expense.
The then government’s panicked response and the subsequent multi-inquiry, multi-institution approach set out in the programme for government suggests that all involved in – or tarred by – this debacle are determined to prevent a repeat. But it is only a matter of time before there is an eruption somewhere else. More and more voters are starting to wise-up.
In the meantime, the incentives are very clear. Those participating in the policy formulation and implementation process who are prepared to manipulate and abuse economic theory and practice to support politically convenient policies or to facilitate the pampering of powerful special interest groups are rewarded. Obviously there are some who struggle with this and there will always be debate and contention behind closed doors, but any sustained opposition to politically approved but economically damaging policies could be career-threatening if not career-ending. It is always wiser to go with the flow. And it is worth noting that those with knowledge and competence to contest publicly these wrong-headed policies are outside – and are generally kept outside – the policy process.
Up the Kingdom.
Housing Policy is a mess. Social housing is a disaster. I wonder what housing failure (price crashes, substandard accommodation, related illnesses, malinvestment ) cost in terms of lost output would be.
@Brian Woods Snr.
Brian: A deficit in ‘wealth’, narrowly defined in somewhat objectivist capital terms, does not exist around here in this Western Isle, Hibernia; or in Eastern Britannia. The deficit lies in the inability of captured political system to regulate such wealth, in republican terms, such that the interests of the lumpen Citizenry are protected; in particular, the basic ‘human right’ to ‘shelter’. This ‘right’ is now commoditized and traded almost solely in the interests of the financial system. And the societal consequences … ?
p.s. all I could get from my esteemed and allegedly well connected source is that your request will be processed by the said Department’s PrufrockII Paralysis Algorithm and that a response will ensue in due course within the FF/FG sense of the fullness of time.
Homes are NOT a normal commodity (cloths, shoes, car) nor a service. They are a long-term personal shelter paid for in dribs and drabs over a long time – and you have to have a steady(ish) income to do that. “It’s your income, dopey!” or if you want to put it in econ terms, incomes are The Supply. At the moment its folks’ incomes that are in short supply. A somewhat intractable problem for the foreseeable future. It matters not how many homes are built, many will remain unoccupied or unbought until the supply of incomes increases sufficiently for borrowers to be able to amortize their mortgage loans and also have sufficient residual income to live on. Is this so hard for economists to understand? Seems it is.
Obliged. Now please tell me that I am not an inhabitant of Discworld. Edwin Abbot’s ‘Flatland’ was bad enough, what with pointy-ended persons of the female gender and all, but the thoughts that I might be placed in the care of The Librarians really does scare the sh*t out of me …
Can you recommend a suitable amnesiac. Carfentanil looks good – works wonders on bipedal pachyderms.
I am curious as to whether those objecting to the grant would have a similar objection to a reduction of 5 percentage points in the rate of VAT on newly developed residential property. The rate is zero in, for example, the UK on buildings “designed as a dwelling” or “for a relevant residential purpose”. It seems to me that, for most first-time buyers (and many developers) of new starter homes, what the Irish government proposes is close to being equivalent to cutting VAT from 13.5% to 8.5%.
‘having a government economic service is futile given the populist focus of our politics’. Perhaps, but the GES hides its light under a bushel, although I suppose the media could pick up their output if it chose.
A recent paper (http://igees.gov.ie) showed that a shift away from income tax and towards a higher property tax in Ireland could be ‘ pro-growth and pro-employment, without equity losses’.
On the property market the latest CSO data shows prices re-accelerating again, with a 7.1% rise ex-Dublin in the 3 months to August. That is the strongest reading on the index( it starts in 2005).
IGEES is doing some very good work Dan. Solid, sensible and usually quite well presented. It is however destined to be widely ignored. I draw attention to a curious issue in my last Examiner column, on it being preemptively dismissed.
Housing in Dublin is a mess. Its not so much outside.
We need radical not incremental solutions.
60 40 and 60 20 story apartment blocks, clustered properly with proper services, the apartments within being of sufficient size and diversity to allow for a demographically sensible mix; i guess you would get what, 8 apartments per floor, so upwards of 20k dwellings. CPO land ; sell on basis of 12m to completion (see https://www.theguardian.com/world/2015/apr/30/chinese-construction-firm-erects-57-storey-skyscraper-in-19-days for what can be done…) else land reverts to state with no compensation; success leads to 20y rent tax free. Or something
The name of the game is power
Is there any measure of the quality of the housing stock in Dublin?
The macro situation is not stable enough to flog expensive houses to millennials.
Most of them won’t be getting pay rises the way things are going
Not sure about Dublin in particular. But FEANTSA have just published a report on housing covering all 28 EU countries. It deals with such things as affordability, overcrowding, keeping warm, noise, damp etc
You’ll be disappointed to learn that Ireland only ranked 2nd (best) of 28, Luxembourg came top.
While not necessarily disagreeing with the main point the author is making, his analysis is a bit shallow and doesn’t really get to the root of why a housing shortage has developed. There was no housing shortage in 2007, despite an unprecedented population increase of circa 1 million in the preceding decade, so what’s happened since?
I’d say the main causes are as follows:
(1) The post-2007 media-demonisation of builders and developers and the takeover of local government by the far-left..
This may well have discouraged former builders and developers from reentering the market as demand picks up, since the amount of flak they get is phenomenal. In Ireland today you get a lot less flak if you are an axe murderer than if you are involved in building and development.The atmosphere of demonisation may also be emboldening malicious wacko-environmentalists to lodge objections to every development project just for the sake of it and with no regard whatever for the public good (an example of such in Galway is reported in the IT today). This demonisation is accentuated in Dublin by the fact that the local councils there are now largely controlled by various loony-left factions, who pride themselves on their opposition to virtually all building and development.
(2) Massive over-estimation of the surplus of ’empty’ houses in the 2009-11 period. At the time it was claimed FF had left behind 350k ’empty’ houses, the building of which it was claimed had been the sole foundation of Celtic Tiger growth.’Ghost’ estates were supposed to have mushroomed in every town and village in the country. It was claimed that these would have to be knocked down as there was no prospect of there ever being demand for them. It is now clear this was a ludicrous over-estimate. It is now clear that all these claims were a massive exaggeration, probably politically-motivated to damage the reputation of the FF-led 1997-2011 government.
(3) Massive under-estimation of population growth. Until a few months ago it was being claimed that Ireland’s population was falling and that it was experiencing the largest exodus since the famine. Laughable now, but google and thousands of such claims will come up. Net emigration was being put in the range 70k-100k annually. Following the census, this is now seen to have been a hoax, probably again politically-motivated.
New house completions are already rising quite sharply. It looks like they will be in the range 15k-16k in 2016, compared with just over 8k in 2011. This is almost twice the rate of new housebuilding in the UK (120k in 2015 for a population 14 times as large). August’s figure was nearly 50% higher than in August 2015. But, its still lagging well behind population growth. It looks as though the population increase in the year to April 2017 could hit 60k, which would require 35k new house completions to keep up
If we are looking for people to blame for the current housing shortage, I’d say its not FF or FG, but NIRSA, George Lee and Morgan Kelly who are primarily to blame. Morgan Kelly’s 2010 prediction that Ireland would need to demolish more houses than it built in the following decade has turned out to be one of the most ludicrous forecasts ever made.
Your continued invocation of Morgan Kelly is very poor considering your own behaviour at the height of the crisis. Radio silence. There was no audience for your leaving cert maths schtick when the NTMA was unable to flog bonds. It was only when some sort of smacht started to appear that you returned.
And what about McCarron? A fine upstanding Throne man
In Ireland, vacant housing units rose from 140,000 in 2002 to 230,000 in 2005 according to Davy Stockbrokers; 266,000 according to the April 2006 Census and in 2010 “An estimated 345,000 houses or 17% of the Irish housing stock is vacant according to a report published by the Urban Environment Project at University College Dublin.”
The ESRI said in 2014:
The institute said that “the construction of 90,000 houses by 2021 should satisfy demand. Two thirds of this needs to be in Dublin.”
Exactly. This is my point.
ESRI said in 2014 that “90,000 houses by 2021 should satisfy demand” – that’s under 13k per annum.
But. the number of new houses built in 2016 will already exceed that target rate (heading for 15k-16k) and its clear its nowhere near satisfying demand. ESRI have clearly under-estimated demand, as have all others. Over the years they have consistently over-estimated net emigration. Look at the 50k-70k figures for net emigration they were bandying about in the period 2009-2011. Totally wrong. However, in fairness their estimates for housing demand are closer to the mark than those I mentioned in my first post.
There is no evidence whatever that the construction industry in Ireland has any long-term problem raising the rate of new house completions to satisfy demand, no matter how high the rate of population growth. Look at the record up to 2007 (when it was being attacked for building too many houses). The problem is that in recent years the construction industry has been fed duff information by the media and by economists. They’ve been told that that there was an overhang of 350k empty houses and that population growth was negligible or even negative. In these circumstances it was inevitable that the construction of new houses would fall to historically low levels (although actually even at its lowest level in 2011, it was not lower than in the UK). Neither of the claims that depressed house-building have turned out to be true. Now that its known they were not true, that the overhand of empty houses was far less, that the population is growing rapidly and its growth is accelerating, I’d expect the rate of new house-building to accelerate rapidly in tandem. There is clear evidence that this is happening, although not fast enough. It looks like the number of new house completions in 2016 will be close to double its low point 2011 figure.
“Under new Eurostat regulations, the CSO is also under an obligation to collate separate indices for new and second-hand dwellings.
Of the total transactions recorded in August, 3,053 (93.2 per cent) were for existing dwellings while just 224 (6.8 per cent) were for new builds. This illustrates just how small the market for new builds currently is.”
With, 224 new houses recorded in August, it looks like your figure might of 16,000 for 2016 might be a little optimistic!.
We are now six years on from the quote you attribute to Morgan Kelly, and our biggest growth industry for the past 3 years has been homelessness. Perhaps we should go back a little further and blame the Brits while we at it.
The reality is that this government and its predecessor and all the councils have utterly failed, and are continuing to fail on housing. This is primarily because of an ideology that refuses to do what is blindingly obvious, CPO land, service land, and build homes for people. And forget about such rubbish as housing ladders, and housing as an investment, and the prospect of banks selling collateralised mortgages. And attempt to change Dublin homelessness back from the international embarrassment it has become, even aside from any humanitarian consideration.
Great link to frozen oranges parable. Spot on.
“I am curious as to whether those objecting to the grant would have a similar objection to a reduction of 5 percentage points in the rate of VAT on newly developed residential property.”
The VAT reduction, just like the grant, would end up in the developers pocket, would it not.
The narrative of ‘ Ireland’s building costs are too high’ needs to be confronted. Ireland’s serviced building land costs are far too high, and there are clear reasons for that. But that is easy to resolve, if one wants to resolve it.
The Dept of Environment (not the CSO) publishes figures for new house completions in Ireland – they publish them monthly and the latest up to August 2016 are here:
I think based on the Jan-Aug trend a total for 2016 in the range 15k-16k is very realistic.
But, it looks like the population is now growing circa 60k annually, so this is not enough.
Those who failed to foresee such rapid population growth have no right to complain.
That frozen oranges parable (and the rest of his submission) is so fantastically applicable to Ireland’s situation that it’s spooky. It demolishes most of the fallacies about housing in just a few pages.
On your other points….the main issue is that high prices is policy. There’s no other explanation for what’s been going on in Ireland for decades now. Certainly for a lot longer than I’ve been complaining about it.. https://goo.gl/EKZXOu
Talk to individual TDs or senators and they know full well the lunacy of this, from an economic perspective. They are well aware of the damage of high house prices, and the causes thereof. But, not a one will deviate from the party line. Therein lies a problem- how do we create incentives for smart politics.
We are going to manage to miss the brexit opportunity. Thats clear. As bits and pieces fly off the UK we wont be able to catch much. A lack of housing , a lack of infrastructure, a lack of political will to do aught other than play King Log, a lack a lack a lack.
Both globally and within most nations, the patterns of consumption required to sustain existing social arrangements are inconsistent with the distribution of the fruits of production. Social and economic stability, therefore, depend upon redistribution for which there is no overt legal framework or political consensus. To square this circle, the financial and government sectors have evolved means of hiding redistribution in complex, continually improvised arrangements. Unsurprisingly, massive wealth distributions arranged in this way leave much to be desired, in terms of straight corruption (the financial and government sectors redistribute a lot of wealth to themselves), justice (e.g. wealth is redistributed to those who happen to speculate early in bubbles), and sustainability (the illusion of value behind the claims of those from whom wealth is taken may prove fragile, but “loss realizations” are socially disruptive if they are not carefully paced and allocated).
Neither financial nor political reform can succeed unless we overcome the social and economic contradictions we have relied upon the financial sector to literally paper over. Off-balance-sheet liabilities that hide the impairment of savers’ claims, whether in subprime mortgage-backed securities or sovereign entitlement programs are not aberrations. They are essential tools in the arsenal of social stability, the economic equivalent of military “black-ops”, things that must be done but must always be denied in order to protect the American (and European, and Chinese) way of life. Unless we define overt arrangements that overcome the contradictions between the organization of production and socially desirable patterns of consumption, each scandal and reform will necessarily be followed by some new technique or trick that delivers, however unjustly or corruptly, the wealth transfers upon which our societies depend. Our choices are to overtly align the fruits of production with patterns of consumption, to continue to employ accounting fictions and magic to pretend away the contradictions, or to undergo some form of collapse.
Many financial system WMDs would need to be regulated out – no sign of a political power capable of doing so …. ergo, odds are that the Financial System will collapse due to some algorithm somewhere flapping its codes and the cascade bringing down the walls on a certain street and a massive derivatives death star over Frankfurt.
@Brianmlucey The cynic in me replies to your first question with “we could vote for smart politics”. Sadly there seems no immediate prospect of that and in any case the party funding mechanisms in Ireland are very effective blocks on new parties. You become a party hack or wither on the fringes. Which will, and has, mean that the fringes become more extreme both inside and outside the main parties. And it’s not as if we haven’t seen that story play out anywhere else.
On Brexit…I’ve chatted to a number of bankers who bemoan the fact that they can’t move anything meaningful to Ireland or, more particularly, to Dublin because there’d be nowhere to house enough people and there’s no prospect of Ireland reacting quickly to the opportunity.
Even without Brexit, what Dublin needs is more of the kind of vision that (god help us) Charlie had (but without the corruption). With Dublin moving east over the years, the opportunity to create a new city by the bay is there for the taking. Twould solve a lot of problems.
Eh, Hugh. It’s kinda damp out there. Parts of SE Dublin along Beach Road are regularly flooded by spring high tides when backed by a stiff South-Easter. All the pedestrian stiles through the sea-wall have either been ‘bricked-up’ or sand-bagged. Even the vehicular entrances to the car-parks on the sea-side of the wall have to be sand-bagged if a big tide is expected. Never happened when I was a nipper! Rising damp? Looks like it. Time to relocate to ….
Actually what needs to be done is to re-locate the Oireachteas west of Baldonnel – or even further if possible. Dublin City and its sub-urbs need to stop expanding. Unless you allow as how we can construct up, up, and away! But not in Dublin Bay!
Bye-the-bye. Thanks for the h/t on the D Van Der Klauw piece. Very informative.
@Brian Woods. Yes. The area I describe is all of a few feet below high tide. I know the area well. And having lived for a long while in a place called “The Netherlands” i can assure you it’s not a problem. Plus, the land is state land and could be sold for a pretty penny once reclaimed. Run the entire health service for a while. The barrier to doing it isn’t water, it’s vested-interest politics and lack of imagination. House tens of thousands of people down there. New beachfront. Cafe’s. Parks. Business areas. Hey ho..
Netherlands – fair dos. The causway sea-wall would have to be 10 m high and 70 m wide – which might spoil the view a tad. Dalkey quarry could be mined again. The causway would need to support both a N-S road vehicle link and a Luas Tram line (to pay the on-going cost of maintaining the thing). There would have to be quite a few culverts to take the river-waters from the multiplicity of streams which flow north off the Dublin hills. Imagination is not lacking. This idea was ‘floated’ quite a whiles back. I’d guess its the overall cost of the thing. And the need to preserve a smelly beach. Hey ho …
A la recherche du temps perdu
1. grumpy Says:
April 16th, 2013 at 7:09 pm
Macroeconomics really is the servant of political dogma. Alesina was transparently flawed if you bothered to think as you read it – but it became a “classic”. If RR really have cocked up like that to reach the ‘right’ conclusion I think you can argue the whole subject, so far as it it used as the intellectual enabler for politicians, has little credibility left.
Meanwhile George Osborne is squeezing down transfer payments to £53 per week, or about €60. Wonder what the multiplier on that is?
2. Martin Wolf 1 December 2014
“But, from here, it would be rare for the private sector to shift substantially into financial deficit by increasing its expenditure further relative to income. Growth in private activity will therefore need to come from a rise in income, especially wages, not from falling savings ratios. That will be a more difficult process, especially if fiscal policy is being tightened at the same time. The second phase of the fiscal correction may therefore be even harder to attain than the first. A simultaneous contraction in both fiscal and monetary policy looks problematic: something will surely have to give.”
And something did give. The English poor decided to say a resounding “f#ck off” to the UK’s main export market.
Not clear yet what the multilpier is.
Veblen was switched on 100 years ago …. still is when it comes to ‘real estate’ …
Read on: Hudson on Veblen