Celtic Phoenix or Leprechaun Economics?

Some of the points made by the author in relation to the political effects of the growth are valid. In particular, the fact that, despite 3/4 years of strong growth, FG did badly in the last general election (Feb 2016), and the combined FF/FG vote was at an all-time low (50%). However, FG still formed the government and FF still formed the opposition, and both were way ahead of any other party, so their relatively poor performance shouldn’t be exaggerated. The main difference between Ireland and other countries in that election was that the bulk of the disaffected vote did not go to parties of the far-left or far-right, but to a motley collection of clowns standing as independents. Buffoons, yes. But, fascists and marxists, no. Its all a far cry from Morgan Kelly’s 2012 prediction that the next election would see both FF and FG wiped out and a hardline anti-immigrant anti-EU party take over.

There is lots of evidence that things have stabilised even more in the past year.

(1) A recent EU-wide poll showed that the percentage of the electorate thinking ‘the country is moving in the right direction’ was higher in Ireland than in any other EU country. Some 62% said that in Ireland, versus around 50% in the U. Kingdom, around 30% in the Nordic countries, and amazingly low percentages in the economically-worst-performing EU countries.

(2) There has been a significant shift to FF/FG in polls since the election. In almost all recent polls the combined FF/FG vote share has been in the range 55%-59% versus 40%-48% in polls in the year before the last election.

(3) The so-called ‘winter of discontent’ on the labour front has proved to be a damp squib. In October the media were predicting a rerun of U. Kingdom 1979, but its turned out to be nothing of the sort and the number of days lost in industrial disputes continues to be negligible (under 10,000 in total every year, bar one, in the past decade versus 1,000,000 back in the 1980s.

(4) Street protests on the water charge issue have fizzled out and the left have nothing in the cupboard to replace it.

(5) Polls continue to show a massive majority for Ireland’s membership of both the EU and the Eurozone. There has been no ‘Brexit effect’ in Ireland at all.

Will this all continue?

It depends on the economy.

Its always possible that Brexit/Trump will cause an economic downturn. Unlikely, but possible. Nothing is guaranteed. So far, however, there is no sign of it. The fall in unemployment in ireland has actually accelerated since Brexit. In the absence of such a downturn, the unemployment rate will continue to fall rapidly and, at its current rate of fall, could easily hit 5% by the end of the year. Employment in the building industry looks set to soar in the next couple of years, and this always bodes badly for the left and ‘protest politics’. I’d advise anyone who owns shares in Paul Murphy, Ruth Coppinger or Claire Daly to sell them asap.

Sarah, thanks for the comment. Can we just agree an uneasy armistice on this one. It was a magnificent mistake to publish that GDP estimate of 26%.

Crime? Covering up? Did I write those? LE was an ‘unfair allegation’? More like a swift and well directed kick to the you-know-wheres. Painful and embarrassing – but hardly life-threatening. Cheers.

“Regarding the CSO, I’ve read nothing anywhere to suggest they weren’t simply following rules laid down by Eurostat in compiling Ireland’s economic statistics.”

Following rules and make a ‘horses ass’ of yourself. Wonderful!

“In Ireland’s case the rules are contained in a manual called ESA 2010, binding on EU members and authored by Eurostat in Luxembourg.”

ESA 2010 is a manual of statistical procedures:not protocols. Hmmmm. The relevant sections are 3.1. thru 3.24. ‘Processes for acquiring basic data ‘- that is, for estimating quarterly GDP.

I’d have to admit that some of those processes described are a tad wobbly. Apart from the statistical formulae and math expressions the directions appear to be a set of discretionary generalities rather than mandatory specifics. There is mention (several times) of two quite tricky statistical terms: accuracy and random sample: statistical landmines for the unwary. There are some warnings about the validity of samples (good advice) and the possible misuse of ‘imputations’ (silly guesses?). There is also the mention of the use of inference from estimates to population parameters. Now, that’s a very dodgy undertaking – especially if the statisticians working the data know that some or all of their raw data variables contain both random and systemtic errors – and they are uncertain about the sampling distributions of those errors. You may be able to correct for the systematic errors, but the random ones will defeat you.

All in all, I’d judge ESA 2010 as somewhat unsatisfactory as a methodolgy for estimating reliable economic estimates. It needs to have some form of a health warning printed on its front cover. And this ESA 2010 is ‘binding’ on EU states? – I’m not impressed. Nowhere in the processes is it mandated that one cannot use one’s experienced judgement or vanilla common sense if one encounters an obvious and glaring anomaly – like a 26% uptick in GDP. If in doubt – do not publish. You’ll simply make a chump of yourself if you do. And they did!

Finally, a familiar quotation variously attributed to Mark Twain or Yogi Berra is worth citing to clarify the objectives of the statistical analysis of quantitative data.; “It is dangerous to make forecasts, especially about the future.” I’d also add my own caveat: the application of statistical analyses to quantitative data is undertaken as a means to reduce uncertainty rather than to improve certainty. “Garbage in, garbage out” – as they say.

@Sarah

Couple of points on part your analysis, bits of which pasted below:

“I tuned out for a while but as NAMA winds down and it’s clear they’ve been selling off massive tracts of properties to these Vulture Funds for sums far below what actual families would pay for the individual houses,* thus not only crystallising a steep loss to the taxpayer (based on the loss to the BANK, and not the discounted amount NAMA paid for the loans, which it seems to be me is rarely quoted) but adding to the housing crisis by keeping those families in rented accommodation…..

…….Perhaps if there were more optimistic voices at the time, then the case for 2 might have won, and right now families would be moving into those homes, rather than pension funds taking them over, kicking out the existing tenants, reducing the supply available for sale, and generally pissing off everyone because it turns out evil hedge funds are going to be the biggest beneficiaries of the recovery. ”

A combination of Nama and the banks (via the stuff they didn’t sell on to Nama – and eventually, reluctantly took possession of actual real estate) have sold assests on a packaged way. Their aim, or excuse, depending on your prejudice, was to mix decent stuff with the crap in sales otherwise they would just be left with all the crap. At times this was done clumsily and properties that Irish owner-occupiers were bidding on, and Irish BTLers were bidding on, were withdrawn from the market to be auctioned and/or packaged. Very irritating for the locals, and some were found to have achieved modest prices subsequently.

However, these properties did not disappear from the country and they did not therefore add to the housing crisis. They, generally have been made available to the rental market – thus assisting the rental housing market.

What they have done though is to compete against local Irish purchasers (both owner-occupiers and investors intending to rent out properties) on a non-level playing field. The vulture funds have been facilitated in avoiding Irish taxes on rent or capital gains on their investment – the smaller, local market participants have not been able to structure their investments in the way necessary to achieve tax-free status.

I would advise a (effectively) tax-free investor that it makes sense to outbid those who are taxed in acquiring assets. Any sensible target % return is harder for the taxed purchaser to achieve, therefore they have to bid less. This is basic stuff, and every investment professional interacting with the Irish property market over the last few years knows it.

In this way, the Irish tax payer has subsidised the vulture funds. The market effect is that the vulture funds have been more willing to outbid local, smaller players. So some of that subsidy has been recouped via higher prices paid on Nama etc assets, therefore reducing taxpayers’ losses.

If you recall, it was European official sector influences, and the FG led government (via using national debt dynamics to define its success or failure) which propelled the relentless clear-out of the Nama assets.

Back in 2010, 2011 or so there was an absolute determination in Irish official circles that nothing at all should be sold by banks (or their equivalent). This was to prevent price discovery at lower levels. “No fire sales – not even one!”. There were though, back then, ready buyers (not tax-break dependent) waiting to pick things up. There could have been a much quicker turnaround in market sentiment if some fire-sales had happened. Some low prices would have been booked, but it would have woken up the bargain hunters and that process where a market realised a falling market has reached and left behind its low point – and is therefore now a risky, but ‘bull’ market that is being missed out on – would have happened much earlier. Greed would have kicked in quickly after a few wildly low prints. The manipulated, long slow relentless drift lower in prices – and the dragging out and extension of the negative sentiment, might not actually have been as helpful as some people like to think.