The Central Bank’s Useless Harmonised Competitiveness Indicators

This was the original title of this recent paper of mine.   Some people thought it too truculant but even Patrick Honohan – when he wanted, as Governor, to talk about competitiveness – would get his RA’s to calculate the old indicators rather than use the new ones.  To keep it eye-catching I dropped the ‘Useless’ and added ‘Pernicious or Merely Otiose?’ but then some (though not the journal, I should point out) complained that they had to reach for the dictionary!  But I think the issue is a serious one.  I am hoping that Peter Clinch at the National Competitiveness Council will take up the challenge.

2 replies on “The Central Bank’s Useless Harmonised Competitiveness Indicators”

Its thoroughly disheartening to, again, discover that so many, so-called professionals and others manning critical state agencies, have organizational tethers attached to their nostrils such that they meekly and obediently totter where they are led – apart from the odd ‘holdout’ that is.

Science and technology has a single, internationally agreed protocol for reporting the results of quantitative measurements: its called the SI Systeme. But Economics? Looks like its high priests and their apprentices are still pfaffing about in a pre-Copernicus era of scientific scholarship: different folk have different strokes. Just who, or what, is now in control of economic practice when it comes to quantitative methodology and the reporting of reliable (aka: true and fair) estimates? Its certainly not educated adults.

Its been belatedly – but with what looks like truculent reluctance sort of agreed, that GDP is an inaccurate, misleading and useless metric by which to judge the aggregate state of an economy. So why continue with it? Political considerations may be the only reason. Its like a Jack-and-the-Beanstalk fable. But, hey ho, just carry-on regardless – print the GNI*, and pass along the G+T.

Inflation is another, daily abused economic term. It used to (correctly) refer to the increase in the money supply; a really critical economic metric. Inflation has now become a meaningless throw-away term used to describe price and cost increases of consumer goods, services, financial and property assets. Each of these latter are, umbilic-like, firmly attached to any increase or decrease in the money supply – until they are not. Airbrushing out the insidious economic affects of increases (or decreases) in money supply may be sensible from a political point-of-view, but its quite disgraceful from an economic perspective.

As the man (Karl Popper) once said: “Better a modest degree of accuracy than a pretentious muddle.”

The reporting of economic stats has now become a steaming pile of septic, econ-speak manure. It should not be so. Unfortunately the prevailing paradigm abides. Being a disbeliever is not a comfortable situation.

A broader question is whether competitiveness means that much at a country level. For example, who are Ireland’s chemical exports competing with if all the major companies in the sector are in Ireland?. One might argue that the decision to locate here as opposed to say the UK reflects ‘competitiveness’, but that will depend on a host of factors and certainly not just average wages in the economy. Ireland’s exports have risen from €191bn to €355bn over the last four years, which even accounting for a change in measurement surely owes far more to global growth and company specific factors than to any change in the ‘competitiveness’ of the Irish economy.
One further point. Honohan referred to relative wage trends but that same series shows Ireland’s unit wage costs in manufacturing falling steadily against our trading partners prior to the crash. A few years ago I heard the Chief Economist at the Central Bank say that Irish wages need to fall sharply to boost growth- if wages solely mattered Africa would be an economic powerhouse and Germany an economic waste land.

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