Wellbeing not GDP must be our measure of progress Post author By The Irish Economy Post date July 28, 2020 A piece by Paul O’Hara in The Irish Times today. And a few days ago Cliff Taylor wrote on ‘Why Irish households are not, after all, among the best off in the EU’. Categories In Economic growth, Political economy, Social conditions 7 Comments on Wellbeing not GDP must be our measure of progress ← The Apple Judgement: Why the Commission will Continue to Pursue State Aid Cases → Some Recent Pieces on Taxes, Incomes and Social Protection 7 replies on “Wellbeing not GDP must be our measure of progress” I hadn’t spotted Cliff Taylor’s piece. Some of us have been trying to draw attention to the excessively high cost of living and the low actual individual consumption here for years, but wthout any success. It’s good to see these issues finally get some public attention. Their malign impacts are part of the lived reality of hundreds of thousands of households and there can be no doubt that they impacted on recent voting patterns. It’s almost as if someone of Prof. Honohan’s stature was required to break the apparent log-jam – even though Prof. Lane, formerly of this parish, raised it obliquely in a presentation some time back. And it is very clear that there are public policy implications. However, before considering these policy implications, it is necessary to answer the questions: why is the cost of living so high and why is the actual individual consumption so low when compared to our peers in what is alleged to be a single market with a single currency? I have been able to identify come contributing factors, and I can see many others but simply haven’t the time or resources to do a proper job. Are there any microeconomists in the house? I wasn’t expecting a rush of volunteers or a number of people outlining the work they were doing in this area of which I was not aware, but it seems that, once again, discretion is seen as the better part of valour. It’s probably very wise and sensible. As I know to my cost, addressing these issues could provide to be costly or career-threatening, if not career-ending. However, sooner or later these issues will have to be addressed seriously in the public policy sphere. The disgust and anger among an increasing number of voters is becoming palpable. Paul, while not necessarily directly addressing your legitimate concerns here are a set of pieces that look at some of the volumes and prices in AIC. First, the consumption of housing services in AIC: http://economic-incentives.blogspot.com/2019/06/does-ireland-really-have-lowest-per_25.html And second on the role of imputed rents in the AIC price level index: http://economic-incentives.blogspot.com/2020/04/why-does-ireland-have-some-of-highest.html Thank you, Seamus. I was aware of your useful and insightful work in this area. However, from a policy-maker’s or politician’s perspective the take-away is: “Seamus is a serious economist. He was the chair of IFAC. He’s had a good look at these numbers and there really isn’t a problem if the stats are collected and presented properly. And if there are any problems, they are problems of success; not of policy or regulatory failures”. I know that the current stats overstate the extent of the problem, but there are also policy and regulatory failures in the comparator countries that distort their data – and these could make us look better than we are in some areas. And even if the true gap in relative prices is much lower than currently indicated the impact of the gap varies enormously across the income percentiles. There are hundreds of thousands of households in the lower to middle income percentiles who are fully engaged in the formal economy, but lack economic and organisational power – and many are really struggling. As Harold Wilson put it in another context: “The national rate of unemployment is not the issue; for an unemployed person the rate is 100%.” There needs to be a thorough government commissioned examination of competition, regulation and price formation across all sectors. I’m not holding my breath… I think it would be going a bit far to say there isn’t really a problem because the volume of housing services *might* be a bit low or because imputed rents is a price that no one actually pays but maybe someone could try it! Maybe you can hold your breath long enough for someone to have a look at the green-coloured part of the bars here: https://ec.europa.eu/eurostat/statistics-explained/index.php?title=File:Electricity_prices_for_household_consumers,_second_half_2019_(EUR_per_kWh).png I’m certainly not accusing you, Seamus, of pretending there mightn’t be a problem, but I think you get my drift about the typical reaction of policy-makers and politicians. As for the household electricity price chart, the SEAI, which is responsible for energy statistics in Ireland, has it covered: https://www.seai.ie/data-and-insights/seai-statistics/key-publications/ (2nd item in the list) According to the SEAI, final electricity prices in Ireland are driven by (1) Global Energy Prices, (2) the Electricity Generation Fuel Mix, (3) Investment in Electricity and Gas Infrastructure and (4) Share of Taxes in the Price paid by Consumers. Well, everyone has to deal with global energy prices. The clue is in the adjective. Ireland has a relatively high dependence on fossil fuels in the generation fuel mix, but the restructuring of the market since 1999 was intended to increase efficiency in generation, transmission and distribution and supply. Not much evidence of that then. There was a big ramp-up of investment in the early 2000s to compensate for serious underinvestment in the ’90s. It also included the second gas interconnector to Scotland, which was chosen ahead of a much more sensible investment in an LNG import and regasification facility. Then the hare-brained decision to meet the EU’s 20:20:20 targets from 2008 by requiring 40% of electricity generation from renewables massively increased electricity network investment – which continues. As can be seen from the chart, the share of taxes in final prices is relatively low. Many countries levy specific climate change related taxes – and that increases the share of taxes in final prices. We do have the PSO levy which covers some of these (and other things like peat), but most of the climate change related costs are embedded in the costs of generation, networks and supply and it is this which drives Ireland’s green bar in the chart up to top position. Add in the energy regulator’s willingness to give the ESB whatever it wants and and the fact that average household consumption is well above the EU average and you have a perfect storm for household consumers. I won’t be holding my breath until someone looks at this. The SEAI is very jealous of its statutory responsibility and is unlikely to welcome any intelopers. Me brain would be starved of oxygen. We previously used a spatial microsimulation model, SMILE, to examine the impact of housing (imputed rent and reverse mortgage) and commuting (monetary and time costs) at the household level. https://www.sciencedirect.com/science/article/abs/pii/S1051137718301293 https://link.springer.com/article/10.1007/s12061-016-9202-6 Further work looked at the impact of renewable electricity subsidies on inequality https://rsaiconnect.onlinelibrary.wiley.com/doi/full/10.1111/pirs.12488 Many economic aspects exhibit spatial dependence, e.g. the pattern of income is not random. Although incomes are higher in cities, especially Dublin, you also have higher living costs. Comments are closed.