Author: Liam Delaney

Karl Whelan also delivered a paper to the McGill summer school. I am not going to try to summarise the paper given that the author regularly posts here but I want to open a couple of aspects to discussion and I acknowledge that this may be selectively focusing on issues from a more general paper that contains some very strong insights.

In particular, I think Karl’s talk leaves wide open the extent of the problems that are emerging from credit decisions made by households and their lenders in the context of a much more open credit market during the last ten years. There seems to be some evidence for Ireland, as Karl notes, that older homeowners did not cash in their housing windfall and this, ex post, is a very lucky thing for them. However, as Karl partly acknowledges, the data currently simply does not exist for us to know the extent to which people have overstretched themselves and the potential second-round consequences this will have if a sizeable group of indebted consumers begin to default as their incomes and job prospects decline. The point made in Karl’s paper about the extent to which asset values of households also improved thus mitigating their indebtedness must be seen now in the light of drastic reductions in the value of housing and arguably many other types of household assets.

Again Karl’s paper does talk about potential problems that might arise: “So, the composition of recent changes in assets and debts likely differed substantially across demographic groups and it is the younger cohorts that are most likely to be in trouble now.” But I think we need to put something much more substantive on this statement. This is not a criticism of the paper as the data doesn’t exist so we cannot have expected Karl to incorporate non-existing information into his paper. Perhaps we can tell the story of the causes of the current decline without this information. But I can’t see how we can even begin to talk about its consequences without knowing the extent to which people have become overextended and the likely behavioural and psychological consequences of this.

Thanks to Patrick for posting the links. He mentioned George Lee’s talk, which I have just read.

I have blogged about Deputy Lee and I state again that I dont have any connections with him or his party. He is improving the quality of the political debate around economics in my view. Whether his position is correct can be left to the comments and hopefully the comments can stick to the economic merits of these suggestions rather than more personalised political arguments that are best debated on the many politics blogs in the Irish landscape.

The speech, unsurprisingly, is critical of government performance and policy. A summary of the substantive economics points is as follows:

– The size and swiftness of the current proposed fiscal adjustment is too large. The government should reconsider trying to get the budget deficit back to 3% by 2013. “What’s so sacred anyway about having a General Government Deficit of 3% of GDP by 2013, especially if achieving that target runs the risk of turning an economic recession into a depression?”

– The tax base was narrowed too much during the economic boom and should be broadened. “Taxes on the average worker were cut to the lowest combined rates in the developed world outside of Mexico and Korea. Despite the fact that global interest rates were historically low and that access to credit both at home and abroad had never been easier, massive tax breaks were given to property developers and investors. This was an irresponsible approach to the structure of the taxation system and of our economy that has now blown up in our faces.”

– Guaranteeing all bank debts is irresponsible. “There is no sane reason why Irish taxpayers should continue protecting investors who bought bonds issued by Irish banks….The protection given by the Guarantee to bond investors in Irish banks should be removed September next year when the first two-year term for that Guarantee is up. This shouldn’t preclude the Government from renewing the Guarantee for normal wholesale borrowing by Irish banks. It would, however, help send a message to the international financial markets that the Irish Government is reducing its debt exposure in a rational way and is not lumbering ordinary taxpayers with debts obligations they should have no liability for.”

There are many outstanding websites where universities make available the full video and notes from major guest speakers. Indeed, this is becoming increasingly the norm in good institutes and departments. The LSE ones below are particularly good and have enormous relevance to the issues being discussed on this blog. One of the recent talks is about the future development of capitalism by Dani Rodrik. There are also three recent videos of Krugman talking about the return of depression economics and one of Shiller talking about Animal Spirits.

link here

This years ISNE Conference takes place in Limerick on Friday 2nd October. The websites of the 2007 and 2008 versions of this are available below also to give prospective applicants a feel for the programme. The event has run since 2001 and the idea is to encourage postgraduates as well as early stage researchers in the public and private sector to present findings. The programmes in the past two years have been really excellent, involving a mix of speakers from across all the main economics institutions in Ireland and also a substantial international component. Stephen Kinsella, Martin Ryan and Dominic Trepel are the organising committee this year. Deadline for submission of abstracts is July 15th. There is no registration fee.

http://sites.google.com/site/isne2009/

http://isne08.googlepages.com/

http://isne2007.googlepages.com/